Lets begin this discussion with the assumption that you are buying a home worth $250,000. Right now interest rates are between 6-7% in Canada for a 10 yr or greater mortgage. At 30 years with amortization at 7%, and a payment of $1663 per month, this home will cost you $348,772 in interest. Your $250,000 home will actually cost you $598,772. You will have to sell that home for more than $600,000 to make a profit (excluding maintenance and taxes!) . Your home will have had to appreciate at an average of 4 percent a year to become "profitable", which is the long term average gain for real estate over the past 50 plus years. The longer your amortization period the greater equity gain you will have to make to become "profitable". The shorter the amortization period the more leeway you may have to achieve housing "profit" - a 15 year amortization will only add $154,472 in interest, but your monthly mortgage payment goes up to $2,247.

Lets compare buying this fictional home to investing the same amount in the stock market. Assuming an below average return of 7% in the stock market, (North American stock market results over the past 60 years has returned an average of 11%). Investing the equivalent of the my first example's monthly mortgage ($1663) for 15 years would accumulate $537,000 .... At long term market averages of 11%, this would grow to $763,000!

In the real world you won't get an even 3% for real estate, or 7% or 11% for stocks, you will get a fluctuation and get circumstances that impact your returns. Buy at the top and sell at the bottom and you just lost money. How many times have you had to relocate, sell your home, and buy another ... add in fees and you may lock in losses that the housing market will never repay ...

So, is buying a home a good investment? No, not compared to average stock market returns. But is that the point? Not really. Buying a home is primarily to have a place to live, a place for you and your family. It is better than renting if you plan to stay in one place for a five or more years. It takes about 5 years on average to build up some equity that make the fees worthwhile. Ever noticed how much principle gets paid in the first few years of a mortgage? Not much, it almost all goes to paying interest on the mortgage. So, if you plan to move around - it might be best to rent for a while, especially if the market is stagnant or dropping. You may lose the same amount renting as you would just paying interest in the first few years of a mortgage, and if the housing market drops, at least you won't be losing house value.

What did this exercise in assessing house buying do? Well, I have learned that a house is just like any other investment, you have to look at this logically to see if it makes sense for you at the time. It could be a great investment, you could buy at a low price in a down market and benefit later from strong home equity gains. Or, it could be a lousy investment, buying when renting would have been better, such as when you might move frequently, or, buying in a housing market that is going nowhere - trapping you with loss.