Erik:

Great post but a home IMHO isn't a good investment until
the following three conditions are met:

1) You are convinced that you are in the right PLACE ...
a location that offers not just great career opportunities
but a good life as well ...in other words, a place you'd
live even if you lost your job;

2) You've put the numbers to paper and the net annual cash outlay from homeownership (figuring in deductible mortgage interest, taxes and insurance) does not exceed the cost of renting. In other words, don't count on appreciation to
bail you out of a poor financial decision;

3) You plan on staying in your home at least three to five years.

As far as "homeownership" supporting local economic growth
(to a greater degree than renting)goes,this is only partially true and indeed is only true in those areas where real estate development and residential construction are significant
portions of the local economy. One of the reasons that places
such as Phoenix, Las Vegas, and parts of Southern California
are suffering now is that local economic activity was excessively concentrated in Real Estate to the exclusion of other sectors;

Finally, while it is probably true that homeowners may feel a
greater sense of pride and accomplishment than others, this generally is expressed more in pride in the community and a
greater willingness to help achieve community goals. Whether or not this makes a more motivated or driven worker I don't know.
What I DO know from personal experience is that homeownership
may make you "place bound" at a time when that may not be convenient for either your life or career, and that can never be career-enhancing.

In general, if you've found the perfect place to live .... BUY.
If you're not sure....RENT.

Yes, it is a good investment if you are willing to commit to the ownership! We bought our first house 3 years ago. We lived in it for a year and a half, and then sought new job opportunities. Luckily, it is close to a University and hospital - renters are abundant. We even turn a little income on it property. We would have sold the property, but timing was poor, and prices declined. After a lot of thought, we decided to keep renting - and have had good luck with renters.

Upon our move, we bought another house. The area is very rural, so the house seemed cheap. But now that we are trying to sell that one, we can't get rid of it! We should have gaged our commitment to staying in the location before purchasing. My advice on home ownership is simply to go forward with it - but make sure you can be happy with the commitment over time.

@jason - rebuttals to your rebuttals :)

1. I agree with you that there are enormous sunken costs involved with homeownership that you will never get back, including all of the costs you listed and more. However, it is naive to think that renters are not paying these costs when they rent from a landlord. When a landlord figures out how much they want to charge for rent on a particular unit, they factor in their mortgage payment, property taxes, HOA fees, property maintenance, and hazard insurance. The cost for all of these things is simply passed on to the renter, much like fixed costs and taxes are passed on to a consumer in the retail price of a good or service. Granted, there are exceptions to this rule, because landlords sometimes get desperate to rent out their property, and they will offer discounted rent that might not cover all of their expenses associated with the property, but this is still the minority of situations.

2. Yes, I am saying that homeownership supports strong economic growth, because homeowners employ numerous contractors and home maintenance workers to service their home, and again, you are right that landlords do the same thing for their properties, but landlords do not put the kind of money into a rental property as they do with their personal residence. People who own a home want to customize it to their tastes and preferences. Landlords are not in the business of pumping as much money as they can into a rental property. They are in the business of putting the adequate amount of money into a property to frequently attract renters and make a profit at the same time.

3. It was not my intention to suggest that renters are lazy and not motivated. What I meant by this statement was that I personally believe that the days of living in a home for more than 10 years and rooting yourself into a community are not something of the past. I think that Generation Y is being fed the notion that they will move and change jobs every 3 to 5 years, but it does not need to be true. Do you think that one of the reasons many young people our age move alot IS because they are starting to rent more and not buy? Because your argument is the reverse: Young people change jobs a lot, so they rent. I would love to see a shift back to young people owning more homes, because I think they would find that becoming part of a community has its benefits both personally and professionally. I understand that job changes happen without control sometimes, but there are also many voluntary job changes due to a lack of self-fulfillment or identity with a particular area. I think homeownership helps people feel more rooted and gives them an incentive and motivation to help their community through their profession and their volunteership (don't know if that's a word).

Anyway, that's my take. Thanks for challenging me on this one. It helps me think critically about what I write!

I agree with Jason's points above, but I keep coming back to the idea of a home as an "investment", and why we keep focusing on it as an asset to be bough and sold, similar to purchasing stock in Apple or Proctor & Gamble. It isn't. We don't feel that way about the vehicles, clothing, or electronics that we purchase. While I understand that the cost difference is HUGE, the underlying point is the same.

