Your House Is Not an Investment (And Other Home Equity Myths)

People love telling you that their house doubled in value. They bought for $200,000 in 2005 and it is worth $400,000 today. What they usually leave out is the twenty years of mortgage interest, property taxes, insurance, maintenance, and renovations they paid along the way. When you subtract all of that, the picture changes dramatically. Robert Shiller, the Nobel Prize-winning economist who built the Case-Shiller Home Price Index, tracked U.S. housing prices all the way back to 1890. His data shows that residential real estate has returned roughly 1% per year above inflation over that entire period. One percent. The stock market, by comparison, has returned about 7% per year above inflation over the same timeframe. If your house "doubled" over 20 years, that is about 3.5% annual appreciation. Subtract inflation at 2-3%, and your real return is somewhere between 0.5% and 1.5% per year, before accounting for all the costs of ownership. This does not mean buying a house is a bad financial