Do You Think of Your House as an Investment?

You’ve heard it said before: Don’t think of your home as an investment, because the housing market doesn’t perform as well as other investments. Some, however, might disagree.

This debate has been reopened recently thanks to a post by Alex Tabarrok on Marginal Revolution saying buying a house is overrated as a financial investment. Timothy B. Lee counters back on Vox with a few arguments in favor of housing. For example, although they don’t appreciate in value as quickly as stocks, house are more stable, price-wise, with an inflation-adjusted return of 4 to 5 percent. And once you own the home, you live there rent-free.

Another key point: Homeownership forces you to save:

Suppose you’re paying $1,000 in rent and you calculate that buying a similar home would cost $1,400 per month (once mortgage insurance, taxes, maintenance, and other costs are factored in). In principle, it should be possible to continue renting, put the extra $400 per month into an IRA, and wind up with a substantial nest egg after a decade or two.

In practice, that rarely happens.

(It’s like that story of a non-smoker telling a smoker that if he had invested all the money spent on cigarettes in the stock market, he would have had enough today to buy a Ferrari. And the smoker responds to the advice by asking where is your Ferrari?)

We’ve discussed the pros and cons of renting versus buying before, but what do you think of homes as an investment?

Photo by Philip Taylor PT.

from Lifehacker http://ift.tt/1SHfWmr

Related Items