Americans See Homes as a Great Investment, but Wary to Buy
Actually, if you ask most Americans, there's just one answer: According to Gallup, we believe real estate is the No. 1 "best long-term investment" you can make.
Survey Says ...
Conducting a nationwide poll of 1,015 adults earlier this year, Gallup found that 31 percent of respondents choose real estate as their favored investment. Real estate beats out stocks (25 percent), gold (19 percent), bank savings (15 percent) and bonds (just 6 percent) in popularity. What's more, 2015 was the third year in a row that Americans polled by Gallup chose real estate as their favorite investment, and the fourth year in which Gallup's poll showed real estate rising in popularity relative to other potential investments.
(In contrast, gold, bonds and savings accounts have all been generally declining in popularity. Other than real estate, stocks is the only category of investment that's been gaining.)
Not only is real estate the most popular long-term investment, generally. It's also preferred as an investment vehicle within just about every demographic breakdown Gallup examined. Men prefer to invest in real estate, as do women. Men 18-49 prefer real estate, and so do women over 50. The poor (people with income under $30,000 a year) like it; and the middle class, too.
In fact, only two demographic categories prefer stocks over real estate -- millennials ages 18 to 34, and rich folks earning $75,000 or more a year. And even among these two groups, real estate is the second favorite investment.
Do What We Say, Not What We Do
And yet, Americans seem increasingly leery of taking their own advice. According to a separate poll published just days after the first one, Gallup found that even as more and more Americans agree that real estate is the best investment, fewer and fewer are willing to ante up and make that investment. This second poll finds that the number of Americans agreeing that now is a "good" time to buy a house has dropped 5 percentage points in the past year, to 69 from 74 percent.
So why are Americans reluctant to take their own advice, and invest in real estate?
There may be a couple of factors at play. On one hand, Gallup observes, home sales have been perceived as "lackluster" in the early months of 2015. Between March and April, for example, the National Association of Realtors reported a 3.3 percent drop in sales of existing homes in the U.S. On the other hand, NAR's chief economist attributes slowing sales to "lagging supply relative to demand and the upward pressure it's putting on prices" (emphasis added).
Indeed, Bankrate.com (RATE) points out that median sales prices in April were up 8.9 percent year over year. Those higher prices may have scared off some buyers between March and April. Higher prices may also explain why investors, despite broadly agreeing that real estate is a good investment, are reluctant to ante up for the chance at earning a profit.
That's a reluctance they might want to try to overcome, though.
Do What You Know You Should Do
Consider: According to Gallup's more recent poll, most Americans (59 percent) expect home prices to keep on rising over the next 12 months. This belief is even stronger in the South and West regions, where 61 percent and 76 percent of Americans, respectively, foresee continued rising home values. If they're right, it would make sense for them to buy before prices rise -- whether they're buying a home to own, or buying in hopes of selling for a profit.
Yet commenting on these figures, Gallup hypothesizes, "Those widespread expectations of higher prices may explain why fewer Westerners," for example, "believe now is a good time to buy a home."
However, if you truly believe that prices are going to rise -- as 76 percent of people in the West believe -- then you should want to buy before they do rise. Yet only 64 percent of these folks think that's a good idea.
The case for buying real estate only gets stronger when you consider that interest rates, which are still at historically low levels, appear to be heading higher. According to data from Freddie Mac, 30-year mortgage rates have already jumped nearly half a percentage point off their February lows of 3.59 percent, and averaged 4.04 percent in the second week of June. That's a big jump, but still leaves rates lower than what they were a year ago (4.17 percent), close to where they were two years ago (3.98 percent), and significantly cheaper than what a 30-year fixed mortgage cost in mid-June 2010 -- 4.75 percent.
When you add up the three factors: More Americans choosing real estate as the best investment, widespread agreement that real estate prices are heading higher, similar agreement that interest rates are also going higher -- and demonstrable proof in the numbers that the last two beliefs have been correct so far -- it makes sense for anyone interested in buying a home to do so sooner rather than later.
Motley Fool contributor Rich Smith doesn't own shares of any of the stocks mentioned above. (Nor does The Motley Fool). Rich does, however, own some real estate -- more than he can comfortably mow in an afternoon -- and so won't be buying anymore anytime soon, no matter where prices go.
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