Investors say housing market overvalued

But majority still see real estate as better investment than stocks, survey finds
Inman News
Investors overwhelmingly believe the U.S. housing market is overvalued, but still see real estate as a better investment than the stock market, according to a survey released this week by financial services organization TIAA CREF.

"There is a notable disconnect between the run-up in housing market values investors are seeing as homeowners, and their desire to participate in an attractive asset class like real estate over stocks and bonds," said Tom Garbutt, TIAA-CREF managing director and head of real estate.

According to the study, conducted by Roper Public Affairs and Media for TIAA-CREF, nearly three out of four investors, or 73 percent, believe housing in the U.S. is overvalued, while just one in five, or 19 percent, believe it is valued appropriately. Middle-class investors, which comprise those with household incomes from $25,000 to $74,999, are particularly likely to see U.S. housing as overvalued.

Despite their belief that the housing market is overvalued, investors still overwhelmingly see real estate as a better investment than the stock market, according to the survey. In a head-to-head match-up, 69 percent of investors said that real estate is a better investment compared to just 24 percent who said the stock market is a better investment.

While three-quarters of investors believe that the national housing market is overvalued, just 58 percent say housing in their community is overvalued, with more than a third saying housing in their community is valued correctly.

"Investors are reluctant to believe their own housing market is overheated," said Garbutt. "I guess you could say perceptions of real estate valuations are local. "

Investors most often cite residential properties (rental properties or summer and second homes) as the source of their real estate investment with virtually none pointing to commercial real estate investments.

Unlike residential real estate, which many experts believe is overvalued in certain markets, pricing for commercial real estate has remained within appropriate levels even if the market has gotten more aggressive, according to Garbutt.

"On a relative basis, commercial real estate still appears to be priced appropriately when compared to stocks and bonds," said Garbutt. "That's why we believe commercial real estate can play an appropriate role in helping investors saving for retirement build well-diversified portfolios."

Other key findings from the study include:

    • Three-quarters of investors say they have no plans in the future to sell their
      primary residence and use the proceeds for their retirement income, even
      though they view real estate as a better investment than the stock market.

    • Thirty percent of investors say they own real estate investments in addition
      to their primary residence. Investors are most likely to have residential
      rental properties (14 percent), second homes (13 percent) and vacation homes
      (10 percent) as their real estate investments, while commercial real estate (7
      percent) and REITs (3 percent) are less common.

The survey findings are based on a national telephone survey of 1,001 American investors age 30 and older who have investments in stocks, bonds, mutual funds, T-bills, a 401(k), an IRA or other investment products.