“Watching his five-figure nest egg erode in the stock market, Colin Call knew it was time for a change in his investment strategy. The Tempe, Ariz., resident decided the housing market was where the action was,” writes Patrick Barta in today’s Wall Street Journal.

“So the 24-year-old computer salesman and his wife Audrey pulled some of their money from their brokerage account and poured it into a down payment on their first home — a $145,000, three-bedroom spread a mile and a half from Arizona State University. The stock market ‘was only going down,’ Mr. Call reasoned, and because of its prime location, the new house ‘will never lose its value.’ “

“These days, that’s a trade a lot of investors are making or contemplating. Though the once-torrid economy has faltered of late, home sales have continued to surge. Much of the demand, Realtors say, is coming from buyers such as Mr. Call who have concluded that it is smarter to lock money into residential real estate than risk it in the volatile stock market.”

“But is now really such a good time to invest on Main Street — or Maple or Elm Street for that matter — instead of Wall Street?”

“If you are a first-time home buyer like Mr. Call, the answer is easy: It is almost always smart to buy a home if you can afford it. Not because a house is necessarily going to outperform stocks — it very well might not — but because buying a house is a form of forced savings while rent payments do nothing to build wealth. Homeownership bestows a profusion of other benefits, too, including a mortgage-interest tax deduction and some generous exemptions from capital-gains taxes when you sell your house. Besides, you get to live in it. You can’t do that with a stock portfolio.”

“If you are thinking of buying a second home for investment purposes instead of stocks, however, the decision gets a lot more complicated. There are still plenty of tax advantages: It is usually possible to qualify for a mortgage-interest tax deduction on a second house, and if you rent the property, you probably will be eligible to deduct depreciation and some expenses. Plus, if you use the home for your vacations, you won’t have to shell out money for a hotel.”

“However, there also are lots of headaches that come with second homes, and if your primary goal is to make money, financial planners say it is usually better to stick to stocks.”

“Part of the problem is that second homes soak up lots of cash, including maintenance and insurance costs. While that also is true of first homes, an expensive leaky roof or broken air-conditioning unit is a lot more annoying when you use the property only occasionally, or rent it out to someone else. Also, homes in general are illiquid investments — especially when they are in faraway vacation spots — meaning they can be tough to turn into cash during stressful times. That can become a big issue when the home is intended more as an investment than as a roof over your head. Stocks, by contrast, can be sold nearly instantly.”

“The biggest problem of all, though, is that during long periods of time, home prices tend to grow less rapidly than stock prices. Consider: During the past 25 years, home prices have increased on average about 5.8% a year, according to consulting firm Economy.com, using data from Fannie Mae and Freddie Mac. But the stock market? As measured by the Standard & Poor’s 500-stock index, corporate shares swelled by 10.6% annually. Moreover, they kicked off an average of about 3.4% a year in dividend payments, although dividends have declined somewhat in recent years.”