Is it worth buying a house?
Recent common wisdom is that only the foolish or the desperate would buy a house — while the answer a year ago was heck, yes, buy one! Neither answer is very helpful, so it might be worthwhile to lay all the cards on the table and come up with some rational reasons for deciding whether to buy a house or not.
In reality, houses aren’t great investments except in a few markets, like Manhattan. On average over the last century, house prices grew 5% per year, which is only 2% above average inflation. If you figure you’ll be paying 1% per year in maintenance and 1% in property taxes, you aren’t going to be making any real money on a house, although you probably won’t lose anything over the long run, either. Sure, mortgage providers are willing to loan, say, 90% of the house’s value, which makes everyone feel good if the price goes up 10% and you double your money. But as many of us have found out, if prices go in the opposite direction, you can be seriously under water with even a good house and a conservative mortgage.
So, no, if a house were, say, a stock or bond, you’d be well advised to do something else with your money. But we all have to live some place and many people love their houses — I certainly do. So if you are willing to park you hard earned money in a building and make it your home, then it certainly makes sense. If not, rent something cheaper and put your money to good use.
