Here's a question for you: Is buying the biggest house you can afford a better investment than buying a more modest one and investing the difference in the stock market?
The Foolish answer boils down to two factors: 1) the investment returns your home would generate for you as it appreciates in value over time vs. those of the stock market, and 2) how much more you'd enjoy living in that bigger home.
So let's begin with the nut of the matter: Is owning a home a good financial investment? The question itself is not at all nutty. Remember that the cash you invest could well provide all the cash you need for your retirement, and we ain't talking peanuts.
There certainly have been periods during which real estate has been a great investment. For most of the 1980s, for example, home values kept shooting up while demand exceeded supply. In the Doonesbury comic strip, Mike Doonesbury said that instead of working, he felt like staying home and watching while the house worked for him.
The same surely could be said of the housing market over the past few years -- which makes one wonder how much higher prices could go over the next few years. After all, baby boomers are turning 50 every 7 1/2 seconds (if you listen closely you can hear the sounds of arteries hardening), they already own their homes, so demand for houses may grow very slowly as that generation ages.
That doesn't mean a house you buy tomorrow won't be a good investment. You may find yourself in a hot market, for whatever local reason -- good beaches, an influx of trendy Hollywood stars, Elvis sightings, or whatever. But it's hard to predict.
Could your money do better elsewhere? We Fools certainly think so. There's been no better place to park your money over long periods than the stock market. It beats just about everything else out there, as long as you don't need the money within the next five to 10 years.
So if you're thinking of your house solely in investment terms, we think you're better off living, as it were, in the stock market. (Sure, you'll be irritated by the screams of the traders on the exchange floor, but hey, just press that pillow hard against your ear.)
Let's say you decide to buy the smaller house and to use the money you save from monthly payments for the stock market. Now you must ask yourself: Am I really going to do this? Do I have the discipline? Or would I go to the movies thrice weekly and splurge on the occasional Austrian ski junket? If you do, you may still decide that this matters more to you than having more house. Just try to be honest with yourself along the way.
What's the bottom line? Think of your house as a purchase, not an investment. If it ends up shooting up in value like an Apollo rocket, well, so much the better. In the meantime, the returns you'll gain are of a different nature: a fireplace to hang stockings at Christmas, barbecues in the shade of the backyard Norway maple, a good school district for your kids.
If you are in the market for a new home, drop by our Home Center, where you'll find tips on getting the most abode for your buck, as well as strategies for getting the best mortgage.