According to a 2024 report from the Aspen Institute Financial Security Program, “Renters possess less than 3 percent of the wealth of homeowners, with a median net worth of $10,400 compared to $400,000 for homeowners.” The report, which primarily utilizes data from two separate Federal Reserve surveys, reflects a widely held belief among Americans seeking to accumulate wealth over time. That is, owning a home is a noble and perhaps even critical goal for upward mobility.
With today’s soaring home prices and challenging interest rates, it’s worth reassessing this piece of the American dream. In other words, is buying a house still a good investment?
The Financials
The median U.S. home price today is roughly $400,000. Traditionally, the typical down payment was around 20%—although that trend has changed, as many individuals now put down less. According to the National Association of Realtors (NAR) 2024 Profile of Home Buyers and Sellers, the median down payment today is closer to 18% for all buyers, and around 9% for first-time buyers. For perspective, mortgage rates are currently hovering between 6% and 7%.
The Magic Of Leverage
Buying a home equates to using leverage—putting down a smaller amount of money to own a much larger asset. If a $500,000 home appreciates, even a small percentage annually, the owner earns that return on the entire value of the house, not just the down payment.
Example: Buying A $500,000 Home (Age 30-35)
- Down payment (10%) = $50,000.
- Loan amount = $450,000.
- Monthly mortgage (principal and interest at 6.5%) = about $2,844.
- Property taxes and insurance combined total roughly $600 per month.
- Maintenance and HOA fees estimate: approximately $400 per month.
- Total monthly cost: roughly $3,850.
Income Needed
As a general rule of thumb, it can be effective to limit housing costs to 25%-28% of gross income. To do so with a $500,000 sticker price would require an annual household income of approximately $165,000 to $185,000.
Investment Outlook Over 10 Years (3% Annual Growth)
- Home value after 10 years = roughly $671,000.
- Gain in home value = $171,000.
- Bonus: equity builds with every mortgage payment.
Cash-on-Cash Return
- Initial cash investment (down payment) = $50,000.
- Appreciation gain = $171,000 over 10 years.
- Cash-on-cash return = roughly 342% over 10 years (≈17% annualized).
The numbers make clear the power of combining steady appreciation, mortgage paydown, and long-term ownership.
Long-Term Investment
Recent years have marked a period of exceptional momentum in the U.S. housing market. According to the Case-Shiller Home Price Index, home prices have increased nearly 50% nationally since 2020. Such sustained ascension is not always the case. From 2006 to 2012, national home prices fell 20%-30%, largely due to the financial crisis. It wasn’t until 2016 that values returned to their previous levels.
This dynamic lends credence to the view that buying a home is typically a long-term investment rather than a one- or two-year flip. Typically, the most effective strategy is to think in decades, not years. While purchasing a primary home is an investment, it’s distinct from a retirement portfolio. It often requires long-term patience with fewer opportunities for quick growth.
Whereas stocks and bonds are thought of as the financial horsepower for retirement, a home can foster and drive the lifestyle. It can provide shelter, stability, community, and pride of ownership. While those may not appear in the earnings statement, few would argue that they could hold great value.
Ongoing Costs
The financial obligations of owning a home don’t stop at the mortgage payment. Individuals have to budget for:
- Property taxes (typically 1%–2% of the home’s value annually).
- Insurance (roughly $1,000–$2,000 annually).
- Maintenance and repairs. As a rule of thumb, assume 1%–2% of the home’s value every year.
- HOA fees, if applicable.
Truths And Rules Of Thumb About Homeownership
Truths
- Homeownership can be a forced savings plan.
- Homeownership can offer inflation protection.
- A paid-off home could help make for a happier retirement.
Rules Of Thumb
- Housing Cost: As stated, it can be effective to limit housing costs to 25%-28% of gross income.
- Mortgage Payoff: Following the One-Third Rule of Thumb to pay off a mortgage can yield meaningful outcomes. The idea is to pay off the mortgage only after at least one-third of taxable investment accounts are available to cover it. For example, if homeowners have $600,000 in taxable investments (not IRAs or 401(k)s), they may have a strong argument for feeling confident paying off a $200,000 mortgage.
Bottom Line
With all of this said, the question remains: is buying a home still a solid investment? The numbers and analysis point to a qualified yes. Those who can afford the down payment, mortgage, and subsequent costs, and who also have the patience and flexibility to endure the long time horizon often required, could potentially find a home purchase turning into a valuable asset.
Despite the dramatic home price increases in recent years, it remains an effective long-term strategy for building wealth. Equity can create a path to financial security. Those who buy within their means and hold the property for an adequate period often avail themselves of forced savings, leverage, inflation protection, and an eventual mortgage payoff. This powerful combination gives homeowners a striking advantage over renters in their pursuit of financial freedom and retirement happiness.
This information is provided to you as a resource for informational purposes only and is not to be viewed as investment advice or recommendations. This information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax, or investment advisor before making any investment/tax/estate/financial planning considerations or decisions. The views and opinions expressed are for educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions.
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