In this week’s New Yorker, James Surowiecki takes an axe to the myth that buying a house is always a great investment. The reliance on median home price as a barometer of the market is part of the problem. First of all, the statistic does not take into account the qualitative (e.g. central air) and quantitative (more square footage). Secondly, it ignores the corrosive effect of inflation on real returns. It also, doesn’t take into account non-financial incentives and rebates. Nor does it handle the problem of sample bias, whereby the inputs (i.e. sold homes) to the median calculation every year do not remain constant. “The idea that housing prices have nowhere to go but up is,” in Surowiecki’s words, “a statistical illusion.”
Safe As Houses? [New Yorker]