These results are based on extrapolating National Association Of Realtors® existing home sales data going back to 1970 which is the first year that they started tracking this data. According to the existing home sales data which can be found on HUD’s web site the average price of a single family home in the U.S. in 1970 was $25,700. 30 years later by the year 2000 the average price of a single family home was $178,500. This works out to be a multiple of almost 7 times more than the average price 30 years later.
Now we don’t know if housing prices will grow at the same pace over the next 30 years but we do know that based on the combination of strong population growth and an increase in inflation that real estate prices will certainly increase substantially over the long term.
In the above example, 30 years later, a home owner with a home that is paid off has an almost free place to live in their retirement years (you still have to pay property taxes, insurance and repairs). Compare that to the cost of paying rent for the rest of your life. If rent increased by just 3.5% per year then after 30 years that same house that was renting for $1,200 would be renting for $3,368.
When you look at these numbers you see that being a long term renter compared to being a home owner will have dire consequences down the road especially over the long term. Unfortunately in real estate most people look only at the short term (for example what happened between 2007 and 2013). People under the age of 30 have the most to gain by becoming home owners although with prices so low right now is a great time for anyone to be buying real estate. If you have good credit then you should definitely make the decision to buy instead of renting. If you keep renting, then your cost of living will continue to go up each year just like in the example above.
As you can see based on the past historical housing data owning real estate will always pay off in the long term if you hold the real estate long enough. Short term booms and crashes like we saw over the past few years (see the HUD data in the chart from 2003 to 2012) are exactly that – short term. If you look at long term data that is 30 years or more then you see that over time real estate prices in the U.S. increase substantially. As long as you believe in the future of the U.S. and the fact that the population will continue to grow and people will continue to immigrate to the U.S. then investing in real estate by buying your own home and keeping it for the long term is a great investment.
If you are currently renting your home and you have good credit, then in many cases depending on where you live this could be the best opportunity in your lifetime to buy a house at an affordable price. As we showed you in the example above, in many cases the monthly payment could be the same amount or even less than what you are currently paying in rent. This might not apply if you live in San Francisco, New York or other expensive housing markets. But it will apply to most cities and states in the U.S. The market crash and foreclosure crisis of the past few years has created a unique situation where for the first time in many years purchasing a home is actually affordable. Remember, this is the best time in your life time to be buying real estate.