Real Estate Returns: Is Homeownership Actually Growing Your Wealth?

Historical data from the Federal Reserve Bank of San Francisco shows that global residential real estate has delivered inflation-adjusted returns of roughly 7% over the past 145 years—similar to equities. But those figures reflect a global average. In the U.S., when adjusting for inflation, taxes, upkeep, and transaction costs, the real returns from homeownership can often be lower. Despite this, many Americans continue to treat their homes as their most important investment.

This article compares the long-term financial performance of primary residences with other asset classes—highlighting where real estate holds up, where it falls short, and what those trade-offs mean for investors.

Key Takeaways

• Home price growth has lagged stock market returns over the long haul, particularly after factoring in inflation.
• Mortgage payments build equity gradually—early on, most of it goes toward interest.
• Leverage in real estate can boost gains but also increases downside risk and limits flexibility.
• REITs provide real estate exposure without the capital lock-up or property responsibilities.
• A home can often act as a savings mechanism rather than a wealth engine.

Long-Term Housing Performance: What the Data Really Shows

From 1950 to 2023, U.S. housing prices (based on the inflation-adjusted Case-Shiller Index) rose from about 152.95 to 253.63. That’s a 65.8% real increase over 73 years—roughly 0.7% annually. In contrast, the S&P 500 delivered average real returns of around 7%, including dividends.

That difference is anything but trivial. A $100,000 investment growing at 3.5% annually becomes $280,000 in 30 years. At 7%, it grows to $760,000.

While homes offer personal utility—shelter, autonomy, predictability—those benefits don’t translate directly into financial performance. When factoring in:

• Property taxes
• Maintenance and repairs
• 6–10% transaction costs at sale
• Illiquidity

…the effective return can often drop even further.

Bottom line: Price appreciation alone doesn’t guarantee investment merit—especially once total ownership costs are considered.

Leverage Enhances Returns—and Risk

One defining feature of homeownership is leverage. For example, a buyer might put $100,000 down on a $500,000 home. If the property appreciates 3% in one year, its value increases to $515,000. That’s a 3% gain on the home—but a 15% gain on the cash invested. But this works both ways.

A 10% market downturn shaves $50,000 off the property value—erasing half the owner’s equity. The mortgage still needs to be paid. And liquidating may require selling at a loss, can often slowly and with added costs.

There’s no automatic exit strategy. Unlike stocks with stop-loss orders, real estate comes with built-in frictions.

Comparing Homes to REITs

REITs—real estate investment trusts—offer an alternative route to owning property. These funds invest in income-generating assets like apartments, warehouses, and office space.

Benefits of REITs include:

• Liquidity (buy/sell like stocks)
• Diversification (across sectors and locations)
• Income (REITs distribute 90% of earnings)
• No property management burden

Between 1972 and 2024, U.S. equity REITs generated average returns of about 11% annually (NAREIT, 2024)—beating primary residences and holding up well against stocks.

REITs still face volatility and market risk. But many investors use them to gain real estate exposure without locking up capital in a single property.

The Emotional Investment Trap

So why do so many people treat their homes like investments? Because they look and feel like investments. They’re large purchases, might often increase in value, and represent financial commitment. But unlike rental properties, a personal residence:

• Doesn’t generate cash flow
• Demands ongoing upkeep
• Restricts liquidity
• Can’t be easily adjusted or sold in response to changing goals

Common bias: Mistaking rising home prices for pure profit—without subtracting taxes, maintenance, and missed investment growth elsewhere.

That said, not all returns are financial. One of the most overlooked values of homeownership is the sense of stability it creates. Owning often means planting roots—building relationships with neighbors, creating community ties, and enjoying a degree of permanence that renting rarely offers. These social and emotional returns may not show up in performance charts, but they’re real. And for many households, they’re priceless.

For many, it’s smarter to see a home as a lifestyle purchase—while relying on a broader portfolio to drive wealth creation. But that lifestyle benefit can still be a meaningful part of someone’s long-term financial confidence.

Inflation Shield—or Cash Lockbox?

Real estate can often be promoted as an “inflation hedge.” And historically, home prices tend to rise in line with inflation over the long term. Fixed-rate mortgages also become cheaper in “real” terms as inflation erodes future payments.

But during inflationary periods with rising interest rates, home values can stall or fall due to affordability pressure.

For many owners, the home operates more like a forced savings plan than a growth engine. Mortgage payments gradually build equity—beneficial for those who might otherwise struggle to save. But that savings comes at a price:

• Reduced liquidity
• Lower portfolio compounding
• Less flexibility in life decisions

Key insight: A home can support long-term financial health—but rarely drives it. Treating it as an investment may distort financial strategy.