Housing still a good investment in some US cities

It seems like everyday there is a headline about the Death of the American dream, or how home ownership is not worth it anymore.  I disagree.   Moreover, I predict that owning a home in many US cities over the next 20 years will be a worthwhile investment, if done right.

Here’s why:

1. Population growth.  The US population continues to grow via births as well as immigration.   More people = more demand for housing–but not just anything, anywhere.

2. Certain metros will have flourishing economies, attracting a disproportionate share of the growing population.  Cities on both coasts, plus certain interior cities like Chicago I expect to be particularly prominent.  Owning a home in many areas of these metros will be a solid if not excellent investment over a 10-20 year horizon.

3. Location will matter within these more dynamic metros.  Moving around a metro by private automobile will get more expensive as oil prices rise and congestion results in more toll roads and parking costs downtown increase.  Moreover, people are increasingly placing a value on their time and don’t wish to commute 2 hours per day.  Therefore, homes close to–or in–major employment, entertainment and shopping nodes will rise in value as will those attached to clean, efficient rapid transit lines.  These homes are worth owning, or developing.  Many come with geographic constraints (limited supply, growing demand which means higher prices).

4. Over time, city, country and metro governments will recognize the need to offer more housing in close proximity to employment and shopping/entertainment nodes.  That is, they’ll look to undo the 1950s suburban model of separating everything.  They’ll change zoning to allow for new urban nodes that include office buildings, entertainment space, restaurants and retail to spring up closer to homes (or even integrated with residential buildings).  Zoning will also allow for multifamily homes (whether row houses, condo towers or apartments) to be built near existing urban nodes.

Property values will go up as a result either because your home is now closer to jobs or transit, or because the land is now more valuable as one could build townhouses or apartments/condominiums on it (housing more people).

The key to a good investment is to buy for the right reason.  For example, buying a house today near transit or near an employment node, raising your family in it, making all your mortgage payments (and not borrowing the equity back), and looking to sell in 15-20 years will result in a great retirement bonus–if you picked the right city and right location.

And, when you think about it, wasn’t this the essence of the American Dream way back: work hard, buy a house, pay it down, then sell at the end to retire or help your kids.  This is true home ownership.  What was going on over the past decade was about speculation and gambling more than home ownership.

5 comments

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  2. Derek says:

    I think that you agree with those arguing that housing isn’t the investment it used to be. In real estate markets (e.g., Chicago, New York, San Francisco) where the demand for housing is relatively inelastic because of solid economic performance, housing will still be a good investment if done in the right area, for the right price, etc.

    However, in places like Warren, Michigan, and other post-war suburbs that historically provided stable returns to housing investments, it won’t make sense. The value of houses in those areas won’t rise in the same way that they had since World War II. Likewise for housing in cities such as Phoenix. As the articles argue, prices for housing in these areas will at best rise with the rate of inflation, and probably not even that well in most areas. That represents a drastic change from the understanding that the country had had since the war.

  3. Wendy Waters says:

    Derek,

    You’re right. In some places housing will be a really bad investment. What I’m trying to encourage people to see is that you can’t paint the entire country of the USA with one brush.

    The US has lots of great places to invest in housing.

  4. Kristen says:

    I was just thinking about this on the way home tonight as I saw several small homes for sale, that were clearly owned by people trying to flip and/or make extra money through rent, but couldn’t afford to do it anymore. I think if we buy as much house as we can afford, with the intent of staying put, then we will be better off. My mom bought her house ten years ago, bought what she could afford and is now able to help me get back on my feet (recent uni grad, current grad student). It’s all about good money management.

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