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Is Buying A Home A Good Investment?

Victoria Araj8-minute read

October 28, 2022

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

That said, housing prices have surged in recent years. According to Federal Reserve Economic Data, the median housing sales prices of homes sold in the U.S. have increased by approximately 33% from 2020 – 2022. Additionally, the national homeownership rate in 2022 was 65.8%, meaning that 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

The Top Benefits Of Investing In A Home infographic

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Long-Term Home and Equity Appreciation

U.S. Median Sales Price of Homes Sold from 2010 – 2022

Year

Average YoY (Year Over Year) House Price

2010

$222,900

2011

$226,900

2012

$238,400

2013

$258,400

2014

$275,200

2015

$289,200

2016

$299,800

2017

$313,100

2018

$331,800

2019

$313,000

2020

$329,000

2021

$369,800

2022

$433,100

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 sales price almost doubled from $222,900 to $433,100 from 2010 – 2022. 

This means that 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 then be able to sell your property for enough to make a substantial return on your investment.

Money Saved on Rent

One of the biggest advantages of owning a home is that you save money on rent every month. Money spent on rent is an unrecoverable cost. If you put that money toward your mortgage, however, you’re working toward owning something tangible that can increase in value over time.

Data from CEIC Data estimates that house prices grew 17.5% YoY in March 2022. Compared to the average returns seen from investing in stocks (approximately 10% annually), this ROI is on the high side. If you paid rent during this same period, you’d have missed out on potential returns.

Greater Financial Stability

For many people, owning a home leads to greater financial stability. In fact, according to a 2020 survey by the Federal Reserve Board, homeowners have a net worth of $255,000, more than 40 times the $6,300 net worth of renters.

This can be attributed to the fact that you are building equity when you invest in a house, as well as maintaining healthy financial habits. First, you have to save for a down payment, then you must qualify for a mortgage. From there, the responsibility of monthly mortgage payments can motivate you to maintain a strict budget.

Tax Deductions

There are certain tax benefits of owning a home. If you itemize your deductions, 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 sense financially.

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

  • Head of household: $19,400
  • Single taxpayers and married individuals filing separately: $12,950
  • Married couples filing jointly: $25,900

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 corresponding standard deduction amount, then it may be in your best interest to itemize.

Lifestyle Benefits

Other than the financial benefits, there are also lifestyle benefits to consider when investing in a home. For example, homeowners typically have more square footage than renters, which is more conducive to raising a family. The median new home in the U.S. in 2021 was 2,534 square feet., whereas the average apartment size in 2019 was less than 900 square feet.

Additionally, when you rent an apartment or home, you have limited options when it comes to decorating or making changes. For instance, some landlords won’t allow you to do things like paint or add solar panels. But when you own your home, you have control over those decisions.

Why You Might Not Think Of A House As An Investment

Why You Might Not Consider A House An Investment infographic

For many people, buying a home is a wonderful decision that can lead to a sense of security and peace of mind. But that doesn’t mean you’re creating an investment when you buy a home. Let’s look at a few reasons why.

High Closing Costs

Most people don’t factor in all of the additional expenses that come with purchasing a home. For instance, new homeowners have to cover closing costs, which are usually between 3% and 6% of the total loan amount.

So, if your home is worth $250,000, closing costs could be an additional $7,500 if they fall on the lower end of this scale. If they fall on the upper range (which could happen if you buy mortgage discount points), you could end up paying $15,000 in closing costs.

Maintenance Costs

Maintaining a home is expensive because there are ongoing maintenance costs you’re going to have to deal with. On average, you can expect to pay 1 – 4% of your home’s total value on routine maintenance.

So, if you own a $250,000 home, you can expect to spend $2,500 – $10,000 a year on maintenance costs. This includes things like:

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

Keep in mind that these costs are for general maintenance only. That doesn’t include the cost of major home repairs, like replacing your roof.

Possible Depreciation

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

However, there have been situations such as 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.

Timing the Market Can Be Difficult

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

But it's difficult to time the market and sell your home in a way that maximizes profit. In order for it to work, you’d have to buy your home in a buyer’s market, which means there are more sellers than there are buyers.

In a buyer’s market, you’re more likely to get a better deal on your home. Conversely, you’d want to sell your home in a seller’s market, where there are more buyers than sellers.

In a seller’s market, you can command higher prices for your home and 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.

Choosing The Right Location To Buy Your House

When you invest in a home, you aren’t just purchasing the structure that 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 that contributes to what extent your home appreciates. For example, from 2021 – 2022, homes increased in value by about 24% on average in the Mountain Census Division of the U.S., while homes in the Middle Atlantic only increased by about 15%. This makes for a 9% annual difference in appreciation rates.

 

House Price Change By Census Division

Division

1991 – 2022

2017 – 2022

2021 – 2022

Annual Division Ranking

U.S.

275.05%

59.81%

18.73%

 

Mountain

459.27%

82.76%

24.04%

1

South Atlantic

292.09%

67.00%

22.65%

2

East South Central

246.34%

61.37%

20.65%

3

Pacific

347.90%

65.61%

20.01%

4

West South Central

284.41%

53.05%

18.55%

5

New England

244.67%

55.82%

16.44%

6

East North Central

199.03%

52.95%

15.01%

7

West North Central

252.70%

49.99%

14.61%

8

Middle Atlantic

223.79%

50.11%

14.58%

9

 

*Annual Division Rankings are based on house price increases from 2021 – 2022.

Source: FHFA HPI Quarterly Report Q1 2022

 

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 how valuable your home is and how it appreciates.

Home Investing FAQs

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 in the long term. That said, you should 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 when you put your money toward a home, you can see a return on your investment over time.

Is Buying a House a Tax Write-Off?

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 that the money you’d save is greater than standard tax deductions.

The Bottom Line

If you’re financially stable and need a place to live, buying a home can be a great investment. With fixed mortgage rates, you could save money on rent, build equity and enjoy the tax deductions of being a homeowner.

That said, closing and maintenance costs can increase the cost of your home, meaning you want to be financially stable before you invest.

If you’ve weighed the pros and cons and believe you’re ready to buy a home, it’s a good idea to connect with Rocket Mortgage® today to help you navigate the home loan process and get approved.

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Victoria Araj

Victoria Araj is a Section Editor for Rocket Mortgage and held roles in mortgage banking, public relations and more in her 15+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.