Is a house a good investment?

Judged only by returns, "is a house a good investment" gets a no. NYU professor Aswath Damodaran maintains the long-run data. Between 1928 and 2025, real estate gained about 4.2% each year, versus 10.0% for the S&P 500. The owner then uses that lower return to pay tax, insurance and repairs. Besides shelter and a fixed payment, a house helps you build savings that you can't skip.

What happens when you compare a home with stocks?

In Damodaran's table, $100 is tracked from the start of 1928. With dividends, $100 in the S&P 500 grew to about $1.16 million by the end of 2025. Real estate turned the same $100 into $5,626.

The same pattern appears over a shorter period. Based on the FHFA house price index, US home prices increased about 12 times from early 1975 through 2026, averaging 5.0% yearly. Between 1975 and 2025, the S&P 500 with dividends increased about 383 times, equal to 12.4% a year.

Stocks have the more uneven path. The same NYU table shows the S&P 500 lost 36.55% in 2008, while real estate lost 12.00%. Steady prices have value when a crash would lead you to sell.

How much equity do you build after one year?

The part of the home that you own outright is equity. Your equity increases when prices go up or the loan balance falls. Paying down the loan starts slowly because most of each payment goes toward interest, according to the CFPB.

Consider a typical US home priced at $332,700, with 20% down and a 7.24% rate. Its monthly payment is $1,814. Interest accounts for $1,599 during year 1. Just $215 a month goes toward equity. You can see the full breakdown in rent vs mortgage.

The down payment also has a cost. You pay $66,540 down plus $11,645 in closing costs, leaving $78,185 no longer invested. That cash would generate $541 each month in year 1 at an annual rate of 8.3%. Our rent and invest vs buy analysis follows the money for 30 years.

Is a house a good investment after costs?

A fund has no need for a roof, and it sends no tax bill. A house needs both every year, and each bill reduces the return. For a typical US home:

• Property tax is 0.94% of the value each year, or about $261 a month.
• Insurance costs about $1,308 a year, which is $109 a month.
• Maintenance at 1% of the value adds up to $277 a month.
• You pay 3.5% of the purchase price in buying costs and 6% in selling costs.

Zillow and Thumbtack place tax, insurance and upkeep for the typical owner at $16,566 each year. Add interest and the lost return, along with buying costs spread over 7 years. About $2,950 a month doesn't come back, while the median rent is $1,413. You can see every cost in the cost of owning a home.

When is buying a home a good investment?

Buying works when local rents are high compared with home prices and you stay long enough. For 7 years, 176 of our 813 cities show a buying advantage, with another 57 ending in ties. The median break-even point falls in year 10 wherever owning catches up.

Two rules favor the owner. With 20% down, you keep every dollar that the entire house gains in value. Upon selling your main home, you may exclude up to $250,000 of gain under IRS rules; on a joint return, that amount is $500,000. Gains from a renter's fund face taxes when sold.

The price compared with rent shows where home prices are low beside rents. Across our cities, the median ratio is 18.5. These cities give buying the biggest lead:

Sources: Zillow Home Value and Observed Rent indexes, and results from our rent vs buy method, assuming 20% down across 7 years.

Does a home serve as an investment or as a place to live?

It's mainly where you live, with a savings plan attached. In the end, owners do have more wealth. The Federal Reserve reports that in 2022, the median homeowner's net worth was $396,200, compared with $10,400 for renters. Owners are also generally older and earn more, meaning the house explains only part of the gap.

Some of that difference comes from habit. Nobody chases you when you skip a fund deposit. Each month, your mortgage bill arrives. With a fixed-rate loan, your principal and interest payments don't rise, even though rents have gone up about 3.5% a year since 2006.

Try the rent vs buy calculator with your own numbers, or check the rent vs buy city list for where you live.