Myth-Busting: Is Real Estate a Good Investment?
One of the biggest real estate myths to arise in recent years is that buying a home is not a good investment compared with higher yield stocks and bonds.
For those of us who grew up in the period just after World War II, there was never a question that owning a home was essential when it came to building wealth. Your first home was a critical piece of your “nest egg.” Your home’s value served as a reliable and predictable economic indicator. Making monthly mortgage payments was money in the bank in the form of equity. Provided your home was in stable neighborhood and well-maintained, it would increase in value by the time you were ready to sell.
A family just entering the market recognized the value of a “starter home.” The starter home was a foot-in-the-door investment for the average person. In fact, for many middle-class families it was their only investment. As the family grew, it outgrew the starter home. Taking the proceeds from the sale of their starter home, the homebuyer would invest in a new and larger home.
Getting Renters to Buy
For millennials who grew up during the Great Recession and are now renting, homeownership may appear to be out-of-reach. The starter home is hard to find. So is a down payment, when you’re burdened with student loan debt.
The desire to live in cities has also had an impact when it comes to buying a first home or condo. Some cities — New York, San Francisco, and Boston, for example — are so expensive, that many are forced to house hunt in surrounding communities.
Still, the benefits of buying versus renting have not changed. No tax incentives, no control over the cost of rent, and the rules and restrictions of a lease, all make paying the landlord’s mortgage each month a no-win situation.
A Safer Bet
While the benefits of homeownership — tax deductions, the ability to make improvements, and the chance to build equity — remain, what are the facts when it comes to whether or not a home is a good investment right now? Historically, homes have generated 0.4 % annualized return above inflation. This low figure, compared with 6.3% for the S&P 500 and 2.7% for U.S. Treasury bonds, would suggest the buying a home is not your best bet when it come to investing.
However, a recent survey of more than one thousand investors seems to say otherwise. They were asked, “For money you wouldn’t need for more than 10 years, which ONE of the following do you think would be the best way to invest it — stocks, bonds, real estate, cash, gold/metals, or bitcoin/cryptocurrency?”
The result? For every two respondents who answered stocks, there were more than three who said real estate is the way to go.
Slow and Steady Wins the Race
When stocks are currently over-valued and threatening a bear market, and Treasury bonds promise a 0.3 annualized return above inflation over the next ten years, investors looking to be safe, not sorry, are turning to real estate. Of course, market conditions can change — they do so all the time.
What real estate is offering young people just starting out is a solid investment. One that has long been the financial cornerstone of middle-class Americans for more than 70 years.
The Bottom Line
Facts are essential when it comes to dispelling the various myths which have arisen around buying a home. Facts are one of the most important marketing tools you have today. While the current climate might suggest otherwise, most people are truly looking for news they can use. As a real estate agent marketing to potential clients, presenting the facts in bite size pieces — whether on your website, or through social media — can make all the difference.