With the recent economic downturn and declines in home values, sales and ownership rates observed over the last few years, many people have been questioning whether buying and owning a home is a wise decision right now.
Case in point: A Time magazine cover article on this very topic, headlined “The Case Against Homeownership” and published last September, posited that it may no longer make economic sense to invest in the American Dream.
Yet for all the naysayers, there are indications that purchasing now and owning a home, at least in the long-term, is not only a popular idea in but a financially smart one.
Survey data recently published from the 2010 National Association of Realtors Profile of Home Buyers and Sellers reveals that the longer you own a home, the better the investment, and owning fosters stability. Despite the fact that typical sellers had resided in their former domicile for eight years (a rise from seven years observed in the 2009 study), first-time purchasers plan to remain in their homes for a decade, and repeat buyers count on retaining their home for 15 years. What’s more, the average seller who bought a property eight years ago saw a median equity increase of 24 percent ($33,000); sellers who stayed in their residences for 11 to 15 years realized a median gain of 40 percent.
Additionally, results of a Bankrate.com survey published last summer show that, regardless of the high nationwide rates of foreclosure and sliding home prices, 90 percent of owners say they don’t regret buying a home.
“In what many consider one of the worst decades in American real estate history, housing values are still up over 40 percent from year 2000 prices,” says Steve Harney, a speaker and real estate expert based in Holbrook, N.Y. “In that same period, the Dow hasn’t moved and the NASDAQ and S&P 500 are down significantly.”
Ask Ruth Miron-Schleider why homeownership continues to make good sense, despite the current real estate climate, and the broker/owner of Miron Properties in Bergen County, N.J, will tell you that buyers not only have a greater choice of available homes to select from, but prices are up to 50 percent lower than just a few years ago and mortgages remain near a historically low rate (a 30-year fixed-rate loan can currently be had for around 4.3 percent).
“By owning a home, you build up equity and get a tax break by deducting your real estate property taxes. Your home is your own and you can decorate, update, extend or redesign it as you please. And it offers anchor and stability for your family,” Miron-Schleider says.
Consider a buyer who purchased a median-priced home five years ago with an FHA mortgage that required a 3 percent down payment, says NAR president Ron Phipps. This buyer’s monthly payment would have been $1,650 versus a monthly mortgage of only $1,150 if he had bought the same home today with current low interest rates and lower median prices – a $500 monthly savings.
Many experts believe that purchasing a home in the current market is only risky if you irrationally overextend your finances, buy in areas that historically have not maintained home values better than others, or intend to flip the home in the near future.
“Owning a house to speculate in residential real estate is a bad idea. Buying a house you will enjoy and use will be a good investment over the long-term. Over the long run, housing prices will track inflation. We had appreciation significantly greater than inflation from 2002 to 2007, so prices are correcting and will match inflation,” says George Graham, CEO of Concierge Auctions in New York.