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I could not believe this:

Robert Bridges: A Home Is a Lousy Investment: At the risk of heaping more misery on the struggling residential property market, an analysis of home-price and ownership data for the last 30 years in California—the Golden State with notoriously golden property prices—indicates that the average single family house has never been a particularly stellar investment. In a society increasingly concerned with providing for retirement security and housing affordability, this finding has large implications. It means that we have put excessive emphasis on owner-occupied housing for social objectives, mistakenly relied on homebuilding for economic stimulus, and fostered misconceptions about homeownership and financial independence. We've diverted capital from more productive investments and misallocated scarce public resources.

Between 1980 and 2010, the value of a median-price, single-family house in California rose by an average of 3.6% per year—to $296,820 from $99,550, according to data from the California Association of Realtors, Freddie Mac and the U.S. Census. Even if that house was sold at the most recent market peak in 2007, the average annual price growth was just 6.61%. So a dollar used to purchase a median-price, single-family California home in 1980 would have grown to $5.63 in 2007, and to $2.98 in 2010. The same dollar invested in the Dow Jones Industrial Index would have been worth $14.41 in 2007, and $11.49 in 2010.

First of all, you get to live in a house. You don't get to live in your Dow-Jones Industrial index. The choice is not between investing $99,550 in a house from 1980 to 2010 and investing the same amount in the DJIA: it is between:

  1. Investing $99,500 in a house in 1980 and selling it in 2010
  2. Investing $99,500 in the DJIA in 1980, and paying rent each year--a rent of $5000 per year at the start, rising gradually to $15,000 per year.

If you have to take the rent out of your DJIA account every year, your dollar invested in the DJIA grows to only $3.42 by 2010--not $11.49.

If you invest your money in the same kind of home that you would live in anyway, the long-run historical record shows that residential housing and equities deliver roughly equal returns as asset classes once you take account of the fact that you get to live in your house.

Why does Robert Bridges say otherwise? I have no idea...

Why didn't any editor at the Wall Street Journal say: "Wait a minute! Is this right?"? I have no idea...

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