Is Buying A House A Good Investment?

Buying a house could be a smart investment or a risky one, depending on where you buy, your financial situation and the timing of your purchase.

Home prices may have surged in recent years, but according to Federal Reserve Economic Data, the median sale price of homes sold in the U.S. has decreased by just under 13% since hitting its peak at the end of 2022. Additionally, the national homeownership rate in the fourth quarter of 2023 was 65.7%, meaning the majority of Americans are homeowners.

But is buying a house a good investment for you? Below, we’ll cover everything you need to consider to determine whether investing in a home is in your best interest.

Why Buying A House Is A Good Investment

If you’re thinking of buying a house for the first time, you’ll want to learn about the potential benefits of being a homeowner. Let’s explore some of the top reasons for buying a house.

Long-Term Home And Equity Appreciation

To understand why buying a house could be a good investment, it’s important to look at the overall trends in the housing market.

U.S. Median Sale Price Of Homes Sold From 2010 – 2023

While the housing market has its ups and downs, your house is likely to grow in value over the long term. In fact, the median home sale price has greatly increased in the past 13 years, going from $221,800 in 2010 to $425,150 in 2023.

The value of your home typically rises as you pay off your mortgage. Assuming your home value grows over a long period of time, you’ll be able to sell your home for enough to make a substantial return on your investment.

Money Savings On Rent

One of the biggest advantages of owning a home is that you’re not spending money on rent every month. Money that goes toward rent is unrecoverable. If you put that money toward a mortgage, however, you’re working toward fully owning something tangible that can increase in value over time.

Data from the Census and Economic Information Center (CEIC) estimates that house prices were up 3.9% year-over-year in June 2023. If you paid rent during this same period, you missed out on potential returns.

Greater Financial Stability

For many people, owning a home is a good investment that leads to greater financial stability. In fact, according to 2022 data from the National Association of REALTORS^Ⓡ Research Group, homeowners have an average net worth of $300,000, which is 37 ½ times the net worth of renters at $8,000.

This can be attributed to homeowners building equity when they make mortgage payments and/or their home’s value increases. In some situations, homeowners have the option to tap into their home equity as a source of cash, whereas renters might have to rely on a personal loan or a credit card.

Tax Deductions

Certain tax benefits come with owning a home. For example, if you itemize your deductions on your tax return, you can deduct mortgage interest and property tax payments on your taxes every year. That said, you should only itemize your tax deductions if it makes financial sense.

For reference, according to the Internal Revenue Service (IRS), here are the standard tax deductions for tax year 2024:

• Head of household: $21,900
• Single taxpayers and married individuals filing separately: $14,600
• Married couples filing jointly: $29,200

To determine whether it’s worth it to itemize deductions, calculate your homeowner tax deductions and any other deductions you’re eligible for. If this number is greater than your standard deduction amount, it will likely be in your best interest to itemize.

Lifestyle Benefits

Like financial benefits, lifestyle benefits can help make buying a home a good investment. For example, homeowners typically have more square footage than renters, and the extra space may be more conducive to raising a family. The median square footage for U.S. homes in the third quarter of 2023 was 2,221 square feet, whereas the median square footage for apartments  was about 979 square feet.

Additionally, when you rent an apartment or a home, you have limited options for decorating or making changes. For instance, most landlords won’t allow tenants to paint the walls or add solar panels. But when you own your home, you have control over those decisions and can take steps to potentially increase your home’s value.

Why You Might Not Think Of A House As A Good Investment

For many people, buying a home is a wonderful decision that can lead to peace of mind and a sense of security. But that doesn’t mean everyone who buys a home is making a wise investment. Let’s look at a few reasons buying a home at this time may not be the best idea for everyone.

High Closing Costs

Some people don’t factor in all of the expenses that come with a home purchase. For instance, unless an alternative arrangement is made with the seller, new homeowners have to cover closing costs, which are usually 3% – 6% of the loan amount.

So, if your home is worth $250,000, closing costs would be an additional $7,500 if they fall on the lowest end of this scale. If they’re on the highest end (which could happen if you buy mortgage discount points), you would pay $15,000 in closing costs.

Maintenance Costs

Maintaining a home can be expensive because of regular maintenance costs you’ll have to deal with. On average, you can expect to pay 1% – 4% of your home’s total value on routine maintenance every year.

