Homes as Investments

WSJ: 'Homes are Poor Long-Term Investments'

Today's Wall Street Journal is running the latest in what has become a perennial real estate subject: how do homes fare as investments? ("Is Your Home a Good Investment?").

Its (non-groundbreaking) conclusion: long-term, homes barely beat inflation.

In fact, depending on your starting point, statistics indicate that annual home appreciation nationally averages just 4%-5%.

Of course, that assumes you paid cash for your home. Factor in leverage, which is what putting down 10% and borrowing 90% is, and those returns go up dramatically.

Such articles also typically omit:

--the tax savings associated with deducting mortgage interest;
--if you're an investor, the benefit of depreciation and other deductible expenses;
--if you're not an investor, what economists call "imputed rent" -- the benefit homeowners get from, well, living in their homes ("except for that, Mrs. Lincoln, how was the play . . . ?").
--the tax-free status of long-term capital gains when it comes time to sell (up to $500k for couples, $250k for individuals)
--the fact that renting and owning are not perfect substitutes: at least in the Midwest, renters simply don't have the same breadth or quality of housing choices that owners do (to pick just one example, I'm aware of very few homes for rent in Edina's tony Country Club neighborhood).

Of course, given what's happened to stocks -- the last year, the last 10 years, etc. -- homes' investment returns recalls Churchill's line about democracy: 'the worst form of government . . . except for all the others.'