Our Thinking

Why Your Home Shouldn’t be Viewed as an Investment

February 15th, 2013

 

Owning a home was once touted as a significant piece of the American Dream. Home ownership had meant that you had arrived, that you were successful. However, owning a home has never been a great investment. In fact, quite the opposite is true. The chart above shows how home values have fluctuated over the last 100 years.  Aside from the Great Depression and the most recent financial crisis, home values generally remained quite steady, hovering around the 100 mark on the index. This tells us that residential homes don’t really appreciate or depreciate on their own. Instead, their value is mainly changed by inflation, deflation,  and governmental influence in the housing sector.

Over the past 100 years, residential homes have provided a return of just 0.4% per year, making them just about the worst investment you could make. (Simply purchasing CD’s at a local bank would have yielded a better return.) Of course, there are exceptions to the rule. Certain locations, like waterfront property, have most certainly provided their owners with an excellent investment. But on most occasions, your home shouldn’t be viewed as investment, but as a personal use asset that will hopefully hold its value in the long run.

The take home point is this, financially speaking, you will accrue more wealth during your lifetime if you invest less in a home and more in other assets.