Home Sweet Asset

We all know the well-worn truism that owning a home is a key part of the American dream. The belief has deep roots that hark back to one of the main reasons our forebears left the old country: to become property owners, which was the key to freedom and financial in­dependence. My great-great grand­father left Ireland in 1847, traveled to Wisconsin and homesteaded 600 acres of land on which the melting glaciers had deposited rich, loamy soil. The land he farmed and wealth the family nurtured was passed down through the generations—and just a little of it trickled down to me and helped me buy the house my wife and I live in now.

A powerful tool. The home-as-American-dream mythology has a personal finance corollary: that your home is your biggest investment. That principle is being challenged in the 21st century, as shifts in the way many of us view homeownership and even how we save for retirement are changing the perception that owning a home is the ultimate financial goal. Millennials burdened by student loan debt and daunted by steep starter-home prices are losing interest in owning a home, studies show. And your biggest asset may well be your IRA or 401(k), not your home equity.

Even so, a home is likely to be the most expensive purchase you’ll ever make, and it’s a valuable and versatile financial tool that can help you increase your wealth. That’s why every year Kiplinger reports on housing market and mortgage rate trends. We also include a table of home prices in the 100 largest metro areas in the U.S.

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Many Americans are still traumatized by the housing boom and bust, when home prices nationwide tumbled. (A number of markets still haven’t returned to pre-crisis levels, as our table shows.) But investors and homeowners alike were guilty of excesses, and we have returned to more-realistic expectations—that is, over the long term, a home will likely appreciate slightly above the rate of inflation. Meanwhile, homeownership serves as a forced savings plan, as you first stash money for a down payment and then build equity with every mortgage payment you make. And a home is an excellent tax shelter for most of us, although the new tax law limits deductions for interest on mortgages.

In our house, after years of living with a tiny galley kitchen that I’m guessing was last updated in the ’70s, my wife and I are finally renovating the kitchen, dining room and basement. To finance the work, we tapped our equity with a home equity line of credit. That will create cash flow while we wait to sell some stock, when the profits qualify for lower capital gains tax rates.

The renovations may ultimately help our home’s resale value, but the main reason we’re doing the work is to enjoy an updated, more energy-efficient home and make it more inviting for family and friends. And that is my interpretation of the American dream.

Investing in the planet. Our cover story this month is about buying stocks, bonds, and mutual and exchange-traded funds that take advantage of the hottest new Wall Street theme: sustainable investing. Big companies (Amazon, Google and Microsoft, to name just a few) and billionaires (Jeff Bezos, Bill Gates) have hopped on board the search for alternative energy, smart recycling technology and other ways to help the environment. For those of you who would like to do the same—and make some money, too—we found some good opportunities.