At a recent conference in Texas, Dr. Mark Dotzour, chief economist of the Real Estate Center at Texas A&M University, told an audience of 300 people that stocks are overvalued, bonds will suffer when interest rates rise again, and interest-bearing accounts aren’t offering much of a return. As a result, he concluded that residential real estate is one of the best investment options out there.

There’s definitely some truth to what Dr. Dotzour had to say. Anyone that invested in the S&P 500 Index last year would have seen the value of their investment drop by nearly 14 percent by the end of the year. By contrast, anyone that bought a home in 2001 would have seen their home appreciate in value from anywhere around 10 percent plus or minus. Show me a money market account that’s bringing that kind of return on your money in only twelve months. You’re lucky to see two percent in many cases. Over recent months, housing has become something of a safe haven for investors at a time when stocks have been perceived as high-risk investments. Home values certainly have been less volatile than stocks, resisting even moderate price dropping since 1994.

According to Dr. Dotzour, residential real estate investments are likely to pick up. In fact, investors are showing an increased interest in purchasing residential real estate as a way of diversifying their portfolios since the decline of the stock market and the events of Sept. 11. There’s no doubt that a great deal of money has been made by investing in the stock market, but at the same time, Wall Street has seen its fair share of disappointments over the last few years thanks to failing dot-coms, telecom firms and more recently, Enron.

Historically, the best years to buy stock were in the 1980’s. Stock purchased at that time yielded an average of 12 percent to 15 percent each year over a ten-year period. Bad years to buy stock were in the mid 1960’s. During those years, ten-year annual returns ranged from minus five percent to three percent. Experts say that the stock market is currently overpriced and it may continue to drop until price-to-earnings ratios become more reasonable. It’s expected that many investors who are looking for a safe place to invest their money will likely look into buying residential real estate.

Fannie Mae Chairman and CEO, Franklin D. Raines agrees. He suggests that over the last several years the average American built more wealth owning a home than investing in the stock market. Mr. Raines added to this that during the past ten years, the average stockholder earned $23,000 in the stock market while the average homeowner earned $44,000 in home equity, making home equity the cornerstone of most family wealth.

It’s also worth noting when you compare apples to apples, if the return from stock market investments and homeownership are the same, real estate would still yield a better net result. This is because profits from the sale of stock are generally taxable, yet profits of up to $500,000 for a married couple (and up to $250,000 for single owners) are shielded from taxes when a prime residence is sold. The rules change somewhat if the home being sold is not a prime residence, but rather is an investment property. In that case you will be faced with a 20 percent capital gains tax on the increase in value of the property. However, this cost can be deferred if the gain is reinvested into a new property.

If you simply consider the fact that the Puget Sound area’s population is estimated to experience an increase of over one million people by the year 2030, it’s safe to assume that there will continue to be a demand for housing. According to the National Association of Realtors, you can also safely assume that your home will appreciate, on average, at least 4 percent a year. Of course, some years will be better than others, as we have experienced locally, but overall, homeownership is one of the best investments you can make.

(Editor’s Note: J. Lennox Scott is the chairman and CEO of John L. Scott Real Estate. You can visit his Web site at www.johnlscott.com.).