Here’s a map of housing inflation, generally, state by state. Of course in real estate it’s all about location, which means some places within a state will be up significantly and others a lot less.
*(A1 Steak Sauce tells me overall inflation since 1985 is up “over 100%”)
If you located your 20% down payment in an S&P 500 index fund over the past 40 years, you’d be up 7,387%. You’d be able to rent a castle if you thought you needed one.
Frank Lloyd Wright’s only high rise building is in Bartlesville, OK and recently sold for $10. If it was in any other city, it would be worth tens of millions of dollars.
Of course you wouldn’t know until after that the S&P would have that kind of performance - possibly the best 40 years of its existence.
Meanwhile you would have paid around $250,000 in rent unless you were determined to live in a cardboard box somewhere.
I suspect if you took this idea and placed it squarely in 1920 you’d have a decade of terrific returns, followed by half your port being wiped out in bankruptcy, and the other half down 90% for a decade. Timing matters. We’ve been extraordinarily lucky, we confident investors of this era. But it’s good to remember that luck is also a component of success (in all fields, including investing.)
It’s not a one-time decision, nor a question of living in a cardboard box.
You continually evaluate your options, rent vs.buy and choose the one with the best return. I bought a home in 2012 when prices declined to the point where there was a good chance I’d get the unleveraged return of the S&P 500 on a cash purchase (and it has beat the S&P500 by a small margin.)
And your estimate of $250,000 in rent has to be evaluated against the mortgage interest, property taxes, homeowner’s insurance, and the maintenance expenses you’d paying on an equivalent property.
It just the arithmetic that most people fail to do. The Real Estate and Home Building industry has done an excellent job convincing people that owning a home is the bedrock of wealth. That’s rarely true when you evaluate the alternative.
That’s right. All I’d know is that over the past 100 years the S&P 500 has averaged a 10% plus annual return while US residential real estate has averaged 4%. And while I can buy an S&P 500 index fund that guarantees that I’ll get the return of the stock market, an individual home purchaser has no such guarantee that he’ll get the average return of the US real estate market – about half of homeowners are getting less.
You ought to at least do a rent vs. buy analysis to insure that you’re not in that bottom half of homeowners with sub par returns.
