What Buying a Home Really Does for Your Wealth

It looks like a wealth machine at first glance — but once you adjust for inflation and real costs, the magic fades. Here’s what homeownership really does (and doesn’t do) for your financial future.

We’re told from an early age that buying a house is the best investment you’ll ever make. It’s a financial rite of passage, a guaranteed wealth-builder. But when you peel back the layers and run the numbers, the truth is far less glamorous.

Let’s be clear: buying a home isn’t a bad decision. It has some unique financial benefits—including some protection against inflation (unlike cash rent) and, more importantly, the kind of behavioral discipline that few people impose on themselves. But it’s not the wealth-builder most people think it is. The biggest gain often isn’t in home value—it’s in habit formation.

Because let’s face it—nothing inspires regular payments quite like the prospect of being homeless if we don’t make our payments. That’s the unspoken genius of a mortgage. It forces people to build equity whether they want to or not. Contrast that with investing: miss a monthly contribution to your Roth IRA and the only consequence is… slightly fewer future dollars. It’s an easy corner to cut. And over time, those skipped contributions quietly destroy wealth.

The Myth: A Home Is a Great Investment

Many people see buying a home like buying stocks: you put money in, the value goes up, and one day you cash out rich. But here’s the problem: homes don’t behave like stocks. They behave more like bonds with a roof and a lawn.

Take my brother’s home, for example. In 1992, with a young family and a new job, he left apartment life behind and bought a $130k house (I know, $130k sounds like a typo. But that’s inflation for you!) south of Seattle— a region already starting to hum with tech-driven growth. It was a great home, close to our extended family, in a place where he could imagine raising kids. Thirty-two years later, that house is now worth $565k. When you first hear that number, it sounds amazing. A nearly fourfold increase! Most people would respond with a genuine, “Wow, that’s a great investment!”

But take a step back. Run the numbers. That nominal growth translates into about a 4.7% annual return. Still respectable—but not eye-popping. Then adjust for inflation. Based on CPI data from the U.S. Bureau of Labor Statistics, the inflation-adjusted purchase price is about $290k. So the real return over 32 years? Just 2.1% per year. That’s barely better than Treasury bonds.

This is a great example of how inflation can fool you into thinking there have been huge gains in real asset value when, in reality, the gains were modest.  To learn more about how inflation quietly erodes value check out my post titled Why Cash is the Silent Portfolio Killer.

Just for comparison, if he had invested that same $130k in the S&P 500 in 1992, it would be worth about $3.2 million by the end of 2024. That’s based on actual historical total returns — a 10.5% annualized return over that time.

For context, the long-term average return of the S&P 500 since 1926 is about 10.4% per year. So this wasn’t an unusually lucky period—it’s what long-term investing can really deliver. Of course, stocks don’t provide a roof over your head. But it shows that when it comes to growing wealth, investing beats home ownership by a mile.

What Happened to U.S. Home Prices Nationally?

My brother’s experience wasn’t an outlier.  According to the S&P CoreLogic Case-Shiller U.S. National Home Price Index, home prices rose from an index value of approximately 74.74 in 1992 to about 324.92 in early 2025. That’s a nominal increase of about 335%, or roughly 4.6% per year.

Meanwhile, inflation-adjusted prices (based on BIS Real Residential Property Price Index, with 2010 = 100) increased from about 100 in 1992 to 162.23 in 2024. That’s a real increase of around 62%, or about 1.6% annually in real terms.

Sources:

• S&P CoreLogic Case-Shiller U.S. National Home Price Index
• BIS Real Residential Property Prices

My brother’s real return of ~2.1% annually actually beat the national average a bit. But not by much. The broader point holds: homes appreciate slowly in real terms.

What It Really Costs to Own a Home

And that’s before you factor in the real costs:

• Mortgage interest (even with a refinance in 2003)
• Property taxes (which grow with home value)
• Maintenance (1-2% of home value per year)
• Insurance
• Transaction costs when you sell

Here’s what the total cumulative cost of ownership looked like:

Category	Total Spent (1992-2024)
Mortgage P&I	~$307k
Property Taxes	~$96k
Maintenance	~$89k
Insurance	~$18k
Total	~$510k

At the end of it all, he has a home worth $565k after putting in $510k. After selling costs, that’s about $531k in equity.  A pretty amazing demonstration of the power of home ownership versus renting.  He basically paid to have a place to live and then got all his money back and a little extra.  But when you layer on the illusion that this is also a great investment, it can fool one into thinking the bigger the home the better.

