Is buying a house a good investment? More people say no
Conventional wisdom says that buying a house is a good investment: it allows you to build wealth as the house appreciates and you don’t pay rent to a landlord. But even as home values hit new highs, a growing share of Americans aren’t convinced buying is the right decision.
A new investigation from Morning Consult finds that the share of adults who said buying a home in their neighborhood is a bad investment was 12% in February, up 4 percentage points from the same month last year last.
It may seem surprising. Home prices continue to rise and home values are appreciating at a record pace. New Data published last week by real estate listings platform Zillow show that home appreciation in 2021 exceeded median income in 25 of 38 metro areas. In San Jose, Calif. — a city with a median annual income of $93,000 a year — the typical home gained $229,277 in value in 2021, according to Zillow. It’s quite a return on investment.
“More than anything, 2021 has been a year of haves and have-nots, and the chasm between the two has widened everywhere,” Zillow economist Nicole Bachaud said in a statement. Press release. “Those who owned a home saw their household wealth increase dramatically.”
Is buying a house a good investment?
Of course, the same factors that push home values up also make it harder for people to afford a home in the first place.
A huge increase in demand during the pandemic, combined with supply chain issues, has created a severe shortage of new inventory. Add to that rising mortgage rates (and the accompanying pressure to lock in a monthly payment before rates rise even higher), and you have a recipe for driving up housing costs.
The Morning Consult report suggests that the “recent pessimism” surrounding the investment potential of buying a home “may be the result of rising interest rates, as some consumers may feel missed the boat for affordable loans”.
The report adds, “Others may simply view current prices as excessively expensive, limiting their ability to afford other expenses or potential investments with a relatively higher return.”
In other words, real estate is so expensive now that other investments might make more sense than buying a house. It’s also easy to see that buying a home before the recent price spike would have been a better investment than buying it today.
Even in the best of times, buying a home is not a good investment for everyone. In one blog post Last year, I will teach you how to be rich author Ramit Sethi wrote that for many Americans, buying a home “doesn’t make sense for financial or lifestyle reasons”. He cautioned potential buyers against assuming that home values will increase (there is no guarantee they will) and said there are many reasons why buying a house could be more expensive than expected due to taxes, fees and unforeseen repairs. This is especially true if you don’t plan to live in the house long term.
“If you know you want to move in less than 10 years,” he writes, “you’ll likely make more money renting and investing in S&P index funds.”
Of course, renters aren’t immune to a price hike either: Zillow found that annual rental spend rose 16% in 2021, and a one-year lease on a typical rental was $3072 more expensive at the end of 2021 than it was at the start.
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