You can't live in your index fund like your house. But if you invest the value of your down payment in an index fund, and rent a property, the fund may grow to

You can't live in your index fund like your house. But if you invest the value of your down payment in an index fund, and rent a property, the fund may grow to be large enough to purchase a house, in about the same amount of time. (It depends on your local housing market, of course. The index fund may not keep up with a boom-town like Silicon Valley of the past few decades, but it is unlikely to turn into Detroit, either. Choose your risks wisely.) And if you put a down payment into a fancier house instead of in a simpler house, most of the gains you'll get from doing so are delivered in the form of immediate consumption of "nice house" over time, not in the form of something you can reinvest (indeed, maintenance costs will be higher as well.) And you've committed to this much house for a long time. That said, the huge thing that houses have going for them in the US today is special tax treatment - if you're in a higher tax bracket, even more so. You get both mortgage interest deductions and some special capital gains treatment, I do believe. You're the darling of the US tax code. Consequentially, this special treatment in our tax policy distorts the incentives to invest, encouraging people obsess about the housing market instead of other forms of more-diversified investments, and thus contributes to damaging asset bubbles. It also generally impairs social mobility by incentivizing homeowners to support land use policies that drive up housing prices (directly harming the poor, lower middle class, and any other non-homeowners like the youth), and while the policy overall is pitched to the middle class, many of the biggest winners are the rich, as their tax brackets are higher and their houses more expensive. Huh. Who could have seen any of that coming? cougheveryeconomistevercough