It's time for a quick review of Home Ownership 101.

I came to that conclusion after a stack of letters declared that my March 31 column was wrong, all wrong.

Home ownership had not trounced the stock market over the last three, five, and ten years as I had written because: (1) Home ownership is a life style decision, not an investment; (2) Some areas, like Waco, hadn't appreciated very much and some people have lost money in the last year or two; and (3) You can't ignore the cost of supporting a house when you calculate your investment return.

So let's go through this, one step at a time.

It may be a life style decision but a lot of investment money is involved.   Yes, buying a house is a life-style decision. First we decide whether to buy or rent. Then we decide the size, location, and style of the house based on our needs, wants, and the generosity of our lender. We never improve our stock or mutual fund shares in the same way we improve our condos and houses.

That said the decision to buy a house is the largest investment decision most Americans make. Where we buy will determine whether we buy a house that appreciates or depreciates. When we buy may be just as important. Some people have made small fortunes with well-timed purchases in good places. Others may declare bankruptcy due to ill-timed purchases.

But most people have enjoyed attractive growth of their down payment money. That's one reason 68 percent of all households own their homes. Indeed, only about 10 percent of the population has more at stake in the stock market than in the housing market. Like it or not, owning a home is a major investment.

Some areas haven't appreciated much.   That's true. If you bought a house a year ago in San Francisco, Omaha, Akron, Saint Louis, or Spokane the value of your house went down. (You can download the figures at

But more areas went up than down.

The median U.S. price rose 6.2 percent last year. Not too shabby. The worst performing home price area in the U.S.--- Melbourne, Titusville, and Palm Bay Florida--- lost 3.7 percent. The S&P 500, meanwhile, lost 11.88 percent.

Homes Provide Service As Well As Investment Returns. Several readers wrote that my figures were wrong because I only calculated the return on a 20 percent down payment but ignored the monthly cost of the mortgage, taxes, insurance, improvements, etc.

In fact, when we buy a home we get returns in two forms, services and appreciation.

First, we get a return in shelter services. If we bought the house for cash (and nearly 40 percent of all houses are owned free of all mortgage debt) we would have no mortgage payment and would receive what economists call "imputed" income--- non-cash income in shelter benefits. We could measure that by estimating how much the house would rent for and subtracting cash expenses like taxes and insurance.   The remainder would be our imputed shelter income. Tax-free.

When we finance a house we pay "rent" for the money borrowed. That reduces our imputed income but increases the leverage of our return from appreciation.

The second return is price appreciation. From 1970 to 2001 the median existing home resale value rose by 6.18 percent a year, compounded.   That's about half the pre-tax 12.0 percent return of common stocks over the same period. If the imputed rental income was only 6 percent of the initial value of the house---  ½ of 1 percent a month--- homes did as well as common stocks. In fact, a case can be made that the imputed income would be about 8 percent of the market value of the house, making long-term home ownership a superior investment.

  From 1980 to 2001 home values rose at a 4.20 percent annual rate while stocks rose at a 15 percent annual rate before taxes. This was one of the best periods in history for common stocks. The Vanguard 500 Index fund returned about 11.4 percent a year after taxes. Even so, an 8 percent imputed rental value (tax-free) and 4.20 percent appreciation (tax-free) creates a home ownership total return of about 12 percent.

That's a superior return.

Use mortgage debt to your house and your imputed return in services will be lower. But your investment return from appreciation will be higher because of debt leverage.

Needless to say, it is possible to make a mess of this investment Nirvana. You can over-improve the house you love. You can have bad taste in paint and wallpaper. You can burn up your appreciation in commission expenses for frequent moves. You can buy at a market top. You can panic and overpay. A job change can force you to move in a sinking market.

Your house could carry the curse of the mummies tomb.

But for most people, most of the time, it will work out.