Is Your Home A Good Investment?
As assets, homes provide only modest annual returns in the long run.
There’s the usual talk about what the latest Case-Shiller house price data mean for the next short term move in the real estate market. Has housing bottomed? If not, has the rate of decline slowed? And when will we see an upturn?
Human nature likes the short term. Which is why so little attention is paid to something that is probably more important, if less urgent: What the latest data show about the long-term of the real estate market.
And it’s startling.
We have just been through the biggest boom in real estate in American history. The subsequent bust surely hasn’t finished.
Yet look at the numbers. Since 1987, when the Case-Shiller index of 10 major cities begins, it’s risen from an index value of 63 to 151. Annual return: Just 4.1% a year. During that period, according to the Bureau of Labor Statistics, consumer prices rose by 3% a year. Net result: Home prices produced a real return of just 1.15% a year over inflation over that time.
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