So we were pleased to see Brett Arends weigh in on this question in this morning's Wall Street Journal. An excerpt:
Conventional wisdom long held that home ownership was a route to wealth, and the imputed rent -- in other words, the right to live in your home -- was just part of the value you got from it. Under that widespread view, the recent housing bust was simply a temporary, though deep, pothole.
Yet for very many people, even over the past 15 or 20 years, the imputed rent may have been all, or nearly all, the real value they actually got from their home.
Indeed. And as Arends notes, the bust ain't over. Consider the key elements of this morning's report on sales of existing homes:
- Sales rose 2.9% from March, but declined 3.5% from April, 2008.
- Median prices fell 15% from a year ago, but readers should handle these numbers with care. See this item from Calculated Risk for more on the math of medians and means.
- Fully 45% of sales were distressed properties.
- Foreclosure filings rose to a new record, 32% higher than a year ago.
- Supply picked up, with inventories rising to 10.2 months from 9.6 in March.
- Inventories of homes priced at or above $750,000 have reached a 40-month supply.
So...no. Across a full market cycle and in most places, residential real estate hasn't been a very good investment. When prices are rising, the magic of leverage makes it seem like the best investment around. But as millions of "homeowners" and "investors" have learned, the flip side of leverage is pretty ugly, especially in a relatively illiquid asset class like real estate.
None of this means buying residential real estate is unwise. It just means that the benefits--a place to live, forced saving through an amortizing mortgage, the potential for at least some real appreciation--should be kept in proper perspective.
Brett Arends, "Is Your Home a Good Investment?" Wall Street Journal, May 27, 2009
Bob Willis, "Home Resales Rise on Drop in Prices," Bloomberg, May 27, 2009