Traditionally, purchasing a home is positioned as a must-do on the checklist for financial success. But does that mean it is actually a good investment, especially when saving up for a down payment means forgoing other investment opportunities?
As of late, investors — particularly younger ones — are increasingly less convinced. Given the recent “record stock market” and the “unaffordable housing market,” younger people “either can’t afford to get on the property ladder or think they can earn a better return elsewhere,” leading many to skip out on homeownership altogether and instead opt to rent and invest in the stock market, said The Wall Street Journal.
The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
Why can a house be a worthwhile investment?
Homes are “generally thought of as investments due to their ability to appreciate over time,” though of course, like any investment, there are no guarantees, said LendingTree. Still, over time, home sale prices have largely proven this to be true: “The average sale price for U.S. homes in the first quarter of 2024 was $513,100 — 10 years previous, in Q1 2014, that figure was just $331,400,” said Bankrate, citing data from the U.S. Census Bureau.
Plus, unlike when you are renting, “your monthly mortgage payments go toward building equity in your home, allowing you to build wealth over time,” as well as giving you the opportunity to borrow against that equity in the future, said LendingTree. Home ownership also offers some tax deductions that are not available to renters.
Additionally, “there are reasons to buy a home that have nothing to do with financial returns,” such as “the predictability of mortgage costs into the future, the freedom to do what you want with the property and having it paid off by retirement,” said the Journal.
Why can a house be a worthwhile investment?
Homes are “generally thought of as investments due to their ability to appreciate over time,” though of course, like any investment, there are no guarantees, said LendingTree. Still, over time, home sale prices have largely proven this to be true: “The average sale price for U.S. homes in the first quarter of 2024 was $513,100 — 10 years previous, in Q1 2014, that figure was just $331,400,” said Bankrate, citing data from the U.S. Census Bureau.
Plus, unlike when you are renting, “your monthly mortgage payments go toward building equity in your home, allowing you to build wealth over time,” as well as giving you the opportunity to borrow against that equity in the future, said LendingTree. Home ownership also offers some tax deductions that are not available to renters.
Additionally, “there are reasons to buy a home that have nothing to do with financial returns,” such as “the predictability of mortgage costs into the future, the freedom to do what you want with the property and having it paid off by retirement,” said the Journal.
What are the drawbacks of investing in a home?
As some investors are determining, a home is not always a good investment. For starters, home ownership often has a high cost to entry, especially since “housing prices have skyrocketed, and mortgage interest rates also remain steep,” said Bankrate. Then there are added expenses like closing costs, home maintenance, insurance and property taxes, all of which can work against the appreciation — which is not even certain to happen.
To really stand a chance at turning a profit, you will generally need to commit to staying put for a while. “If you only live in the home for a short period of time, you may not build enough equity or see enough appreciation to cover transaction costs and walk away with a profit,” said Rocket Mortgage. To just “break even,” it will “typically take five to 10 years,” which restricts the flexibility you would otherwise find with renting.
Should you invest in a house or elsewhere?
Ultimately, whether to sink your money into a house or another investment opportunity depends on a variety of factors, including “your financial health, risk tolerance and short- and long-term goals,” said Bankrate. It is important to be clear-eyed about the fact that while “real estate does tend to increase in value over time,” there is no guarantee of appreciation, and “you may get a better return on your money by investing in bonds or the stock market.”
When it comes to an investment like a home, however, it is about more than just the numbers. Many people “value homeownership for the stability it provides, as well as the freedom to customize the home to their preferences,” said LendingTree.
-
Political cartoons for November 30Cartoons Sunday's political cartoons include the Saudi-China relationship, MAGA spelled wrong, and more
-
Rothermere’s Telegraph takeover: ‘a right-leaning media powerhouse’Talking Point Deal gives Daily Mail and General Trust more than 50% of circulation in the UK newspaper market
-
The US-Saudi relationship: too big to fail?Talking Point With the Saudis investing $1 trillion into the US, and Trump granting them ‘major non-Nato ally’ status, for now the two countries need each other
-
4 often overlooked home maintenance tasks that could cost you laterThe Explainer A little upkeep now can save you money down the road
-
What are the pros and cons of a Roth conversion for retirement?Pros and Cons By converting a traditional IRA to a Roth IRA, retirees can skip paying taxes on their withdrawals
-
4 easy tips to avoid bank feesThe Explainer A few dollars here and there might seem insignificant, but it all adds up
-
What’s the best way to use your year-end bonus?the explainer Pay down debt, add it to an emergency fund or put it toward retirement
-
What are portable mortgages and how do they work?the explainer Homeowners can transfer their old rates to a new property in the UK and Canada. The Trump administration is considering making it possible in the US.
-
How can you tell if you are ready to retire?the explainer All the preparation you need to sail off into your golden years
-
Can medical debt hurt your credit?The explainer The short answer is yes, though it depends on the credit scoring mode
-
3 required minimum distribution tax mistakes to avoidThe Explainer Missteps in making withdrawals from tax-advantaged retirement accounts can cost you big
