Homeownership isn’t as safe as it feels. A house is a big, leveraged, undiversified bet—arguably riskier than owning a diversified stock portfolio. Yet it doesn’t feel that way. Why not? Partly, it’s familiarity. We look around our house and see the value that’s there. And partly, it’s a money illusion. If we got daily updates on our home’s value, like we do on our stock portfolio, we wouldn’t be nearly so sanguine about our huge real estate wager.
We shouldn’t buy unless we can see staying put for at least five years—and preferably seven years or longer. Buying and especially selling real estate involves steep transaction costs, and we need many years of price appreciation to overcome that hit.continue reading on the next page