Friday, September 25, 2009
An Argument Against Home Ownership
Today, it was reported that the median price of a single-family home dropped 2.3% in August. The stock market sold off on the news. For some perspective into the all-important US real estate market, this chart illustrates the US median price of a single-family home over the past 39 years. Housing prices increased at a rapid rate from 1998 to 2006, approximately 7.37% annually after adjusting for inflation. However, housing prices are currently 30% off their 2006 peak.
Putting dollar figures to these percentages, a home purchased for $25,000 in 1970 would now be worth approximately $176,800, an annual return of 5.14% (only 2% after adjusting for inflation). By comparison, an investment in the S&P 500 over the same period would have achieved a 10.32% annual rate of return, (7% after adjusting for inflation). Thus, a $25,000 investment in the S&P 500 in 1970 would now be valued at $349,870.