Homeownership Not Always the Path to Prosperity It's Said to Be

NEW YORK (TheStreet) -- The spring home-buying season is limping along, suffering from a sluggish economic recovery, a shortage of inventory and tight lending standards. To pour salt in the wounds, in many markets buying is now a better financial option than renting.

But if you'd like to buy and can't, don't feel too bad -- homeownership isn't always the path to prosperity that many make it out to be. We've often noted that, on average, home values don't rise as fast as stock prices, making stocks and stock funds a more profitable choice for long-term investors. Last year homes gained an impressive 12%, while the Standard & Poor's 500 returned a stunning 32%.

But poor investment returns are just one of several reasons to avoid sinking every cent into a home.

New York Times columnist Josh Barro noted Monday that the homeowner, instead of seeing the home as an investment, should view it as "consumption good" like a lifetime supply of chicken breasts. But people resist thinking of homes this way.

"[Because] housing consumers tend to take long-range equity interests in housing, they come to view housing as an investment, which distorts the housing market in the directions of restricted supply, inflated prices and speculation," he said.

The investment illusion is easy to understand because so many of us have known people, like our parents, who bought homes for what now seems a pittance, and later sold them for hundreds of thousands of dollars. The truth is, the same sum invested in stocks over a 30- or 40-year period probably would have grown much more.

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