Housing is a volatile investment indeed, at least for most people.

Statistics show that housing on the whole is a relatively tame investment:

• Average annual percent change:  3.1%
• Number of years positive:  15
• Number of years negative:  5
• Number of years between 0 and 10% positive:  13.
• Number of years more than 20 percent positive: 0
• Number of years more than 20 percent negative: 0

[Housing is thus an example of low volatility investment, with a tame and steady 3.1% annual gain with 15 positive years out of 20 and no 20% annual fluctuations.  Also, you get to live in it.]

Two caveats.  

Caveat number one is:  the price of a house is very large.  So a 5% (or $10,000) move on a $200,000 asset is significant and a 20% (or $40,000) move is gigantic.  Volatility as a percentage should naturally attenuate as the base of an index rises.  Sometimes the opposite happens when bubbles go into correction.

The second caveat is: leverage magnifies volatility.  Suppose you buy a $200,000 house and that you, like most others do, borrowed 80% of the value.  Your equity is $40,000.  A 5% or $10,000 price decrease now translates into a 25% ($10,000/$40,000) change.  [The mathematics:  if your equity is only a fifth of the asset value, you must multiply the volatility figures by 5x.]

Here are the housing volatility figures, this time assuming an 80% mortgage:

• Average annual percent change:  15.5%
• Number of years positive:  15 
• Number of years negative:  5
• Number of years between 0 and 10% positive:  2
• Number of years more than 20% positive:  10
• Number of years more than 20% negative: 2

Note especially the decline in the number of years between 0 and 10 percent positive:  from 13 to 2.  Looked at it in this light, housing is a volatile investment indeed, at least for most people.

[Remember too the impact of leverage on volatility.  This comes into play, too, when looking at companies to invest in.  If they've borrowed a lot of to finance the business, that, too, can lead to higher volatility.]