Buying a Home vs. Buying Stocks

Should You Buy a Home in Seattle or Keep Renting and Invest in Stocks?

Should you buy a home in Seattle now, or keep renting and put everything into the stock market instead? Let’s run the real 10-year after-tax numbers.

Seattle homes are expensive, and high earners here are smart enough to ask hard questions. One of the most common:

“Why would we buy at these prices when we could keep renting and invest in the stock market instead?”

It’s a valid question when you consider the long-term returns of both assets:

• Seattle homes have appreciated about 7.2% per year over the last 50 years.
• The S&P 500 has returned about 12% per year over that same period.
• Over the last 20 years, the numbers are about 7.2% for Seattle housing vs. 10% for the S&P 500.

Quick Summary (for the Skimmers)

If the average returns favor stocks, why would I consider buying a home?

Yes, stocks outperform housing in long-term charts. But this isn’t a choice between two line graphs. It’s a real-life decision between living in a home you own—using leverage, with tax advantages—versus renting and investing the difference with after-tax income. Once you account for those differences, the comparison becomes much more nuanced.

This article walks through a realistic Seattle scenario and compares:

• Buying a $1.5M home in Seattle or on the Eastside, versus
• Renting a comparable home and investing aggressively in a broad stock index fund like the S&P 500.

If you want more historical context on how local housing has behaved, this pairs well with Twelve Decades of Seattle Homes and our piece on what happens if interest rates do not go down.

Table of Contents

• $1.5M Seattle Scenario
• 10-Year Homeownership Math
• 10-Year Investing (Renting) Math
• Side-by-Side After-Tax Results
• How Time Horizon Changes the Answer
• Behavior and Real-Life Considerations
• So, Buy or Keep Renting?

What Does a Typical $1.5M Seattle Home Scenario Look Like?

Many of the Seattle and Bellevue buyers we work with share a similar profile: two strong professional incomes, early-to-mid 30s, and either a young child or plans for one soon. They’re deciding whether to buy a long-term home in the $1.3M–$1.7M range or continue renting while investing heavily in stocks—often through ongoing RSU vesting. We’ll use their price range and profile as an example of how to compare the returns on buying a home vs investing in stocks.

If $1.5M is not your price point, that is okay; $1.5M is a ridiculous sum of money. The good news: the math scales roughly in proportion to sales price. If you want to see this tuned to your actual budget and neighborhoods, that is something we can model with your real numbers.

If You Buy the $1.5M Home (~$8,600 per Month Net)

Purchase assumptions:

• Purchase price: $1,500,000
• Down payment: 20% → $300,000
• Loan amount: $1,200,000
• Mortgage: 30-year fixed at 6.5%
• Principal and interest: about $7,585/month

Ongoing ownership costs (the part people often skip):

• Property taxes: 0.9% of value per year
  • 0.9% of $1.5M ≈ $13,500/year → about $1,125/month
• Homeowners insurance: about $150/month at this price point
• Maintenance and big-ticket items: plan on 1% of home value per year on average
  • 1% of $1.5M = $15,000/year → about $1,250/month

Total monthly cash out for owning:

• Mortgage (principal and interest): ~$7,585
• Property tax: ~$1,125
• Insurance: ~$150
• Maintenance reserve: ~$1,250

Total ≈ $10,110/month going out for housing.

On a $1.2M loan at 6.5%, over the first 10 years you pay down about $182,700 of principal. That averages to roughly $1,500/month in “forced savings” that turns into equity.

If we subtract that principal from your total cash out, your economic housing cost (money that is gone, not turning into equity) is closer to:

$10,110 − ~$1,500 ≈ ~$8,600/month

If You Rent a Comparable Home and Invest Instead (~$5,800 per Month)

You skip the purchase and:

• Rent a similar house for about $5,800/month (a realistic figure for a nice 3–4 bedroom SFH in many Seattle and Eastside neighborhoods in this price band), and
• Invest the difference:
  • The $300,000 that would have been your down payment, and
  • The roughly $2,800/month you are not spending on ownership.

