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Blogging for Change Blogging For Change
by Jesse Campbell on January 21, 2014

Woman deciding if homeownership is right for her

The American Dream used to be pretty static. Good job. Stable relationship. House in the suburbs. Back yard for cookouts. White picket fence. Maybe even a dishwasher for good measure.

While that vision still represents a dream for many Americans, the idea that any one image of prosperity and success would be the dream for all of us is a little ridiculous once you start to think about it. Some people don’t want a family. Some people like trying lots of different jobs. Some people hate cookouts and like doing their own dishes, thank you kindly.

And some people don’t want the hassle of owning their own home.

A 2013 survey commissioned by the MacArthur Foundation found that while 7 out of 10 renters would still like to own a home someday, 57 percent believe that buying a home has become less appealing. Meanwhile, 45 percent of current homeowners can seriously see themselves renting at some point in the future.

And as for the American Dream? Three out of five adults (renters and homeowners) believe that homeownership is no longer an essential element of the “American Dream.”

So while many media outlets and realtors are imploring people to shake off the debris of 2008 and buy a house ASAP, the mere fact that it’s a “buyer’s market” doesn’t necessarily mean that buying is right for you. So, how do you know if homeownership is right for you?

Where are you going? Is the answer “nowhere”? Then buying a home might be the right decision. Unless you’re planning on flipping your home, the key to the “buying a home is financially smart” argument is that you’re making an investment. Over time you’re building equity in your home, which isn’t happening when you rent. So if your future is a little uncertain and you aren’t quite 100 percent settled, buying a home is a touch dangerous. Selling a home after a short period can be costly.

How flexible do you need to be? Again, homeownership really works best when you’re able to make the commitment to stay where you are for the long haul. Owning a home makes something like moving for a career opportunity difficult (though not impossible).

Can you handle being responsible for everything that goes wrong? Things happen when you own a home. Plumbing. Heating, Electricity. Leaks here. Raccoons in the ceiling there. You don’t necessarily have to have the skills to fix all of these problems on your own, but they’re your responsibility. You have to find someone who can fix it and then pay them, because there isn’t a landlord to handle that for you.

Do you feel confident in your ability to pay? Buying a house is an investment and a commitment. No one plans on defaulting on a home loan, but a large factor in the collapse of 2008 was the thousands (if not millions) of consumers who had been talked into purchasing homes they could not afford. Your financial situation should be the primary consideration when buying a house – not how “good” the market is at that moment.

The basic mathematics of homeownership are always going to be favorable. Buying something almost always makes more sense than renting. But don’t get swept up in hype and rhetoric. Make sure that when you buy a home it’s the right decision for you.

Posted in:  Homeownership


Cherie says:
January 26, 2014

I plan to retire in 3 years, so a mortgage payment at this junction in life does not make sense for me. I encourage people to consider how flexible they want and need to be to move, travel, etc. Particularly if you are within 5 years of retiring and do not currently own a home. Just a thought. Cheers!

Anonymous says:
January 24, 2014

In 2011 my Father passed away and I inherited a small home that was in great need of repair. The repairs with labor would have been more than the home was worth. I sold it in 2012 and moved to an apartment. Six months later I found a home with owner financing and a reasonable interest rate in a very nice POA neighborhood. The payment was less than my rent so it seemed like a great move at first. Then came the insurance and tax increases, repairs, and dues. Now I'm beginning to think the apartment was the right choice for me. I fall into the category of those who work long hours, have no need for a yard and don't have the know how or funds for constant maintenance.

Gail Seaton Humbert says:
January 23, 2014

It should not be looked at primarily as an investment to make money. That said you missed a big point - rents continually go up. When I rented every year the rent went up. To control your costs long term with certain caveats owning usually beats renting.

lauren says:
June 05, 2017

Slow down before signing those mortgage papers! When all cash flows are considered, renting costs less, which means you'll have more money to save & invest. Over the long run, the stock market averages +10%/yr. So the 20% downpayment, 3-5% closing costs, 5-6% selling costs every time you move (average US home borrower moves every 7 years), property taxes, maintenance, insurance, is all money that could have been invested. If you look at everything (all cash flows considered), you spend less money when you rent! Between property tax, insurance, maintenance, mowing the lawn, fixing the roof, etc. etc. plus the extra utility costs you're spending a lot of money that could be invested instead. What's wrong with renting?? Learn from the past people! (Of course they look at me like I'm crazy when I suggest they cut a $100+ a month cable bill. Or drive a car that is 3 years old. Or only fill up their tank from the cheapest place according to GasBuddy. Or get $25/month budget car insurance from Insurance Panda. Or cook their own food instead of spending a hundred a week on restaurant food (or far more if they like the bar).) Nobel Prize winning economist Robert Shiller was one of the few people who accurately called both the stock market crash of 2000, AND the real estate crash of the late 2000s. And he says that owning a home is a terrible investment.

marvin brook says:
January 23, 2014

Another consideration is the opportunity cost of your down payment. That is money that can be invested somewhere else. You should also look at the cash flow differences between renting and owning. Remember, that currently the tax code gives homeowners a tax break for property taxes and mortgage interest. If you are able to itemize, those costs against your marginal tax rate can produce large savings(i.e. 30% fed and state marginal rate times $25,000 in annual property taxes and interest expense is $7500 or $625 a month in tax savings). In addition a portion of your mortgage payment is going towards debt reduction which increases your wealth. None of that happens with renting. So unless the rental is decidedly cheaper than home ownership monthly outlay or if the home is not going up in value in the future or you have great alternative investment(stock market???), then home ownership should be considered.

Matt B says:
April 02, 2014

Owning a home is better than renting, but only if it's affordable. Taxes can be a drag but mortgage interest deductions can all but eliminate that yearly burden. We are lucky we have prop 13 in California that limits property taxes and yearly property appreciation. After 17 years of renting at a total of over $123,000, with nothing to show for it, I bought and never looked back. Now my mortgage is paid and I've doubled my investment.

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