NCPA - National Center for Policy Analysis


May 13, 2005

The biggest influence on most Americans' financial health is where we buy and own a house, not how much we save, says Scott Burns of the Dallas Morning News.

While picking the right area can mean your future is golden, picking the wrong area can mean you will always be behind the folks who happened to buy in the right place, says Burns. But, he says, no matter where you live, it is likely to be more important than your 401(k) plan.

Burns says you can see the impact by reading the most recent house price index from the Office of Federal Housing Enterprise Oversight (OFHEO):

  • Over the five years ending December 2004, the typical U.S. house has appreciated a whopping 49.67 percent, which is a compound annual appreciation rate of 8.4 percent and more than three times the 2.56 percent annualized rate of inflation over the period.
  • Over the last five years, homes in California doubled in value, rising 102.35 percent; it would take nearly 15 years of saving in a 401(k) plan (six percent of income with a 50 percent employer match and 9 percent return rate) to accumulate the same amount of money -- nearly 18 years after adjusting for taxes.

Burns says you get a visceral idea of the power of home appreciation when you notice only homeowners in Utah, the worst state in the nation for this five-year period (16.17 percent), did slightly better in a 401(k) plan than with their homeownership.

If you are committed to living in a low-appreciation state, you need to take your savings very seriously, advises Burns.

Source: Scott Burns, "Home is a savings shelter," Dallas Morning News, May 8, 2005.


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