Home

A House is a Place to Live

Let's say you bought a single-family house in 1980 for $99,550, which was the median-price in California at the time.  (I was in my third year of college in Ann Arbor then, but we can pretend for a moment.)  By 2010, your dream house was worth $292,820 if it retained its median status.

Under this example, your house appreciated about 3.6% per year.  If you had the foresight to sell your house at the market peak in 2007, your annual average gain would have been even higher at 6.6%.


"Nice going," you say to yourself, "that's a pretty large return on my original investment."  However, your results are not actually as impressive as you may think. 

As the Wall Street Journal points out, a dollar invested in the stock market (Dow Jones) in 1980 would have grown significantly more than a dollar used to buy a house.
 

 

Returns
1980-2007

Returns
1980-2010

$1 in House

$5.63

$2.68

$1 in Stocks

$14.41

$11.49


You should note that the appreciation of the price of a house excludes the 2% or more a year in costs that you typically incur in property taxes, maintenance, insurance and the like.  This sharply reduces the actual gains on a house.

Thus, while owning a house has many advantages, it should not necessarily be relied upon as an investment.  As we have seen, the housing market can be as volatile—if not more so—than the stock market.


Words of Wisdom

I want a house that has got over all its troubles; I don't want to spend the rest of my life bringing up a young and inexperienced house. – Jerome K. Jerome