So, if you own a $250,000 home, you can expect to spend $2,500 – $10,000 a year on costs related to various forms of maintenance, including:

• Mowing and treating your lawn
• Cleaning out vents
• Clearing your rain gutters
• Having appliances serviced
• Paying for pest control measures
• Pool maintenance

Keep in mind that these costs are for general maintenance only and don’t include the costs for any major home repairs, such as replacing your roof.

Possible Depreciation

Appreciation is important to consider when you’re trying to determine whether a home is an investment. If the appreciation rate is high enough, the added value you’ll earn from the home will make the investment worth it within a certain period of time.

However, be aware that it’s possible at some point to encounter a situation like the subprime mortgage crisis of 2007, which caused housing prices to dramatically decrease in a short period of time. Additionally, the physical structure of your home will naturally experience wear and tear over time. That’s why it’s important to be proactive about maintaining your home.

Difficulties Timing The Market

Many people believe homes are a good investment because housing prices will continue to go up and homes will increase in value. In a good economy with a strong market demand, that’s true.

But timing the market and selling your home in a way that maximizes your profit can be tricky. For this to happen, you’ll have to purchase your home in a buyer’s market, which means the market has more sellers than buyers.

Challenges In A Buyer’s Market

In a buyer’s market, you’re more likely to get a better deal on a home purchase. Conversely, you’re better off selling your home in a seller’s market, where the number of buyers exceeds the number of sellers.

Challenges In A Seller’s Market

In a seller’s market, you can command higher prices for the home you own, and you may even be able to get a bidding war going to drive up the price. However, it’s incredibly difficult to get both scenarios just right. Many people will either sell too soon or wait too long to sell, failing to maximize their profit.

Choosing The Right Location To Buy Your House

When you invest in a home, you aren’t just purchasing the structure you plan to live in – you’re also investing in the plot of land beneath it. While you could alter the size or condition of your house, you can’t change the location of where it stands. It’s important to keep this in mind when purchasing a home.

After all, your location is a major factor in how much your home appreciates. For example, from November 2022 – November 2023, home prices increased by about 9.8% on average in the New England region of the U.S., while homes in the West South Central region only increased by about 3.1%.

House Price Change By Census Division

*Annual Division Rankings are based on house price increases from November 2022 – November 2023.

Sources: FHFA HPI Quarterly Report Q1 2023 and FHFA HPI Monthly Report Through November 2023

When choosing a location to buy your home, you should also consider its proximity to local communities, the size of your plot of land, and the level of development of the city you’re located in. These factors will all play a role in the value of your home and how it appreciates.

Should You Buy A Home?

Buying a house can be a good investment for several reasons, but that doesn’t necessarily mean doing so is the right move for you. When considering whether you should buy a home, carefully review your finances, as well as the pros and cons of homeownership mentioned in  this article. Then, you should be able to confidently make the right decision for your unique situation.

FAQs About Investing In A House

Still trying to decide whether buying a house is a good investment for you at this time? Take a look at some of the most frequently asked questions on this topic – and see their answers.

Is buying a house worth it?

Buying a house is worth it if you’re financially stable, looking for a place to live and want to build equity for the long term. However, it’s often a good idea to spend time researching your housing options and saving for a down payment before you purchase a home.

Is owning a house a good investment?

In the long run, owning a home is a good investment. When you rent, your money goes to your landlord, whereas you can see a return on your investment over time when you put your money toward a home.

Is buying a house a tax writeoff?

If you itemize your deductions, you may be able to deduct property tax payments, mortgage interest, home office expenses and more from your taxes. But before you itemize your deductions, it’s important to make sure you’ll come out better than you would by taking the standard tax deduction.

Is buying a second house a good investment?

Buying a second home can be a good investment if it allows you to return to a vacation spot repeatedly without having to arrange and pay for a hotel stay. A second home can also be a good investment if you’re able to rent it out and collect more in rent than it costs to maintain the property. And, since home values can appreciate over time, your second home has the potential to significantly increase your wealth.

The Bottom Line

If you’re financially stable and need a place to live, buying a home can be a great investment. With a fixed mortgage rate, you could stop pouring money into rent, start building equity and enjoy the tax deductions that come with being a homeowner.

That said, closing and maintenance costs can increase the cost of your home, meaning you want to be on solid financial footing before you invest.

If you’ve weighed the pros and cons and believe you’re ready to buy a home, connect with Rocket Mortgage^Ⓡ today so we can help you navigate the home loan process. You can take the first step toward investing in a home by starting your mortgage application online.