Americans Already Forgetting Big Lesson from Meltdown

Americans Have Already Forgotten One Of The Biggest Lessons Of The Financial Crisis
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Gallup recently released the latest edition of an annual survey asking Americans what they considered to be the best long-term investment.

The No. 1 answer? Real estate!

Americans Sold on Real Estate as Best Long-Term Investment
This chart doesn't go back that far, sadly, but you can see that just a few years ago, the percentage of Americans who thought real estate was the best investment was MUCH lower, a fact obviously attributable to the trauma of the housing crash.

After the housing crash, numerous pundits predicted that America's love affair with homeownership would be doomed for good and that it might take generations for people to be into the idea of owning real estate again.


One problem here is that Americans are wrong: Crash aside, real estate isn't historically that great of an investment.

Cullen Roche, who brought the survey to our attention, writes that the long-term performance of real estate as an investment is actually quite pathetic:

%VIRTUAL-article-sponsoredlinks%According to the U.S. Census Bureau Survey of Construction single-family real estate generates a 0.74 percent annual return over the last 30 years (this includes multiple housing booms, mind you, so the data is probably much lower if we go further back in time). So there appears to be some recency bias here despite the housing bust.

And this doesn't even account for many of the miscellaneous costs involved in real estate. As I've shown previously, a house is basically a depreciating asset that comes with an appreciating piece of land. But that depreciating asset is extremely expensive over its lifetime. When you calculate the total costs that go into maintaining this asset the returns are very likely to be negative over long periods of time. So that 0.74 percent figure is probably higher than you should really expect. In fact, the returns from stocks and bonds trump real estate by a healthy margin so Americans have this one totally backwards -- the American Dream isn't quite the dream we have been sold.

People may have excellent reasons for buying a home, as opposed to renting. And right now in many cities, the math indicates that buying is preferable. But as a long-term investment, it's wild to see real estate retain its perch as the clear favorite among Americans.

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Americans Already Forgetting Big Lesson from Meltdown

Nationally, the average gas price hit a recent high of $3.74 per gallon, nearly $0.50 higher than it was on Jan. 1. According to website, that's about a 14 percent increase since the start of the year.

The start of the new year also marked the end of the temporary 2 percentage point tax break on Social Security contributions. Once that part of President Obama's stimulus package expired, your paychecks went back to being 2 percent smaller. For the average family, that adds up to about $1,000 a year.

That same "average family," by the way, already earns only about $50,000 a year today. And according to CNN, that's about $4,000 less than you were earning in 2000.

A disconcerting report from Sallie Mae last week showed that about one-third of Americans working toward retirement are having to raid their retirement savings to pay for their kids' college educations.

According to a poll commissioned by (RATE) in February, only 55 percent of Americans have enough money tucked away in their savings accounts and "emergency funds" to cover the amounts owed on their credit cards.

That Bankrate poll also revealed that among women in particular, 51 percent actually owe more on their credit cards than they have cash in the bank. Digging deeper into the data, Bankrate reported that while high earners are doing well, and generally flush, most people (59 percent) who earn less than $30,000 annually owe more on their cards than they have in savings. And these are the people least able to afford the high cost of credit card interest.

Speaking of earnings -- and jobs -- the same unemployment report that set Wall Street to cheering Friday can be looked at from a glass half empty perspective as well. The new, lower unemployment level of 7.7 percent is the best number we've seen since the Great Recession ended. However, The Wall Street Journal points out that 7.7 percent is very close to the worst unemployment ever got (7.8 percent) in the 1991 recession. Our best number in years is within a whisker of the worst they faced back then.

The overall workforce participation rate -- the percentage of Americans currently earning wages at all -- currently stands at just 63.5 percent. According to the Bureau of Labor Statistics, that's much worse than what we saw in the 1991 recession. It's the lowest we've seen since the recession that hit during the Carter administration.

Little wonder, then, that according to the Bankrate survey, people are increasingly concerned about "job security." Friday's unemployment report may suggest that the jobs market is on the mend, but most people (59 percent) say they feel no more or less  confident in their employment situation today than they did a year ago. Among those polled whose opinions have changed, 23 percent said they feel "less secure today" than they did a year ago, versus 19 percent who feel more secure.

That doesn't exactly jibe with the story that things are getting better.

It's great news for folks who own stocks, no doubt, and according to the Journal , more than 90 percent of people earning $100,000 or more do. But what about the rest of us? Fewer than 46 percent of Americans earning less than $50,000 are invested in the stock market -- and remember, "$50,000" is the average income in America today.

So yes, It turns out for the average American, things may not be getting better at all.

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