The short answer
The decision to buy a home is highly personal, and you should not be pressured to buy or not buy, regardless of the “paper” reasons that it’s a good or bad idea. However, there are some general guidelines to consider.
Homeownership is generally not a great idea for rolling stones — buying and selling houses involves real estate commissions, lender fees, and title charges. That can reverse a lot of wealth-building if you move frequently.
You may not be able to buy a home yet if you have no savings and don’t qualify for first-time homebuyer programs. Consider delaying your home purchase if you lack job security, health insurance, marital stability or emergency funds – according to the University of Illinois, the top causes of foreclosure in the US are medical bills, divorce and job loss.
If those obstacles don’t apply, buying could be a great move. Run some numbers to help you make your buy-versus-rent decision. There are many online calculators designed to help you make this decision (keep in mind that many are created and promoted by those in the real estate industry and are biased toward purchasing — we’ll have one here soon that will be as objective as we can make it).
Today, it’s more expensive to rent in many locations. Deutsche Bank AG USA recently reported that average monthly rents are now 14.9 percent higher than average mortgage payments.
And although nationally, home prices continue to lag, many local markets are improving.
According to the National Association of Realtors (NAR), inventories of homes for sale have fallen steadily as the economy has recovered. This shrinking supply is a positive and should lead to price gains for owners.
The complete answer
Go through the lists below — reasons to buy or not buy — and see which of those reasons apply most to your situation. If buying is in your future, your next step will be seeing how much you can afford to spend on a home. Otherwise, now is the time to create a savings plan and compile a good credit history, so that when you’re ready to buy, you’ll be *ready* to buy.
Reasons to wait
- Houses are not liquid investments. We know; shows like Flip this House make dealing in property look easy and profitable. But in real life, buying and selling real estate involves lots of time and the costs are high — mortgage lender fees, real estate commissions, title and escrow services, and more. Closing costs for buyers come to, on average, 3.5 percent of the price of the home, according to the Federal Reserve Bank. Selling a home costs even more — seven to ten percent of the sales price! This means that real estate is probably not a good investment unless you plan to keep it for several years.
- You’re stuck. Renting means having the freedom to get up and go – for a new job, for the man or woman of your dreams, to bicycle around the world – that owning just doesn’t offer. If you rent and your newest neighbor decides to relive his youth with loud parties and racing pipes on his Harley, you can leave if it bothers you. If you own, ear plugs may be in your future.
- When things go wrong, it’s your problem. When good appliances go bad, you get to stay home waiting for the plumber and write a painful check. If you buy a home with a beautiful yard, realize it won’t stay beautiful for long unless you devote your weekends to it or pay someone else to.
- Your home’s value could decrease in the short term. As many found during the 2008 recession, home prices don’t always increase. Your down payment could disappear if your home’s value erodes. You could find yourself owing more on the property than it’s worth.
Reasons to buy
- You accrue wealth. Your mortgage is a “forced savings” plan. Paying it down builds home equity, which is an asset that you can sell or borrow against. When your home’s value increases, you earn even more. In fact, the Federal Reserve Bank says the average homeowner’s net worth of $171,000 is nearly 46 times that of the $4,800 average net worth of renters! Almost 60 percent of the wealth of homeowners is in the form of home equity.
- You can pay less to Uncle Sam. Home mortgage interest is usually tax deductible for people who itemize their deductions. So are mortgage insurance and property tax payments. You can even defer most gains when you sell your home. Congress’s Joint Committee on Taxation found that the tax benefits of home ownership are worth on average $2,213 per year.
- You can kiss your landlord goodbye. If you rent, you may not be able to change the color of the walls or carpets, bring a pet into your family, wash your car in the driveway, or buy your kids a swing set. Some communities don’t allow renters at all – if you want to live there, you have to buy.
- You can freeze your payment with a fixed rate mortgage. You can’t do that by renting. Yearly rent increases will likely exceed 10 percent for the next couple of years, according to John Burns Real Estate Consulting quoted in CNNMoney. There’s San Diego (31 percent by 2015), Boston, (25-30 percent) and Seattle (4.5 percent in 2012 and 6 percent in 2013).
- It’s good for your kids. Children of homeowners are 59% more likely to become homeowners, according to Habitat for Humanity. They are also 25% more likely to graduate from high school, 116% more likely to graduate from college, and exhibit fewer behavioral problems.