That $2,800/month is the gap between the owner’s net housing cost (~$8,600) and the $5,800 rent.

How Are Investment Returns and Taxes Treated in This Comparison?

Portfolio assumptions

• You invest in a broad, low-cost U.S. stock index fund (S&P 500 or total market).
• Historically, these have returned about 7–10% per year over long stretches.
• Most of that return shows up as unrealized gains, with a modest dividend yield.

To keep expectations realistic for a high-income Seattle household investing in a taxable brokerage account, we apply:

• A small ongoing tax drag of about 0.3% per year to account for:
  • Taxes on dividends each year, and
  • A little tax from fund turnover and rebalancing.
• A final capital gains tax of 30.8% on the true gain when you eventually sell the investments:
  • 20% federal long-term capital gains
  • 3.8% NIIT (Net Investment Income Tax)
  • 7% Washington capital gains tax on large gains

Put simply: most of your money compounds without being taxed until you sell, but taxes on dividends and some realized gains slightly slow your growth each year. Then at the end there is a real tax bill on the gain above your contributions.

For this example we will look at two reasonable stock market paths:

• 7% nominal stock return → about 6.7% per year after ongoing tax drag
• 10% nominal stock return → about 9.7% per year after ongoing tax drag

At the end of 10 years we then apply the 30.8% capital gains tax to the actual gain on the investments, not to the whole account.

Step 1: What Happens If You Buy the Home?

Home value after 10 years

We will look at two home-price paths for your $1.5M purchase:

• Conservative: 3% annual home-price growth
• History-matching: 7.2% annual home-price growth (Seattle’s long-run average)

• At 3% per year: $1,500,000 → ≈ $2,015,900
• At 7.2% per year: $1,500,000 → ≈ $3,006,000

After 10 years the remaining loan balance on the $1.2M mortgage at 6.5% is roughly $1,017,000.

Home at 3% annual growth

• Sale price ≈ $2,015,900
• Selling costs (7.5%) ≈ $151,200
• Net after selling costs ≈ $1,864,700
• Minus loan payoff (~$1,017,000) → pre-tax equity ≈ $847,700

Capital gain = net sale after costs − original $1.5M basis:

• Gain ≈ $364,700
• This is below the $500,000 primary residence exclusion for a married couple.
• No capital gains tax owed.

After-tax equity at 3% growth ≈ $848,000 (rounding to the nearest thousand)

Home at 7.2% annual growth

• Sale price ≈ $3,006,000
• Selling costs (7.5%) ≈ $225,500
• Net after selling costs ≈ $2,780,500
• Minus loan payoff (~$1,017,000) → pre-tax equity ≈ $1,763,500

Capital gain = net sale after costs − original basis:

• Gain ≈ $1,280,500
• First $500,000 is excluded as a primary residence.
• Taxable gain ≈ $780,500
• Tax at 30.8% ≈ $240,000

After-tax equity at 7.2% growth ≈ $1,763,500 − $240,000 ≈ $1,523,000

Step 2: What Happens If You Rent and Invest?

Now we look at the renting household that:

• Invests $300,000 up front instead of using it as a down payment, and
• Invests $2,800/month for 10 years, which is the savings compared with owning.

Total contributions over 10 years:

• Initial: $300,000
• Monthly: $2,800 × 120 months = $336,000
• Total basis: $636,000

Portfolio at 6.7% per year (after ongoing tax drag)

Using consistent monthly compounding and monthly contributions:

• $300,000 lump sum grows to ≈ $574,000
• $2,800/month contributions grow to ≈ $471,000
• Portfolio before final tax ≈ $1,045,000

Gain = $1,045,000 − $636,000 ≈ $409,000
Capital gains tax at 30.8% ≈ $126,000

After-tax investment value at 6.7% ≈ $1,045,000 − $126,000 ≈ $919,000

Portfolio at 9.7% per year (after ongoing tax drag)

• $300,000 lump sum grows to ≈ $758,000
• $2,800/month contributions grow to ≈ $551,000
• Portfolio before final tax ≈ $1,309,000

Gain = $1,309,000 − $636,000 ≈ $673,000
Capital gains tax at 30.8% ≈ $207,000

After-tax investment value at 9.7% ≈ $1,309,000 − $207,000 ≈ $1,101,000

What Are the 10-Year After-Tax Results Side by Side?

