Owning a Home Is Not the Investment You Think It Is

Yale economist Robert Shiller — yes, that Shiller, the Nobel laureate the housing market is named after — built the longest-running house-price index in existence. From 1890 to 1990, real U.S. home prices rose at roughly 0.4% per year above inflation. Not 4. Not 0.4 per quarter. Per century. The line is approximately flat.

Stocks, over the same window, returned about 6.5% real, compounded. Bonds returned roughly 2%. A house was not even close to either. It was, on average, a roof.

So why does everyone think they got rich on their house?

Three reasons, in order of importance.

1. Leverage. The 5%-down buyer who watches their house go up 30% over a decade thinks the house gained 30%. It didn't. It gained 30% on a 20× leveraged position. Apply that leverage to anything that goes up modestly — index funds, gold, farmland — and you get the same fireworks. Houses look like rockets because we ride them with the throttle wide open. The asset itself is sleepy.

2. Forced savings. A mortgage is a savings plan you can't easily skip. The renter "could have invested the difference" but, statistically, the renter spent the difference. The homeowner is wealthier in old age not because the house was a good asset but because the house made them save. The exact same outcome happens if you set up an automated transfer into VOO every month and force yourself to live on the rest. The mechanism is discipline, not real estate.

3. Selection bias. The friends who tell you their house was the best investment of their life don't tell you about Detroit in 1999, Las Vegas in 2007, San Francisco in 1991, or any of the dozens of metros where homeowners spent fifteen years climbing back to even. They tell you about the buyer who got Austin in 2015. We mistake survivor anecdotes for asset class returns.

The costs nobody books

The ROI conversation almost never debits the line items that, in any other investment, would be a scandal:

• Property tax — typically 1–2.5% of value, every year, forever, paid in cash.
• Maintenance — the rule of thumb is 1% of value per year, indefinitely. Roofs, HVAC, plumbing, foundations. The roof you replaced in year 22 cost what your "appreciation" cost was in year 12.
• Insurance — climbing fast in the U.S., particularly in CA, FL, and TX, sometimes faster than appreciation.
• Transaction costs — 6–10% to buy and sell. Funds that charged this would be illegal. Realtors do it twice in a decade and the buyer absorbs it twice.
• Liquidity — try selling in a panic. The market is not your friend; it is closed.

Sum them and the "house I bought for $200k now worth $400k" stops sounding like a 100% return and starts sounding like 30 years of cash outflow that the seller never quite tallied because the bank, the insurer, the plumber, and the county all bill on different schedules.

If your investment requires a new water heater every twelve years, it is not just an investment. It is a chore that costs money.

The obvious counter

"Rent goes up. Mortgages don't." The principal-and-interest portion of a fixed-rate mortgage is stable, true. The taxes, insurance, and maintenance are not. Ask anyone in coastal Florida how their "stable" housing cost has performed since 2020. Insurance alone has tripled in some markets. The "fixed" part of a fixed-rate mortgage is roughly 60% of the actual monthly cost of owning. The rest moves like rent does.

"The mortgage interest deduction." For most homeowners post-2017 — when the standard deduction roughly doubled — the deduction is irrelevant because they don't itemize. The marketing materials still mention it as if it were a meaningful subsidy for the median buyer. It isn't.

"You can't put a dollar value on stability." Correct. Owning a home is often a wonderful purchase. You like the kitchen. The kids stay in their school. You can paint the walls. Those are real benefits — they're consumption benefits, paid for in dollars, identical in nature to a nicer rental. Call them what they are and the romance survives. It just stops pretending to be a 401k.

The response

Buy a house if and when:

1. You will live in it for at least seven years (otherwise transaction costs eat you).
2. The price-to-rent ratio in your metro is sane (under 20×, ideally under 18×; SF and Austin in 2021 were 35×).
3. You're buying it because you want to live there, not because you've been told you're "throwing money away" by renting. (Renters pay for housing services. Homeowners pay for housing services and a leveraged bet on land. Both are paying.)
4. You have actually run the rent-vs-buy calculator with realistic — not realtor — assumptions on appreciation, maintenance, and opportunity cost.

The American romance of homeownership confused two completely different ideas — buying a place to live, and getting rich — and let the second one carry the first across the finish line. It's a fine purchase. It's a mediocre asset class. Stop letting the lobby pretend otherwise.

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