The Alternative: Buy Less, Invest the Rest

This brings us to a smarter middle path. What if you still bought a home—but not the biggest one you could afford?

Let’s say instead of buying a $130k home, you bought a $100k home. It’s still a stable place to live. It still protects you from rising rents. But the monthly costs—mortgage, taxes, maintenance, insurance—are significantly lower.

That’s exactly what our “Case 2” homeowner did—choosing a smaller home and putting the leftover money to work in the stock market.

By 2024, their investments had grown to nearly $750k. When you add in the equity from the home (adjusted for size and sale costs), their total net worth hit $1.16 million—more than double the wealth of my brother’s path.

The best part? They still had the stability and inflation protection of homeownership. This strategy didn’t require renting. It just required resisting the temptation to buy more house than they needed.

Which Housing Path Builds the Most Wealth?

Let’s walk through four distinct paths someone could have taken starting in 1992:

Case 1: My Brother – $130K Homeowner
He bought in 1992 for $130k and ended up with a home worth $565k in 2024. After $510k in total costs (mortgage, taxes, insurance, maintenance), he nets about $531k in equity after selling costs.

Case 2: $100K Homeowner + Investing the Difference
Spending less on housing (~$402k total), this homeowner invested the savings annually into the S&P 500. Those investments grew to about $750k by 2024. Combine that with the home’s equity (adjusted for lower value and selling costs), and this person ends up with ~$1.16 million in total wealth.

Case 3: Renter (No Investing)
Lived in a home of equivalent value to the $130k house — same quality, same neighborhood, just rented instead of owned. Over 32 years, rent payments added up to about $393k. And as rents rose with inflation, every year cost more than the last. The renter never built equity, never invested, and ends up with nothing to show for decades of payments — except the knowledge they were helping their landlord build wealth.

Case 4: Renter Who Invested the Difference
Same rent as Case 3, but invested roughly $6k/year in the early years (though this amount gradually shrinks over time as rents rise and homeowners benefit from fixed costs).

But there’s a catch. It takes serious willpower. There’s no landlord to evict you if you skip a few contributions. No risk of homelessness. Just the quiet erosion of future wealth every time you choose to spend instead of invest.

And unlike homeowners who lock in a fixed-rate mortgage, renters live with uncertainty. Rents rise with inflation — sometimes faster — and if housing prices spike or supply shrinks, it can dry up the cash that was going toward investing. Owning a home doesn’t just build equity—it stabilizes your monthly cash flow in a way renting rarely does.

Here’s a quick comparison:

Scenario	Total Housing Cost / Rent Paid	Investment Value	Net Home Equity or Wealth
Case 1: $130K Homeowner (My Brother)	$510k	$0	$531k
Case 2: $100K Homeowner + Invested Savings	$402k	$750k	$1,160k
Case 3: Renter (No Investing)	$393k	$0	$0
Case 4: Renter + Investing the Difference	$393k	$1,070k	$1,070k

As you can see, disciplined investing makes the biggest difference. But it’s hard for many people to stick with unless something forces it. That’s the real magic of a mortgage: it forces you to save. Miss a payment and you lose your house. Renting requires more discipline because no one is forcing you to invest the difference.

### What’s the Real Takeaway?

When you buy a home, you’re paying for three things:

1. **Lifestyle** – A place to live.

2. **Stability** – Fixed payments and protection against rising rents.

3. **Wealth-building** – Gradual equity growth through forced savings and modest appreciation.

Renters, by contrast, are paying only for **lifestyle**—and often without long-term stability.

Unless they consistently invest the savings from not owning, they’re helping someone else (their landlord) build wealth instead.

If you want to build wealth with maximum efficiency, **you have to invest intentionally**. That means treating investing like a priority, not an afterthought.

And while primary homes can absolutely build wealth over time, it’s important to understand that they’re not pure investments.

When you truly invest in real estate—by owning rental properties—you gain appreciation **and** rental income.

But your primary residence? That’s mostly about lifestyle and discipline.

So here’s the distilled wisdom:

🏡 **Don’t confuse lifestyle spending with investing.**

💰 **Buy what you’ll live in—not what you think will make you rich.**

📈 **Use your savings margin (from buying modestly or renting cheaply) to invest early and consistently.**

In the long run, **homes provide shelter and structure**. But it’s your investing habits that will build freedom.

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Disclaimer: This content is for informational purposes only and should not be considered financial advice. Always consult with a professional before making financial decisions.