Brett Arends at The Wall Street Journal has compared Case-Shiller house price data to annual inflation rates, and speculates that owning a home may not be a very good investment. “You can often do better on long-term inflation protected government bonds,” he writes.
Arends ran the numbers for 10 major cities, starting in 1987 and again in 1994. From 1987, home prices in those cities “produced a real return of 1.15% a year over inflation over that time.” If you start from 1994, the return is 2.2% above inflation. Neither return takes into account annual property expenses like insurance, maintenance, or taxes.
Conventional wisdom long held that home ownership was a route to wealth, and the imputed rent — in other words, the right to live in your home — was just part of the value you got from it. Under that widespread view, the recent housing bust was simply a temporary, though deep, pothole.
Yet for very many people, even over the past 15 or 20 years, the imputed rent may have been all, or nearly all, the real value they actually got from their home.