Creating Wealth Through Real Estate

Real estate often gets a bad rap in the media – especially when interest rates are higher, affordability is stretched, or home prices aren't climbing as quickly. But despite the headlines, real estate has consistently proven to be one of the most powerful tools for building long-term wealth.

The Power of Long-Term Growth

While home prices can occasionally dip or cool off in certain areas, history tells a different story over time. When you look at long-term trends, real estate has outperformed many other investments – especially when you factor in leverage.

The Case-Shiller Home Price Index offers a great snapshot of this. It tracks price appreciation in 20 major cities and the chart below gives us insight into how homes have performed over 1, 3, 5 and 10 years.

Here’s what the latest data shows:

• 1-year growth: +2.1% (average across 20 cities)
• 3-year growth: +7.1%
• 5-year growth: +50.3%
• 10-year growth: +88.2%

Nationally, the 10-year gain is even stronger: +91.1%.

Some cities, like Dallas, San Francisco and Tampa, may have seen modest declines recently, but zooming out shows strong gains over the last 5 to 10 years. This long-term view is important, especially since most homeowners stay in their homes for a decade or more.

Leverage: Why Real Estate Multiplies Returns

One of the biggest advantages of real estate is the ability to use leverage – that is, borrowing money to buy a much more valuable asset than the cash you're putting in.

Let’s break it down with an example:

• Purchase price: $500,000
• Down payment (20%): $100,000
• Mortgage: $400,000

Even though you've only invested $100,000, your return is based on the full $500,000 property value. That means a 10% increase in value ($50,000) is actually a 50% return on your down payment.

Over time, that leverage leads to impressive gains. Based on Case-Shiller data:

• A homebuyer who put 20% down would have seen a 10.5% leveraged return over the past year.
• Over 10 years, that return grows to a staggering 441%.

The Cost of Buying vs. Renting

Yes, there are carrying costs with homeownership: your mortgage, property taxes, insurance and maintenance. But remember – you have to live somewhere. Renting comes with its own costs, and rents typically go up over time.

With a mortgage:

• Part of your monthly payment goes toward building equity.
• You may receive tax benefits from mortgage interest and property taxes.
• Your payment can stay stable, while rent often increases.

In many markets, the monthly cost of owning with 20% down is similar to renting, and in some cases, even less over time.

Why Real Estate Beats Stocks (For Most People)

While it's possible to invest in stocks with leverage, doing so comes with much greater risk. A big drop in stock prices can lead to margin calls or even wipe out your investment entirely.

Real estate, on the other hand:

• Has appreciated in 77 of the last 83 years
• Provides a place to live
• Offers fixed financing for up to 30 years
• Is generally more stable and predictable over time

Bottom Line

Real estate has long been one of the most reliable paths to building wealth – especially when you use leverage wisely and think long term. If mortgage rates continue to decline, we may see even stronger appreciation in the years ahead.

Whether you're buying your first home or investing in your next one, real estate remains one of the smartest financial moves you can make.

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By The MBS Highway Team