I purchased my first home not for investment purposes, or to get a 'return', but to LIVE in. It is where my family is, where my children are growing up. Could I do that in a rented home? Sure. I am doing it right now. (long story, but my house sank). But as soon as I can afford it, we'll be purchasing it. Because there is an intrinsic value that comes with owning a home.

Erik, you are correct on point one! Your rent should at least cover your mortgage payment, insurance, taxes, etc. I don't know how it is in other states, but in Minnesota we can escrow it all into one payment. That way there aren't any surprises. You shouldn't put yourself in a position where you HAVE to rent it - and then accept a lower rent payment. Not only do you get less money - but often times renters that are more likely to do damage.

Erik,

You make some very good years. I would agree that homeownership is great (and perhaps superior to renting) when you plan to stay in the place long-term (10+ years) and actually be a part of a community. In this instance, though, you are using your home primarily as place to live, not as an investment (because you don't realize any gains until you sell your home, and if you plan to stay there a long time, selling is a long way off).

When I think of people talking about houses as "investments," I generally think of the people who buy houses and then try to "flip" them a few years later for a profit. Then, they buy a new home, and another few years later "flip" it again for a profit. This was profitable for a short period of time during the insane and unsustainable housing boom, but it is not profitable during normal times, and especially not profitable during a housing bust, due to all the costs I've mentioned previously.

The housing market is so unstable right now, that any decision to buy / not to buy is half-mired in risk and assumptions. If you're a happy risk-taker, you may well decide that the view out of your window far outweighs the structural problems of 200-year-old sagging beams and lack of foundations - as I did.

Then and again, as a poster has already stated, I view my house as a home and not as an investment, which paradoxically means that I'm going to sink a huge amount of money into fixing the problems.

Very often, the decision to buy a house has less to do with making a rational decision and more to do with gut feeling.

BTW, I was amazed at how much you pay in property tax in the USA. The sums you mention are completely outrageous. Do you get supersized services for all this??

I totally understand where this post is coming from.

My boyfriend bought at the height of the bubble without really thinking about why or what he was buying. Now we are stuck in a townhouse wanting to move into a house. It's unfortunate that townhouses aren't selling.

For us, we are planted in the community we live in. We also are committed to each other. We would want to buy a house that we wouldn't want to move out of.

...anyone want to buy a townhouse?? :)

I am a homeowner for many reasons. But not a single one of them is because I believe homeownership is a good investment.

Actually it has many characteristics of being a poor investment:

1) High transaction costs
2) Poor liquidity
3) Highly undiversified asset

Most people have to overcome the fallacy that paying rent is "throwing money away." If you want to throw serious money away, buy the wrong house at the wrong time in your life in the wrong part of the country.

Here is an older WSJ article which is a MUCH MUCH more detailed analysis of this issue. Bottom line - homes are not great investments.

http://www.smartmoney.com/personal-finance/real-estate/renting-makes-mor...

Erik, to address your three points:

Point 1 - fails to take into account the amount of money I can make by NOT having my money tied up in a house but instead invested. The linked article breaks this down pretty well.

Point 2 - I simply don't see how homeownership supports local economic growth. Wouldn't a local economy extract even more benefit in a situation where Person A owns a house which is rented by person B. Person B then has more disposable income to spend (presumably in his community). Your argument about upgrades by homeowners represents too small an amount to be a factor here in my opinion.

Point 3 - I think there is some merit to the idea that homeownership benefits communities in certain ways. I don't think it makes for a more driven workforce. Even if homeowners on average are more driven workers, correlation does not mean causation. This is clear. Poor people did not (until about 2002) own their own homes and they aren't exactly driven workers on average.

Nathan - my whole point was that person A already owns the house which injects money into the community. Additionally, person B (the renter) now has more discretionary income to spend in that community.

Buying is cheaper than renting; purchasing a home builds equity, which is a form of savings. Real estate investing is widely regarded as a superior way to build present income and long-term wealth. Real Estate is definitely a good investment opportunity, if you are able to identify the right property & negotiate well, you may increase your profit potential as there is good return on investment.