Tuesday, May 10, 2011

Real Long Term Return on Home Ownership, Less than 0%?

Post HERE from Business Insider will likely make some people mad.  

Based on article HERE from Philadelphia Federal Reserve Bulletin, originally published in Harvard Business Journal. Article says:
Assuming an annual depreciation rate of 2.5 percent, a property tax rate of 1.5 percent, a mortgage interest rate of 7 percent, and a marginal income tax rate of 25 percent for a typical taxpayer, the adjusted real rate of return on housing actually falls below zero (1.3-2.5-1.5+0.25(7+1.5))=-0.575 percent! Remember that 1.3 percent is the real rate of return of the national house-price index between 1975 and 2009.13 Meantime, under the 25 percent marginal income tax rate for a typical taxpayer, the rate of return on stocks during the same period falls only to 4.5*(1-0.25)=3.375 percent.
Originally created and posted on the Oregon Housing Blog.

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