Was My Home A Good Investment?
Yale economist and Nobel Prize winner Robert Shiller has recently stated in an interview for TIME that according to his calculations; the house that he purchased in 1982 has not significantly risen in value over the thirty plus years if you account for inflation during the period. Shiller believes that the general optimism about real estate offering excellent returns in the long term does not account for inflation. In the long run, says Shiller, despite real estate booms in America, in many cases buying a house may not be the best way of growing your money.
However, Shiller also admits that despite the caveat, real estate can be a good investment for people who are set on owning property or those who are professional managers of rental properties. In general, economists today agree that the answer to the question of “Was my home a good investment” is a complex one.
Factors to Consider
In order to find out if your home has been a good place to put your money as opposed to other investment products, you will need to consider several things. Most people buy a home with a mortgage. This makes property a leveraged investment – you control large value assets with a small amount of money. As a result, the losses and gains are also magnified, which is evident in the short term but generally equalize in the long term. During a downturn in the market, it may be a bad time to own a home but in a rising market, it is great to own a home.
The benchmark for finding out if your home was a good investment is to compare percentage appreciation in value (adjusted for inflation) with the appreciation of average US home as well as stocks, bonds and other investments you could have made, had you not purchased that property. There are many calculators available online, using the most reliable sources for U.S. home prices, stocks and bonds to help you approximately estimate how much your home has risen in value as compared with other investment products.
In addition, it is useful to know the factors that affect the value of your home. The type of home matters – whether it is a condo or house. Houses and condos have had different rates of appreciation over the years. Detached houses have generally appreciated faster over the past several years than condos. However, larger detached houses often have higher property tax. Maintenance costs and interest earned will also have to be factored in. Any value-adding renovations you may have done over the years that add to your home’s resale value will also go towards helping you come to a conclusion over how good an investment your home was.