By Shirley Pulawski
The housing market has gone through massive changes in the last several years. We’ve seen bubbles and busts, and a housing market seemingly on the rise again, with prices slowly moving upward along with modest increases in interest rates.
Many people lost their homes to foreclosure on mortgages which weren’t suited to their incomes and lifestyles, and an argument can be made that homeownership isn’t right for everyone. However, owning a home is still a good decision for many people and can be an important part of a long-term financial strategy.
Anyone familiar with Robert J. Shiller’s reports that the return on investment with homeownership can be 0 to 1 percent, but not all benefits of homeownership can be calculated financially. For many people, having a long-term, singular environment in which to raise families and make memories is among the most important reasons behind buying a home. If the goal is to become and remain part of a community, then buying a house also makes sense. There are financial advantages and conveniences along the way, especially for those who choose to remain in their home over many years.
While interest rates have been creeping upward, rates are still at historic lows for people with good and excellent credit. Currently, rates for 30-year fixed mortgages can be found for as low as 3.85 percent, and only 2.75 percent for 15-year fixed rate mortgages. Federal Housing Authority loans even have slightly lower rates, so it is still a good time to buy, even though home prices are also inching up in many areas.
With an average annual appreciation rate of only about 3-5 percent, which isn’t much higher than mortgage interest rates, one could argue homeownership is not much of a money-maker, especially with maintenance costs along the way. However, once the mortgage is paid off, the home may continue to appreciate, and the homeowners have a stable place to live. The result is similar to having participated in a steady savings plan, and ultimately, an easier way of life once the mortgage is finished. This means buying a home is generally only a good decision if the buyers intend to live in the home for a long time. Otherwise, market fluctuations, loan fees, closing costs, and outstanding loan principle can make buying a home a money loser.
There are also tax advantages for homeowners which are unavailable to renters, but on costs renters don’t have to pay. Either by renting or owning, money has to be spent in order to live somewhere, so tax incentives as part of the perks of owning can be advantageous. Property taxes can be offset by tax deductions, as well as the costs of a portion of mortgage interest paid.
Another advantage for a long-term buyer is if the plan is to keep the home into retirement. Living mortgage- or rent-free during retirement years can provide a boost to the pocketbook, or can even provide additional funds if the home is sold and part of the price is channeled into the purchase of a smaller, less expensive home, or to pay forward living expenses into a retirement community. Home equity lines of credit or even a reverse mortgage can help with retirement costs, travel, or health expenses.
Owning a primary residence doesn’t provide income, pay dividends, and it can’t quickly be turned into cash (and not without needing to fill the need for shelter right away and at a cost), so it isn’t an investment the way stocks, bonds, or precious metals may be. While its value is still subject to market fluctuations, over the long term, buying a home can provide stability, equity (like savings), and comfort, so buying a home can still be a very good decision for many people.