What this really tells us:

• If home prices only grow at 3%/year and your investments earn closer to 9.7%/year after tax, renting and investing comes out ahead (~$1.10M vs ~$848K).
• If Seattle housing behaves more like its long-run average of 7.2%/year, then buying and holding for 10+ years can leave you with more after-tax wealth (~$1.52M vs ~$1.10M).
• At more middle-of-the-road investment returns, the outcomes cluster in the same general band. The winner depends on:
  • How housing actually performs,
  • How consistently you invest if you rent, and
  • Whether you stick with your investment plan in bad markets.

How Have Seattle Homes and Stocks Actually Performed Over Time?

To put this in context, here’s a 20-year chart comparing King County average home prices to the S&P 500. Both series are indexed to 100 at the start so you can see relative growth.

On paper, the S&P 500 wins on raw return. But remember: your home is a leveraged, partly tax-sheltered asset you live in, not a small slice of a large index fund.

How Does Your Time Horizon Change the Answer?

Under about 3 years

• Principal paydown is small.
• Selling costs eat a large share of any gains.
• You are very exposed to short-term price swings.

For short holds, buying is financially fragile. You need strong appreciation just to break even. Renting usually makes more sense.

Around 5 years

• Principal paydown is more noticeable.
• Moderate appreciation has had time to work.
• Transaction costs still matter but are less overwhelming.

By year five you are in true “could go either way” territory. Your outcome depends heavily on how the market behaved during those years and how disciplined you were with investing if you rented.

10 years and beyond

• Selling costs fade relative to total equity.
• Principal paydown significantly boosts your net worth.
• Seattle’s job base and limited housing supply start to matter more than short-term noise.

Over 10+ years, buying a well-located home in a strong neighborhood often comes out ahead in practice, especially if you value stability and know you are not a perfect “invest every spare dollar” household.

When Does Renting and Investing Work in Real Life?

Will you really invest every extra dollar?

The rent and invest strategy assumes you:

• Invest the full $300,000 up front.
• Invest the extra ~$2,800/month, every single month.
• Stay invested during market downturns.
• Do not raid the account for trips, toys, or lifestyle upgrades.

Some households genuinely do this. Many do not. Homeownership forces you to save through principal paydown and locks that equity into an asset you are less likely to casually spend.

How much stock market risk do you already carry?

If you work in tech or a related field, you may already have heavy stock exposure through salary, RSUs, and retirement accounts. Owning a home can add real-asset exposure to your balance sheet and make your overall financial life feel less tied to market swings, even if the expected returns are similar.

Stability, schools, and friction costs

Once kids are in the picture, staying put has its own economic value. Fewer moves, more control over schools and commutes, and less time spent scrambling for the next lease. Those friction costs do not show up neatly in a chart, but they matter in real life.

So, Should You Buy a Home or Keep Renting in Seattle?

The math here does not say “housing always beats stocks” or “renting is always smarter.” It says something more nuanced:

“Given our income, savings, time horizon, and risk tolerance, which path is least likely to be a bad decision for the life we actually want to live?”

• Under ~3 years: Renting usually makes more sense. The risk of buying and needing to sell quickly is high.
• Around ~5 years: The numbers are genuinely close. Either path can win depending on how markets behave and how you manage your money.
• 10+ years: Owning a good home in a good Seattle-area or Eastside neighborhood often comes out ahead in practice, especially if you value stability and know you may not be a perfectly disciplined investor.

If you would like to see this math with your real numbers—your income, your target price, your rent, your current investments—we can build a custom side-by-side for you.

Want to see your own buy vs. stocks comparison?

Reach out here and we will walk through the tradeoffs in plain language, using a model that fits your actual life rather than just averages.