Attaining the American Dream: The 5 Financial Reasons to Buy

We have reported many times that the American Dream of homeownership is alive and well. The personal reasons to own differ for each buyer, with many basic similarities.

Eric Belsky, the Managing Director of the Joint Center of Housing Studies at Harvard University expanded on the top 5 financial benefits of homeownership in his paper - The Dream Lives On: the Future of Homeownership in America.

Here are the five reasons, each followed by an excerpt from the study:

1. Housing is typically the one leveraged investment available: “Few households are interested in borrowing money to buy stocks and bonds and few lenders are willing to lend them the money. As a result, homeownership allows households to amplify any appreciation on the value of their homes by a leverage factor. Even a hefty 20 percent down payment results in a leverage factor of five so that every percentage point rise in the value of the home is a 5 percent return on their equity. With many buyers putting 10 percent or less down, their leverage factor is 10 or more.”

2. You're paying for housing whether you own or rent: “Homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord.”

3. Owning is usually a form of “forced savings”: “Since many people have trouble saving and have to make a housing payment one way or the other, owning a home can overcome people’s tendency to defer savings to another day.”

4. There are substantial tax benefits to owning: “Homeowners are able to deduct mortgage interest and property taxes from income...On top of all this, capital gains up to $250,000 are excluded from income for single filers and up to $500,000 for married couples if they sell their homes for a gain.”

5. Owning is a hedge against inflation: “Housing costs and rents have tended over most time periods to go up at or higher than the rate of inflation, making owning an attractive proposition.”

Bottom Line

We realize that homeownership makes sense for many Americans for an assortment of social and family reasons. It also makes sense financially. If you are considering a purchase this year, contact a local professional who can help evaluate your ability to do so.

Good News for ‘Typical’ Home Buyers

In a speech delivered earlier this year, Secretary for HUD Julián Castro, called 2015 “A Year of Housing Opportunity”. A recent report by The National Association of Realtors (NAR) revealed that investment home sales decreased 7.4% in 2014 to an estimated 1.02 million.

What does this mean for the ‘typical’ homebuyer?

Lawrence Yun, NAR’s Chief Economist gave some insight:

“Despite strong rental demand in many markets, investment property sales have declined four consecutive years to their lowest share since 2010 as rising home prices and fewer distressed properties coming onto the market have further reduced the number of bargains available to turn into profitable rentals.”

This is great news for the housing market. If fewer properties are being sold to investors, they are instead being sold to American families who are entering the housing market in droves.

Details of the Report

There are many reasons buyers purchase a home as an investment property. Those who made a purchase in 2014 listed the opportunity for rental income as their top reason (37%).

Below is a graph showing the top three reasons:

The median investment-home sales price dropped 3.8% to $125,000, from $130,000 in 2013.

According to Yun, “the decrease in vacation and investment sales prices is likely due to the increase in vacation and investment buyers purchasing condos and townhouses, which contributed to a decline in the median size of 200 square feet for both.”

The drop in price can also be attributed to the majority of investment purchases being located in the South (37%) where there are often better deals from a pure pricing standpoint.

Below is a map detailing the investment purchases in 2014 by region.

Bottom Line

The housing market is continuing to recover and thrive. If your plan for 2015 includes buying your first, second or even investment property – contact a local real estate professional to evaluate your ability to enter the market.

Does Homeownership Make Sense Financially?

Everyone knows the social advantages of home ownership. However, some question the financial benefits of owning a home. Three recent studies shed some light on the issue.

RealtyTrac recently released a report comparing home price appreciation to wage growth over the last two years. The study revealed that home price appreciation has outpaced wage growth in 76% of U.S. housing markets during that time period. By how much? Here is a graph showing their findings:

And we all know the importance of home appreciation in determining the net wealth of most American families. Merrill Lynch just issued a report covering the issue. Their findings are shown here:

It obviously makes financial sense to be a homeowner.

But, does it make sense to buy now?

The survey company Pulsenomics just issued their findings on the cost of owning versus the cost of renting. They compared historical averages to the cost you can expect to pay today.

The cost of buying is far below historical averages. Renting is another story.

Later today, we will be hosting a webinar entitled 4 Secrets to Getting Buyers & Sellers Off the Fence which will go into more depth about the opportunity available to buyers, along with ways to help potential sellers realize that now is the time to list their home.

You can reserve your seat here.

The Greatest Investment as a Home Owner