For the last eighteen months or so, we’ve all been lamenting over the drop in home values, which at least in principle, translates to a drop in net worth. For example, if your home loses 20% of its value and is now worth $50,000 less than it was in 2006, does that mean that you are now $50,000 in the hole? Perhaps…but has the true value of your home really changed for you? Sometimes it’s hard to maintain perspective. After all, a home to live in provides benefits that greatly outweigh even the most generous of cash dividends paid when you own stocks.
That said, people still consider their home equity to be a vital component of their total net worth. So how does your home investment compare to how you would have done if you had put that same amount of money into the stock market over the last decade? Using the most recent quarter of data for the Case-Shiller Index, housing prices in the Seattle have gone up by 195% over the last ten years. In comparison, the Dow Jones Industrial Average (DJIA) since October 1998 has been flat. Nada. Ziltch. Exactly zero. ( DJIA closed at 8452 on 10/19/1998 )
What’s the point? Maybe it’s just not as bad as you think. Maybe you should even feel good about your home, even with the recent declines in value. Real estate has provided a great diversification strategy, buffering total household net worth from complete devastation in the turbulent times we see around us today.