It used to be the American dream included owning a home with a yard and white picket fence. Now the pendulum seems to have swung dramatically in the other direction. Post housing bubble burst, some Americans are beginning to re-think the conventional wisdom that owning a home is a good investment—even though declines in home prices have made purchasing owning one somewhat more affordable.
Home ownership levels peaked in 2008 at nearly 70 percent of Americans, according to the U.S. Census Bureau. That number has now dipped to 65 percent.
The numbers indicate that depressed home values in most markets, combined with historically low interest rates on mortgages, have made home buying more attractive. But that's only one consideration, as many found out during the housing market bust. Home ownership is a great deal if you know you're in a position to settle in the same place for at least a few years and can continue to afford the payments. Unfortunately, these circumstances can be unpredictable.
When deciding to buy or rent a home, financial considerations are important, but lifestyles issues should also be taken into account.
Many financial elements favor home ownership, particularly if you live in a market where home values seem reasonable. Today's favorable loan interest rate environment is another plus, and current laws still provide major tax incentives for those who carry a mortgage. beyond those factors is the appeal of building up equity in the home—meaning that the money you put into making the purchase will eventually be returned to you when you sell the property.
Yet these benefits should be tempered by other considerations. Taking on a mortgage obligates you to live p to the terms of the loan for years and homes typically require a significant investment in maintenance and occasional improvements. And when it comes to a home as an investment, there's no guarantee you will be able to sell your property for more than what you paid for it.
Renting is a realistic starting point for most. As your savings grow and your credit score rises, you may be in a position to qualify for a mortgage and make the leap to home ownership. But choosing the right time to buy is important—you need to feel secure that your source of income will be there for the long run.
The downside for those who continue to rent is that any money put into their living space—whether for rent and related fees or for upgrades to their rental property—s not an investment, but an expense. While a homeowner may have an opportunity for some kind of return on money put into the property, renters won't receive any payback.
Personal traits and current life circumstances are other considerations as you assess the option of renting or buying.
Homeowners should be up to the task of maintaining their own property. That include everything from lawn work to minor home repairs. It also means having the financial ability to pay for professionals to do occasional work, including plumbers, electricians, and carpenters. Renters, on the other hand, typically enjoy a more maintenance-free lifestyle.
Another issue is the need for mobility. Those who are quite certain they can count on their job being in the same area can feel more comfortable making the jump to home ownership, provided they can afford it. Those who expect to be on the move for a job change or educational opportunities in the next three to five years may appreciate the relative mobility they have as a renter.
What's right for you?
There is no "one-size-fits-all" answer to the question of whether you should own or rent your home. A good starting point is to honestly answer questions such as:
- Are you comfortable with your current life circumstance and income stability?
- Are you disciplined in managing your expenses and paying off debts on a timely basis?
- Are you fairly confident you won't be required to move to another city or area int he next five years for personal, work or education purposes?
A "yes" answer to all three may point in favor of home ownership, but it isn't a decision to take lightly. Consider working with a financial advisor who can help you work through your financial situation, define your goals and determine what kind of mortgage you can afford while still keeping your other financial lifestyle goals in mind. _________________________________________________________________
Due to industry regulations, I cannot respond to your questions and comments underneath my blog, but please feel free to contact me directly via email at Steven.B.Gross@ampf.com or via phone at 914-923-6490 ext. 310.This communication is published in the United States for residents of New York only; and this advisor is licensed only in the states of PA, CT, MD, GA, NJ, NC, FL, MA, ME.