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Here’s Why Your House Is Not an Investment

Your house is many things: It’s a place to raise your children, hold family parties, relax on weekends and, maybe, rent out for a bit of extra cash.

But here’s one thing that many economists believe it is not: an investment.

That flies in the face of what you might believe.

After all, if you buy your home for $200,000 and then sell it 15 years later for $270,000, you’ve made $70,000, right? That sounds like a good return on investment, but it’s actually not.

That profit doesn’t include all the property taxes you’ve paid on your home, the interest you’ve paid on your mortgage loan, or all the money you’ve spent on maintaining your residence.

The fact is, the only time a home might truly be a good investment is when you’re downsizing or moving to an apartment after selling it.

Sobering numbers

In a 2014 interview with USA Today, economist and housing expert Robert Shiller explained why consumers should not think of housing as an investment.

From 1890 through 2012, home prices adjusted for inflation did not grow at all, according to Shiller’s research. During the same period, though, stocks did. Shiller found that the S&P 500 increased by more than 2,000 times during those same years, adjusted for inflation.

Shiller found that there have been long periods of time in which housing values when adjusted for inflation fell. He said that from 1890 through 1980, real home prices dropped by about 10 percent.

Personal financial blog Observations also looked at inflation-adjusted housing prices from 1900 through 2012.

According to these numbers, the average annual price for U.S. homes was just 0.1 percent a year after inflation.

These numbers make it clear: You should buy a house because it’s a house, you need a place to live, and you don’t want to rent. You shouldn’t buy a house thinking that you’re making a great financial investment. (See also: Rent or Buy a Home? Here’s How to Decide)

It’s not easy to get your cash from an investment in housing

The post Here’s Why Your House Is Not an Investment appeared first on FeedBox.

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