We have all seen the unprecedented movements in the housing market over the last 7 years. There were estimated depreciations of 20% nationally in 2007 and 18% in 2008, with continuing depreciation for several more years. Then, in 2012, we saw home prices go up as much as 23% in some areas, with similar growth last year. More narrowly, in the greater Detroit area we have seen even more volatile changes. So, with all of the volatility, the ups and downs, and the uncertainty, many would-be buyers are asking themselves the same thing: is a house still a good investment?

And when I am asked this by someone considering entering or reentering the housing market, I tell them it depends upon your situation, but on the whole yes, a house is still a good investment. And there are a number of reasons why I believe this.

First and foremost, unless you plan to live in your parents’ basement, you aren’t living anywhere for free. So whether you pay a mortgage or you pay rent, you will have a monthly payment. Therefore, at the end of 30 years, you can either have a piece of property with some value (most likely far more than you paid), or you can have nothing. Additionally, you will have payments for the rest of your life if you rent; if you buy a home, your payments end once your mortgage is paid off. For most, that is a huge benefit in retirement.

And finally, you need to consider inflation. You are making a mortgage payment over the next 30 years, assuming you do not sell your home or refinance. If you have a fixed rate mortgage, your principal and interest payment will remain the same for the next 30 years. So, as we see our dollar inflate (it has averaged a 3% inflation rate over the last 30 years), you will see your mortgage payment costing you less and less in real dollars. Meanwhile, if you rent, you will see your rental costs going up with the cost of inflation, or 3% per year. So even if renting is cheaper than a mortgage now, for how long will that last?

Well, I can do the math with you if you would like, but here is a hypothetical example. Let’s say you can buy a house and end up with a $1000 monthly payment or rent for $800 per month. If your rent adjusts only based upon inflation, and inflation is the traditional 3% per year, by year 9 you will be paying $1017 per month. So, for 8 years you saved money, but for the next 21 years, your rent will be more than the mortgage. And after 30 years, you could have no payments whatsoever.

At the end of the day, I think house values are extremely important, but certainly not the deciding factor on whether or not houses are a good investment. If you are considering purchasing a home, whether as a first time homebuyer, someone reentering the housing market, or as an investor, contact a mortgage professional and run the numbers. They just might surprise you.

If you would like more information regarding whether or not buying a home makes sense for you, please contact me. If you have anything to add about whether or not buying a house is a good investment, please leave a comment.