The Little Book of Main Street Money: 21 Simple Truths that Help Real People Make Real Money

Chapter 15. Our Homes Are a Fine Investment that Won't Appreciate Much

They're Money Pits—with Impressive Dividends

There's no place like home, but not for the reason -people think.

Even with the housing market's sometimes wild price swings, many folks are convinced that buying a home is the best investment they can make. In fact, real estate is so popular that, when people reach retirement age, their home typically accounts for half of the wealth they have accumulated.

Yet, if you dig into the numbers, you discover that homes usually aren't a great way to make your money grow. But don't despair: They can still be a mighty fine investment.

Mortgaging Our Future

Confused? Let's start with the dismal history of home-price appreciation. Over the 30 years through year-end 2008, home prices climbed an average 4.7 percent a year, according to home finance corporation Freddie Mac. That's barely ahead of inflation, which ran at 3.8 percent a year. Moreover, homeownership comes with all kinds of expenses that you don't incur as a renter, including property taxes, maintenance costs, and homeowner's insurance. Those costs could easily amount to 3 percent or more of your home's value each year. Subtract that from the 30-year average price gain of 4.7 percent and homeowners aren't even keeping pace with inflation.

This shouldn't be any great surprise. Yes, the land underneath your home ought to appreciate modestly in value. After all, as the old saw goes, they aren't making any more of it. But the ...