Is buying a house a good investment?
The housing market has been a roller coaster, with interest rates dipping to historic lows in 2020 and 2021, followed by rises in 2022. All the while, housing prices have been increasing to record levels. In such a wild market, many current and potential homebuyers are wondering if buying a home is worth it. Ultimately, is buying a house a good investment?
To answer this question, we asked 1,146 homeowners and renters across the U.S. about their thoughts on owning a home and whether homeownership was actually a good investment. Homeowners shared the financial and emotional perks they receive from their homes, and renters explained why taking another path was right for them.
- 63% of Gen Z would rather own a home than rent.
- 40% of people thought crypto is a better investment than a home.
- 44% of homebuyers paid over their original budget, spending an average of $10,334 more.
- 73% of Americans reported higher self-esteem due to owning a home.
Renting vs. owning preferences in 2022
We asked our respondents if they would rather own or rent a home today – with the current market prices and their budgets. We also asked if they considered homeownership a smart investment or a waste of money. Responses were then compared by generation to see how each age group feels about buying versus renting.
For the vast majority of Americans we surveyed, homeownership remains the dream — or, at least, preferable to renting. Seventy-one percent of respondents agreed they would rather own than rent and anticipated that they’d do so by the age of 35. That said, first-time buyers are having trouble securing a home today for a variety of reasons, including buyer competition, a lack of affordable properties and lightning-fast sales. Baby boomers were particularly in favor of owning over renting — only 15% of this generation preferred to rent.
Fifty-six percent of respondents agreed that renting in this market was a complete waste of money. While “waste” seems like a strong word, the argument is supported by the fact that rents are exploding across the country, with the median rent rising 19.3% from 2020 to 2021 alone.
Gen Z was the most likely to think owning a home in the current market was a bad investment. With average 30-year mortgage rates as high as 7% in 2022, buying a home can be a weighty financial burden, especially for those trying to repay student loans. The next piece of our study looks into the general population’s perception of why homeownership might not be a good investment.
Why many aren’t buying homes
For years homeownership has been seen as a solid investment, but buying a home isn’t for everyone. Twenty-nine percent of our respondents said they would prefer to rent rather than own. We considered the viewpoints of those not currently invested in or looking to invest in a home and what investments they prioritize.
While the most common reason for not owning a home was affordability (39%), a potential bust of the real estate market could easily change this statistic. And a substantial number of Americans still prefer renting, even during historically high rent hikes. Twenty-nine percent found the flexibility of renting agreeable, which may be particularly valuable during the age of remote work; 26% said renting simply feels easier.
For the 30% of respondents who said buying a home is not a good investment, we asked how they would invest their money. Half of these respondents thought stocks were better investments than homes. Forty percent said the same thing about cryptocurrencies, while 32% preferred that their cash goes to NFTs. Men were especially keen on investing in NFTs in lieu of homeownership.
How housing costs add up for owners
The cost of buying a home doesn’t end at the asking price. We asked current homeowners how much they went over budget on their home purchase and what they spend the most on every year to maintain their residence(s).
Going over budget was not at all uncommon, even before the current real estate boom. Nearly half of respondents admitted to spending over their personal budgets, exceeding their plans by $10,334, on average. Millennials were even more likely to go over budget — and by a larger amount: $11,780.
It wasn’t just the asking price that made homeowners spend more than they anticipated. The unexpected costs, like property tax, add up. Property tax is a guaranteed payment in perpetuity determined by the value of the residence and neighborhood. It’s likely to increase as real estate markets boom nationwide.
Currently, the nationwide average property tax rate is 1.1% of a home’s assessed value. This doesn’t include homeowners association (HOA) fees, which 7% of homeowners agreed was one of the most expensive parts of owning a home.
The benefits and downsides of homeownership
While real estate can be a money strain initially for many, there are still long-term financial and psychological rewards for homeowners. We asked current homeowners if and how they were using their homes for investment purposes. Financial perks aside, we also wanted to know how being a homeowner affected their emotional health.
For those in this study who used real estate as an investment, many reported earning upward of $25,000 annually, on average. That said, there was a diminishing rate of return for each additional investment property, with two homes bringing in an average of $24,382 and three homes making just about $1,300 more.
In addition to the obvious (potential) financial benefit of homeownership, the vast majority of homeowners surveyed expressed an increase in their self-esteem. They said owning a home made them feel independent (67%), satisfied (64%) and proud (61%).
Though there are many psychological benefits that come with homeownership, it’s not always warm and fuzzy feelings. Nearly a third of homeowners described their status as “stressed,” while 17% said they were frustrated.
Homeownership isn’t the right choice for everyone, either due to finances or desires for flexibility. Recent buyers often overpaid and spent more than expected on property taxes. Despite this, the vast majority of respondents to our survey indicated they still want to own a home, and those who already did expressed many positive psychological and financial benefits.
Buying a home can be a good investment if the housing market is in good shape and your finances are in line. However, as many respondents have revealed, real estate is not the only investment decision worth considering, and ultimately, whether you invest in a home or something else is your choice.
Methodology and limitations
We surveyed 1,146 Americans about their homeownership status and experience. The margin of error was +/- 3% with a 95% confidence level. The data we present rely on self-reporting.
Fair use statement
Did this research influence or inform your feelings regarding owning a home? You’re welcome to share this data with anyone you think might find it beneficial; just be sure you link back to this page and that your purposes are noncommercial.
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