Answer: Not so much.

From Nobel Prize winner Robert Shiller at New York Times:

Over the century from 1915 to 2015, though, the real value of American farmland (deflated by the Consumer Price Index) increased only 3.1 times, according to the Department of Agriculture. That comes to an average increase of only 1.1 percent a year — and with a growing population, that’s barely enough to keep per capita real land value unchanged.

According to my own data (relying on the S&P/Case-Shiller U.S. National Home Price Index, which I helped create), real home prices rose even more slowly over the same period — a total increase of 1.8 times, which comes to an average of only 0.6 percent a year. What all that amounts to is that neither farmland nor housing has been a great place to invest money over the long term.

Of course, as they say in real estate, it’s all about location, location, location so there are certainly pockets of homeowners and farmers who have reaped the rewards of real estate.

Questions for students about the article:

• Which investment had better returns over this 100 year period: farmland or homes?
• How does that compare with the real return of stock prices over the same period (here’s a website that does this)?
• Why do you think that farmland has not been a great investment? Homes?
• Given this track record of returns, why are some of the richest Americans on the Forbes 400 list involved in real estate investing?

_________

Interested in learning about the home-buying process and mortgages, check out this NGPF Activity: Calculate Your Mortgage

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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