What I understand from the research I've done is that the housing market has just about matched inflation over the long term, whereas the stock market has done the best of any investment in any 20 year (or so) period. I'm not just talking about the latest crash, but the scope of the last 120 years. Why do we still want to think of home ownership, and not wealth building, as the "American Dream" to the point where we are still, after the burst of a painful boil/bubble, allowing people to borrow more than they can afford? Personally, I have no desire nor aptitude for home repair and condos seem far riskier than index funds. Why not throw some money away by renting and invest more in the stock market, rather than just barely keep afloat by paying a mortgage and throw money away repairing a home?
Carmen Wong Ulrich Dec 14, 2013 Former Host
You, dear MM-community member, are totally and completely sane. Though, your reasoning definitely puts you in the 'Spock' vs. 'Kirk' camp.
This country has had a love-affair with home-ownership, very much equating it with the "American Dream." However, once you see this through 'Spock' lenses, you can see that this is an investment with a lot of feeling and personal ties that go well beyond market returns -- and losses. This is why I too have never seen owning a home as the "American Dream," rather financial security and stability is my Dream. If that means renting (as I'm doing right now, by the way) for a while, so be it.
You're correct regarding straight market potential. In terms of an investment, depending on where you live, the potential return on a home may be very low or at least lower than general market returns. However, in some parts of the country, housing prices continue to swing up at a solid rate, even post-housing-bubble bust, so it can depend on where you live. Owning a home also has costs many forget, such as maintenance, property taxes, and home insurance. And that maintenance has a personal cost in terms of time as well--this is why I tell folks who are looking at buying investment property to consider how much time they'll have for this second job. However, living in the home you own and getting a fixed rate mortgage means that you don't have too much risk in terms of your housing costs for decades, if you stay put. Those are some fuzzy, comfy shoes of financial stability.
And, fellow-renter, you are exposing yourself to risks you may not have much control over: The fickle world of being beholden to landlords, laws, and the rental market. As we saw with the millions of foreclosures around the country, as a renter even with a solid lease, should your landlord need to unload the property or lose the home, you may lose yours too. And now we know that rent in major cities have been skyrocketing. Unless you have a rent-stabilized apartment that can't budge in price more than 1% or 2% annually as long as you stay put, you can suffer at the whims of the rental market which is just like any other market you don't have control over.
Both owning and renting have their caveats. Take a look at weighing the risks of each and the history and potential moves of your local market. That is most logical.