Britney and I got married at her church in Arkansas and one of the pre-requisites for marrying at the church was attending a couple of marriage preparation workshops. At one of the workshops, a professor from the University of Arkansas came and discussed financial topics. One of the things that stood out to me most at the time was his insistance that a house should not be treated as an investment but, rather, should be viewed as an expense. I didn't understand that at the time - as I'd always heard that a house is one of the best investments you can make. After my year of heavy home-related costs in 2007 and seeing what's happening in the real estate market of late, however, I'm beginning to see his logic.
SmartMoney ran an article about this very subject back in 2002 and it does a far better job explaining why a home is an expense rather than an investment than I could do in a brief blog post. Take a minute to read the article.
The gist of it is that even with a nice appreciation rate, the costs associated with home ownership (closing costs, maintenance, taxes, insurance, broker fees, etc.) offset the benefits from tax breaks and appreciation. Home ownership does free you from the black hole of renting and can, if done correctly, allow you to free up some of your income (especially in the future when your mortgage payment on the loan you got years ago likely will look small compared to current market rates). That income can then be put into some wiser investment choices.
It's an interesting premise. Check it out.
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