Why is buying a house considered a good investment?

[blackswirl]

I'm confused why buying a house is considered a good investment. I recently read this:

"Yale economist Robert Shiller, arguably the foremost expert on the study of home values, made some very interesting discoveries after carefully analyzing home prices over the course of the past century. He found that over the long term, home values remained relatively the same when adjusted for inflation. From 1900 to 2000, the national average of the real rate of appreciation on home values was only 0.2%."

If housing prices are only keeping pace with inflation, why are they considered a good investment?

[MakeAStash]

It's relative: many other investments, such as cash, do not keep up with inflation. Additionally, the avergae you quoted is one for the whole USA. Choose a house in an economically-growing region, something fairly easy to do, and you'll likely beat that average.

[disneysteve]

I don't think your personal residence should be viewed as an investment. Not only is appreciation modest at best in most areas, but the expenses to own it eat away at any profit anyway.

ETA: Just as an example, we bought our house in 1994 for $142,000. Today it is worth about $250,000. So we've made a "profit" of $108,000. However, if we sold today, some of that would go toward closing costs. Since living here, we've replaced the roof, the siding, the driveway, the windows, the garage door and front door, carpet in several rooms, the heater twice, the AC once with a 2nd one coming soon, the hot water heater, 2 washers, 2 dryers, 2 dishwashers, at least 1 garbage disposal, possibly 2. We've made countless smaller repairs that collectively have cost thousands of dollars over the years. Of course, we've also paid property taxes and insurance. When you add it all up, I doubt we've made any profit at all, especially after you adjust the numbers for inflation.

That's not really my idea of a good investment - something that costs you money on an ongoing basis.

[JodieWRoberts]

Yes, personal residence are not considered as home investment, but OMG i had not known the truth that values remained relatively the same when adjusted for inflation, but i think if we buy home at growing region the values will be no doubt high.

[scfr]

If housing prices are only keeping pace with inflation, why are they considered a good investment?

At least it is not an asset that depreciates (think cars) or loses ground to inflation (think savings accounts paying 1% interest when inflation is 2.5%).

What I expect of my primary residence is for it to keep pace with inflation. And that's how I adjust the value of my home when calculating my net worth (adjust for inflation).

But I'm a bit different from many other SA forum members in that I do look at the potential for growth when purchasing a home (I've owned one condo and two houses as my primary residences). When making the decision to buy our two single-family homes we made a list of attributes and ranked different houses we were looking at. "Investment" (growth potential) was one of many attributes we considered. I would not live in a home I hated only because I thought it was a good investment, but I will think about that before buying. It's not everything, but it is one piece of the puzzle.

Additionally, I believe in limiting the percentage of my net worth that is tied up in non-financial assets (which includes my home). So I'm far from a real estate bug.

But I am willing to sell and go through the major hassle of moving if it seems to be a really good move financially.

Funny thing is that I don't view my home as primarily an investment. But my homes have turned out to be some of the best investments I've made.

I understand and respect that my way of thinking is not for everyone and is not the "normal" approach.

[rennigade]

I dont view a personal residence as an investment. If you're buying a house to rent it out or flip quickly...thats an investment.

[97guns]

i know a lot of people that have most their entire wealth in their resident home and have sold it off, moved away and retired. it is a savings vehicle or investment if you are in the right location for appreciation.

[annamarie]

If you're buying a house to flip and fix or that kind of thing, real estate investing ,then it's going to be an investment. Houses don't depreciate like cars. So it's going to be an advantage. That's the only way, I can view it as an investment.

[Fishindude77]

I live in the rural midwest where the housing market is pretty flat. You're not going to make big returns on a house in most cases, and anything over about $250,000 you could possibly lose money as there aren't that many buyers.

If we added up all of the money spent on our home including purchase and all upgrades over the last 25 years, there is no way we could ever get that money back on a sale. The good news is that it is sitting on a farm, and the farm ground has probably gone up 10X in value since we purchased.

It used to be that you bought a house, fixed it up, took care of it, paid it off and lived there for most of your life. Assuming you didn't buy too much house, going this route you can live pretty cheap once it's paid for, so in that respect it is a pretty good investment.

[bjl584]

I don't think of a primary living house as an investment. Maybe in certain markets at certain times, but for the most part, no.

I bought my first house in 2004 for $104K. I sold it in 2011 for 110K. I profited 6K, but for the 6 years that I lived there I paid a mortgage and interest. I paid taxes. I had maintenance and upkeep. I upgraded a bathroom. I built a storage shed.

I probably actually lost money on this "investment."

[LivingAlmostLarge]

It depends on where you live and purpose. Our two homes have appreciated a lot and been worth a lot. But at the same time I carry the burden of knowing that we are living in a ridiculous priced area and houses are insane.

So we lived in CA before and bought a 1 bd condo in 2002 for $150k and sold in 2005 for $250k. With relocation we paid 0 closing costs selling and walked away with enough to buy our current townhouse in 2005 for $550k. Now we are listing it for $699k (under market value for bidding war and more importantly fast sale) and will end in the 700ks. We haven't done a ton to the house so yes most of it was appreciation and we've paid down a substantial chunk so we'll likely walk way with around $300k+ cash. This is enough to pay cash for a home in many areas, not where we are looking but it's not terrible DP.

I asked in another thread why are there landlords where I am? Answer they are banking on appreciation. They certainly aren't banking on returns for rent because rents are NOT comparable to the price of homes.

So why buy? We enjoyed the stability, we have a dog and now our mortgage is pennies compared to renting our place. So it worked out by staying put 10 years. But shorter? I don't think so. We bought realize at the peak of the market and while it didn't really drop in value, we wouldn't have made money if we sold.

So it's always a gamble to buy. But you always need a place to live. So buy something you can afford, like and live in.

[safari]

I am also in CA. I didn't view my townhouse as an investment at the time when I purchased it back in 2001 for $342K, but it turned out to be a pretty good one. According to Zillow, today it's worth $886K. I think that number is overinflated, but even if I sell it for $800K, I'll walk away with a nice profit.

[97guns]

I am also in CA. I didn't view my townhouse as an investment at the time when I purchased it back in 2001 for $342K, but it turned out to be a pretty good one. According to Zillow, today it's worth $886K. I think that number is overinflated, but even if I sell it for $800K, I'll walk away with a nice profit.

thats why i feel it is an investment. anytime you buy anything you are investing, some give no return but you hope the big ones do.

i have friends parents who bought their california homes for 24K in 1970 and both walked away with over 750K, can someone figure the rate of return on that....im curious

[krantcents]

There are several things to consider besides keeping up with inflation. There is the IRS subsidy on the mortgage interest and the fact it is a leveraged investment. You are able to borrow at a pretty low interest rate even in normal times, leverage your down payment and buy a home. Besides the alternative is renting which is just an expense!

[rennigade]

Yep...buying a house is great investment. Everyone should do it. You simply cannot lose! Everyone who buys a house ends up making a ton of money when they sell it. Even those who bought at the height of the market before it crashed. They're doing great!

This was just posted today. Heres some examples of people who had a great time with rentals over at bogleheads:https://www.bogleheads.org/forum/vie...p?f=1&t=163386