Wednesday, May 27, 2009

Housing Investment

Brett Arends has an interesting article in the WSJ on long-term home values:
Since 1987, when the Case-Shiller index of 10 major cities begins, it's risen from an index value of 63 to 151. Annual return: Just 4.1% a year. During that period, according to the Bureau of Labor Statistics, consumer prices rose by 3% a year. Net result: Home prices produced a real return of just 1.15% a year over inflation over that time.
I use 4% to do my personal long-term financial planning. I didn't have any specific reason for that number, the local newspaper suggested the ROI had been 6% for my area and I wanted to be conservative. Maybe I wasn't conservative enough.