Is investing in real estate still as safe as buying a home? Why the golden age might be coming to an end

According to new research, investors are doing better in the stock market and the heyday of real estate is over

New research asserts that younger investors and homeowners have lost out on the real estate boom and are no longer able to depend on rising home values to increase their wealth.

Despite the fact that house prices are at all-time highs, economists advise against using real estate as a means of storing wealth.

It occurs at a time when increased stamp duty rates, limitations on mortgage interest relief, and new rental regulations have all reduced the appeal of buy-to-let, which has a negative impact on landlord profits.

Nevertheless, a report indicates that even purchasing a home and depending on home price growth to access equity or finance retirement is no longer viable.

After analyzing the relative performance of housing and equity investments, researchers and economists at Rathbones have concluded that the best time to buy a home was nearly ten years ago.

In fact, the report Don't Bet the House suggests that stock market investing may now yield higher profits.

When did real estate reach its zenith?

Younger generations frequently gripe about how inexpensive it was for their parents or grandparents to move up the real estate ladder.

This is largely based on revised house price to income ratios over the past few decades and more stringent mortgage affordability requirements.

In their analysis of UK home prices since 2016, Rathbones researchers discovered that, over the previous nine years, residential property has grown at a rate of 31.7 percent annually, barely keeping pace with inflation.

Housing in London, where buyers had previously reaped the greatest benefits, fared even worse, with prices rising at a rate of only 1.3 percent annually, underperforming inflation by 2.2 percent annually.

House prices, on the other hand, increased by 67% a year for anyone who owned a property between 1980 and 2016, reaching 85% in London, far ahead of the city.

This implies that baby boomers born in the 1950s and 1960s have benefited most from the golden age of home ownership, while their offspring do not have the same opportunity to accumulate wealth through real estate, according to Rathbones.

Rathbones' head of asset allocation, Oliver Jones, stated that the previous surge in home values was driven by elements that are no longer relevant.

The sharp drop in interest rates from their peak in the early 1980s won't happen again, he stated. Homebuilding is increasing after being extremely low for decades.

Beginning in the middle of the 2010s, government policy has gradually shifted against residential property investors. The notion that houses are the safest places to keep money is just untrue today.

Which is a better investment: real estate or the stock market?

According to Rathbones, since 2016, stock markets have increased noticeably more quickly than real estate prices.

An investment of 100 in UK real estate in 2016 would have been worth 134 in 2024, according to the study.

However, that would have increased to 174 if the same sum had been invested in an indicative portfolio that consisted of 25% UK and 75% foreign stocks; 100 invested in London real estate would have only been worth 111.

"The notion that bricks and mortar are infallible simply isn't accurate," Jones continued.

"The data indicates that over the past ten years, the returns from housing have been eclipsed by diversified global investment, and we think this trend will continue.

Is the prime time for real estate investing over?

Aside from disputes between generations, stock markets may have yielded substantial profits, but you cannot live off of an ISA or pension.

Some may wonder if purchasing a home is a wise way to accumulate wealth.

The director of Lawson Financial, Michelle Lawson, however, asserts that home ownership is crucial, especially for a comfortable retirement.

She told the BFIA: "It is nearly impossible to live on a pension in later years due to rising rents and possibly weakened pensions.

"You can minimize your expenses and secure your future by taking out a repayment mortgage, paying off the balance, and owning your home. A repayment mortgage would naturally generate equity in the absence of capital growth, but we cannot predict what the equity growth will be.

For buy-to-let investors, however, the issue of property price growth is crucial.

Even though capital growth may be slowing, landlords can still make money from buy-to-let properties without having to worry about the volatility of the stock market.

Finding the new buy-to-let markets is the trick.

According to Zoopla's most recent rental data, average rents for new rentals have increased by about 2 percent in the past year, compared to 6 percent at the same time in 2024the lowest rate of rental inflation since July 2021.

In contrast, more reasonably priced neighborhoods near major cities like Wigan, Carlisle, and Chester have seen faster rent increases, with growth exceeding 8%, according to Zoopla.

Real estate investing is still alive and well, according to Rob Peters, principal at Simple Fast Mortgage.

"The days of easy capital gains for doing nothing are over," he told the BFIA.

Successful investors today must be more astute, concentrating on creating value, pursuing, or focusing on high-yield niches such as commercial conversions, supported housing, or HMOs.

"Although stocks have their place, real estate is still the only asset class that allows you to leverage other people's money to generate large amounts of wealth and cash flow.