Real estate’s popularity as investment tumbles to 5-year low

Real estate is again a top investment choice, at least according to an annual poll of typical Americans.

But its popularity has tumbled to a five-year low.

In a Gallup poll of 1,013 U.S. adults, 34% of respondents in April said property is the best place for their money when asked to choose between real estate, stocks, bonds, golds and savings accounts. It’s nothing new. This poll has ranked real estate No. 1 for 11 consecutive years in a survey dating to 2011.

But real estate’s popularity took a steep fall. Its slice of the best-investment pie shrank from last year’s record high of 45% to a low not seen since 2018. That pullback in sentiment aligns with the property industry’s tough conditions – notably costlier financing, weak pricing and overall shaky economics.

Now, just how investors define “real estate” is tricky. Ponder some investment results from market watcher Charles Rother at Sector Logic in Santa Ana

For example, do people see real estate as commercial properties — such as apartments to shopping centers, offices and warehouses?

Success in owning these types of investment properties has been up and down of late. There was a loss of 16% in total return – that’s price changes plus income – in the 12 months ending April, according to a key real estate investment trust index. But such large-scale properties produced a 9% return since February 2020, just before the pandemic upended the economy.

Or do the people being surveyed think real estate is just about individual residences?

Despite surging mortgage rates, U.S. home prices rose 5% in the past year and are up 40% in the pandemic era, according to Zillow.

Still, at least by this poll, real estate’s popularity may be down but it’s still a long-standing mainstay. This year’s 34% best-investment share is above the average 32% poll results since 2011 – ranking real estate No. 1 in the long term.

The love for real estate is likely linked to viewing property assets through a long-term lens. Real estate trusts have seen investment gains of 163% since 2010. Homes are up 114% in the same period.

Look at what the poll tells us about real estate’s competition.

Gold: It’s No. 2 in 2023, drawing 26% of investors’ votes and up from 15% in 2022 when the precious metal ranked No. 3 of the five. Its bump to an 11-year high can be tied to a reputation as an inflation hedge in an era when the cost of living is surging. In the past year, gold has seen a 4% return on the Handy & Harmon price – and a 23% gain in the pandemic era. Note that this year’s 26% share of investor preference is well above the average 21% gold drew since 2011 – ranking No. 3. But its total return of 41% since 2010 is modest.

Stocks: No. 3 for 2023 at 18% – down from 24% in 2022 when it ranked No. 2. Wall Street’s volatility helped cut stock popularity to a 12-year low. Investors earned only 3% on the S&P 500 stock index in the past year but 49% in the pandemic era. Consider that this year’s 18% poll share is below the average 23% since 2011 – which ranks stocks No. 2 long-term. Stock gains of 322% since 2010 – easily the best of the five – are hard to ignore.

Savings accounts: No. 4 for 2023 at 13% – up from 9% in 2022 when it was also No. 4. Being safe pays better than it has in a long time, such as one-year returns of 3% for the three-month T-bills. Note that since 2010, no-risk savers have earned just 10% in total. This year’s 13% poll share is just below the average 14% since 2011 – ranking it No. 4 over the years.

Bonds: Last for 2023 at 7% but up from 4% in 2022. Are investors bottom-fishing? One-year returns of 1% for a key corporate bond index – not to mention pandemic-era losses of 16% – are unnerving. But this year’s 7% poll share is a whisker above the average 6% since 2011 – a period that saw bonds return 53% to investors.

Swings in investor sentiment can be a hint of what’s next – in an odd way, Rother says.

“Historically, when investors have the most negative views on real estate, stocks and gold, these assets tended to perform better in the following year,” he says. “Investors should avoid confusing past returns with future prospects.”

Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com

Source: Orange County Register