Do You Consider Your Home an Investment?
You’ve heard it said before: don’t think of your home as an investment because the housing market isn’t performing as well as other investments. Some, however, may disagree.
This debate was recently rekindled by Alex Tabarrok’s post on the “Marginal Revolution,” which says buying a home is overvalued as a financial investment. Timothy B. Lee objected to Vox, making several arguments in favor of housing. For example, although they do not rise in value as fast as stocks, housing is more price stable, with inflation-adjusted yields of 4 to 5 percent. And if you have a house, you live in it for free.
Another Key Point: Home Ownership Drives Savings:
Let’s say you pay $ 1,000 in rent and expect to buy a similar home to cost $ 1,400 a month (including mortgage insurance, taxes, maintenance, and other costs). Basically, it should be possible to continue renting, invest an extra $ 400 a month in an IRA, and end up with a solid “pantry” in ten or two decades.
In practice, this rarely happens.
(It’s like that story of a non-smoker telling a smoker that if he put all the money spent on cigarettes in the stock exchange, he would have enough today to buy a Ferrari. And the smoker responds to advice, asking where is it your Ferrari?)
We’ve discussed the pros and cons of renting versus buying before, but what do you think of houses as an investment?