The reason a house is a good investment for most people has almost nothing to do with the returns.
Depending on where you live, it’s true that you might be better off renting and investing the difference. In some ways, you’ll be better diversified and have more flexibility to move.
But in practice, almost no one ever ends up investing the difference. And instead of owning a huge asset after 20 or 25 years, they end up with little to show for all their hard work.
In other words, the main reason a house ends up being a good investment is that it forces you to save money at a higher rate than you would’ve otherwise. You build the habit of paying your mortgage and regularly sinking more money into a long-term asset.
As a result, when it comes to time to retire, you end up with better options. You can use a Home Equity Line of Credit or reverse mortgage to help fund your retirement or gift money to your children or grandchildren or to invest in the market. Or you can simply enjoy having a place to live where you know the rent payment isn’t going to go up every year.
The debate about whether or not you should own real estate is often too focused on spreadsheets. Yes, there are lots of extra costs. No, home prices don’t always go up and certainly not at the rates we’ve seen in recent years.
But as a practical matter, are they a great investment for most people because they get you in the habit of putting money toward a long-term asset? Absolutely.