10 Reasons To Buy a Home
Enough with the doom and gloom about home ownership. Sure, maybe there’s more pain to come in the housing market. But when Time magazine starts running covers that declare “Owning a home may no longer make economic sense,” it’s time to say: Enough is enough. After all, at the peak of the bubble, Time had a different take. “Home Sweet Home,” declared its cover then, as it celebrated the boom and asked: “Will your house make you rich?” But it’s not enough just to be contrarian. So here are 10 reasons why it’s good to buy a home.
1. You can get a good deal. We’re four to five years into the biggest housing bust in modern history. And prices have come down a long way about 30% from their peak, according to Standard & Poor’s Case-Shiller Index. Yes, it’s mixed across the country. Will prices fall further? Sure, they could. You’ll never catch the bottom. It doesn’t really matter so much in the long haul.
2. Mortgages are cheap. What’s not to like? These are the lowest rates on record. As recently as five years ago they were about 6.3%. That drop slashes your monthly repayment by a fifth. If inflation picks up, you won’t see these rates again in your lifetime. And if we get deflation, and rates fall further, you can refi.
3. You’ll save on taxes. You can deduct the mortgage interest from your income taxes. You can deduct your real estate taxes. And you’ll get a tax break on capital gains when you sell. Sure, you’ll need to do your math. You’ll only get the income tax break if you itemize your deductions. The breaks are more valuable the more you earn, and the bigger your mortgage. But many people will find that these tax breaks mean owning costs them less than renting.
4. It’ll be yours. You can have the kitchen and bathrooms you want. You can move the walls or build an extension. For renters, these types of changes are often impossible. You’ll feel better about your own place if you own it than if you rent. Many years ago, when I was working for a political campaign in England, I toured a working-class northern town. Mrs. Thatcher had just begun selling off public housing to the tenants. “You can tell the ones that have been bought,” said my local guide. “They’ve painted the front door. It was a small sign that said something big.
5. You’ll get a better home. In many parts of the country it can be really hard to find a good rental. All the best places are sold as condos. Once again, this is a case by case issue. Generally speaking, if you want the best home in the best neighborhood, you’re better off buying.
6. It offers some inflation protection. No, it’s not perfect. But studies by Professor Karl Case (of Case-Shiller), and others, suggest that over the long-term housing has tended to beat inflation by a couple of percentage points a year. That’s valuable inflation insurance, especially if you’re young and raising a family and thinking about the next 30 or 40 years.
7. It’s risk capital. No, your home isn’t the stock market and you shouldn’t view it as the way to get rich. But if the economy does surprise us all and start booming, sooner or later real estate will head up again, too. One lesson from the last few years is that stocks are incredibly hard for most people to own in large quantities for practical as well as psychological reasons. Equity in a home is another way of linking part of your portfolio to the long-term growth of the economy and still managing to sleep at night.
8. It’s forced savings. If you can rent an apartment for $2,000 a month instead of buying one for $2,400 a month, renting may make sense. But will you save that $400 for your future? A lot of people won’t. Once again, you have to do your math, but the part of your mortgage payment that goes to principal repayment isn’t a cost. You’re just paying yourself by building equity.
9. There is a lot to choose from. There is a glut of homes in most of the country. The National Association of Realtors puts the current inventory at around 4 million homes. That’s below last year’s peak, but well above typical levels, and enough for about a year’s worth of sales. That means great choice, as well as great prices.
10. Sooner or later, the market will clear. Demand and supply will meet. The population is forecast to grow by more than 100 million people over the next 40 years. That means maybe 40 million new households looking for homes. Meanwhile, this housing glut will work itself out. Many of the homes will be bought. But many more will simply be destroyed either deliberately, or by inaction.
By Brett Arends
Source: The Wall Street Journal