The past seven years have had many putting their lives on hold… waiting for the return of better times. For many this has meant renting rather than owning their own home… often considered step one in realization of the American Dream. I have reported many times that the American Dream of homeownership is alive and well. Perhaps these observations will be useful if you find yourself still renting and on the fence about owning your own home.
The personal reasons to own differ for each buyer, with many basic similarities. Eric Belsky, the Managing Director of the Joint Center of Housing Studies at Harvard University expanded on the top 5 financial benefits of homeownership in his paper -The Dream Lives On: the Future of Homeownership in America. Here are the five benefits, each followed by an excerpt from the study:
1. Housing is typically the one leveraged investment available.
“Few households are interested in borrowing money to buy stocks and bonds and few lenders are willing to lend them the money. As a result, homeownership allows households to amplify any appreciation on the value of their homes by a leverage factor. Even a hefty 20 percent down payment results in a leverage factor of five so that every percentage point rise in the value of the home is a 5 percent return on their equity. With many buyers putting 10 percent or less down, their leverage factor is 10 or more.”… Buyers using FHA Financing are putting down 3.5% providing a leverage factor of 28.5% increase in investment/equity for every 1% rise in value!
2. You’re paying for housing whether you own or rent.
“Homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord.”
3. Owning is usually a form of “forced savings”.
“Since many people have trouble saving and have to make a housing payment one way or the other, owning a home can overcome people’s tendency to defer savings to another day.”
4. There are substantial tax benefits to owning.
“Homeowners are able to deduct mortgage interest and property taxes from income…On top of all this, capital gains up to $250,000 are excluded from income for single filers and up to $500,000 for married couples if they sell their homes for a gain.”
5. Owning is a hedge against inflation.
“Housing costs and rents have tended over most time periods to go up at or higher than the rate of inflation, making owning an attractive proposition.”
This same group (the Joint Center of Housing Studies at Harvard University) also conducted a survey on the top reasons to own a home. It’s interesting to note that the top 4 reasons to own a home cited by respondents were not financial.
1. It means having a good place to raise children & provide them with a good education.
From the best neighborhoods to the best school districts, even those without children at the time of purchasing their home, may have this in the back of their mind as a major reason for choosing the location of the home that they purchase.
2. You have a physical structure where you & your family feel safe.
It is no surprise that having a place to call home with all that means in comfort and security is the #2 reason.
3. It allows you to have more space for your family.
Whether your family is expanding, or an older family member is moving in, having a home that fits your needs is a close third on the list.
4. It gives you control over what you do with your living space, like renovations and updates.
Looking to actually try one of those complicated wall treatments that you saw on Pinterest? Want to finally adopt that puppy or kitten you’ve seen online 100 times? Who’s to say that you can’t in your own home?
The 5th reason on the list, is the #1 financial reason to buy a home as seen by respondents:
5. Owning a home is a good way to build up wealth that can be passed along to my family.
Either way you are paying a mortgage… Yours or someone else’s. Why not lock in your housing expense now with an investment that will build equity that you can borrow against in the future?
