Buffet purchased his first stock when he was 14 year old in 1941 and he bought his house in 1959. Many wealthy people concentrate on achieving something with their career (job or business) before purchasing a house. Buying a house is certainly one of the most important decision of life as it is the most expensive thing you will buy - car being the second most expensive thing. Buying a house - in my opinion - is not the most smartest financial decision - however it is more or less an emotional decision - as you will spend minimum of decade of your life in it (on average) - For many people they spend their rest of the life span in it - so it has to be the very right decision.
There are lot of variables involved in terms of buying a house. Unlike a popular opinion - that when you buy a house, you are building an house equity - but at the same time, you are also taking a bigger debt that you have to pay - no matter what. Let's take a simple example of an average house price of 300,000$ - for someone who is just started their career. Assuming that you have 20% money to put down as down-payment (60,000$ + closing prices + escrow money + small repairs) roughly equal to 75,000$. You may buy some new furniture and that amount may very well go to around 80,000$. So, you have to have 80,000$ to buy a home - if not - you will pay Mortgage insurance and most likely slightly higher interest rate on your mortgage.
Let's look at the path of someone who didn't bought the house with 80,000$ (30 years back) - 1992 and invested that money in stock market (S&P 500).
If you had invested $10,000 in the S&P 500 index in 1992 and held on with dividends reinvested, you'd now have more than $170,000. (From Google) - so if you had invested $80,000$ in the S&P 500 index in 1992 then that would have been - 1.36 Million US Dollars.
It is hard to guess value of the house bought in 1992 - as it strictly depends upon "Location", however, looking at average price of housing in 1992 and comparing it in the 2022 will give a rough idea.
Home prices rose steadily through the '80s, peaking in 1989 with an average price of $151,200 before sliding to $141,700 in 1992. (Google)
The average home price in the U.S. is $348,079 in 2022. (Google)
So, by this logic - 300K house in 1992 might be valued today at 736,935$. Bear in mind - house that you might have bought in 1992 might already be 15-20 year old + 30 year - which means you are selling that house which is roughly 50 year old in 2022. So, 750K seems like a reasonable amount to go to for an old house.
Now, just by literal calculation - you are at least half a million dollar ahead by investing in the stock market compare to house. Now, when you buy a house, you have agreed to make mortgage payment for next 30 years. Apart from the mortgage payment, you will have to pay property taxes, sewer charges, association fees or trash removal fee/cleaning snow fee and other maintenance which you might not have paid if you might have Rented a place. On an average, you would have ended up paying 500$ to 1000$ per month on added expenses - just because you bought a house and not renting it. Even if we go by 500$ (on minimum side) - that is roughly 180,000$ over the next 30 years. Should you consider dollar cost averaging just that amount and invested in S&P 500, that might have fetched you another million dollar by 2022.
It was probably easy in last 10 years or so to buy a house as mortgage interest rate were very reasonable around 3 to 4% for a 30 year loan. It is also easy to rent that property and collect rent which may pay for mortgage and other expenses but now with interest rate close to 7%, you may not be able to pass down the entire expense to the renter. It is specially difficult to keep an house in a state where property taxes are as high as 2.5 to 3% of property value.
300K house you may think of buying in a state like New Jersey - you will end up paying 400K in mortgage loan + 300 K in Property Taxes + 200K in other expenses. So your total expense to own that house in 30 years might be 1.2 Million Dollars. Would you recover all that money after 30 years for a house which might be 50 year old in 2052? Assuming that house value goes to 1.2 Million dollar, you just made it even.
I bought a house in 2014 for 323K which is now valued at 460K - roughly 40% increase in 8 years (which is normal in real estate which goes up 5% annually) comparing that to SPY which is up 230% (from 180 to 414).
Now - This does not mean, no one should buy a house. I am only saying - it is not a good financial decision to buy a house as there are other better alternatives. Buying a house is an emotional decision. You buy a house when you are mentally prepared to be in that house for minimum of 10 years - You especially buy a house when you have a family with a kid as growing up a kid gets a better environment living in a house (compare to rented place) and a better schooling district as well. You may buy a house as part of diversifying your wealth as real estate is considered as the most safest asset class.
