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Don’t buy a house except in one case
Introduction
Real estate has something magic to it. Acquiring a piece of land, a house, or a condo, essentially, a ‘personal territory,’ where you can set your own rules, has its appeal. Also, — maybe first and foremost — it is a social status.
Spoiler alert: stone is not as solid as you think
The appreciation myth
Real estate appreciates over time. This is almost invariably the case, with the exception of brief intervals such as those in 2008 or 2020. This means that if one is to buy a house at any time, he’s almost certain to sell it for more money later down the road.
Nevertheless, the rate of house appreciation scarcely exceeds that of the stock market, if we consider a pretty standard approach which is to invest in the SP500, a stock market index tracking the performance of 500 of the largest companies in the US. It is like buying a portion of Home Depot, Visa, Tesla, Chipotle, Amazon as well as 494 other companies you know the name of.
The following table compares the evolution of the SP500 and the CoreLogic Single-Family Home Price Index (tracker for the value of single-family homes) over the past 20 years. It shows that in the long run, single-family homes underperform the SP500 by about 1.7%.
