For a long time, conventional wisdom seemed to be that you grow up and buy a home because that’s just what you do. But lately, people are realizing that it isn’t always the smartest financial move. Obviously, the housing crisis has a lot to do with that—it’s made people question the standard assumption that homeownership equals financial stability.
Homeownership isn’t a good or bad idea on its own. It has everything to do with your own situation. Sometimes, buying a home is the smart thing to do; other times, it really isn’t. Whether or not it’s smart for you will depend on a few different factors. Here’s what you should keep in mind.
The biggest argument for owning a home is that it’s an “investment.” But a lot of people tend to overestimate the return on this investment.
People tend to believe that homes are appreciating assets, but this isn’t always true. Overall, the housing market doesn’t have a great long-term return. It barely outpaces inflation, in fact.
| Ace Commercial Real Estate Group, 5623 Us Highway 19 Ste 206, New Port Richey Fl More ... |
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| Deeb Family Homes, 9400 River Xing Blvd Ste 102, New Port Richey Fl 34655 |
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| River Ridge Realty Company, 9113 Ridge Rd Pmb 90, New Port Richey Fl 34654 |
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| Rpms Holdings, 3224 Little Rd, New Port Richey Fl 34655 |
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| S & S Real Estate Service, 1324 Seven Springs Blvd # 312, New Port Richey Fl 346 More ... |
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| Samuelsen Builders Realty, 8126 Tantallon Way, New Port Richey Fl 34655 |
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| Sand Dollar Realty Center, 5433 Saltamonte Dr, New Port Richey Fl 34655 |
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| Sd Realty Investments, 8985 Fairchild Ct, New Port Richey Fl 34654 |
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| Sells Real Estate Referral Group, 3030 Starkey Blvd Ste 160, New Port Richey Fl More ... |
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| Sells Real Estate, 3030 Starkey Blvd Ste 160, New Port Richey Fl 34655 |
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| Suncoast Group Realtors, 9834 Patrician Dr, New Port Richey Fl 34655 |
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| Tropical Realty Referrals, 7916 Evolutions Way Ste 210, New Port Richey Fl 34655 |
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| Trustworth Holding, 5641 Westshore Dr, New Port Richey Fl 34652 |
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| Unique Properties, 8510 Old County Road 54, New Port Richey Fl 34653 |
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| Weichert Realtors-all Professional, 11442 Ridge Rd, New Port Richey Fl 34654 |
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| Woodland Waters Realty, 4409 Grand Blvd, New Port Richey Fl 34652 |
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Over the past 100 years, home prices have only grown at a compound annual rate of 0.3%, adjusted for inflation. The S&P 500, on the other hand, has had an annual return of 6.5%. That’s a big difference.
While that single real estate asset might help protect you against inflation, a well-balanced stock and bond portfolio seems to be a better investment. But a lot of people’s portfolios are mostly made up of their home value. You wouldn’t put 80 percent of your portfolio in a bond simply to protect against inflation (unless maybe you were nearing retirement) so why would your home make up that same amount? That’s the argument against buying a home as investment.
When making the decision it is important to understand that buying a home might not be a great financial investment and to not forgo all of your investable assets in order to purchase a home because you are really purchasing a right to housing and not a long-term investment designed to generate income.
Most experts agree that while housing is an investment, it’s not a great investment. So if this is your only basis for buying a home, it’s probably not the best one.
Decide How Much You Can Afford: In deciding whether you can afford to buy, you’ll have to figure out how much home you’re planning on buying in the first place. One rule of thumb for figuring out this number: your home should cost no more than 2.5 times your salary. Of course, this just gives you a ballpark figure. It doesn’t consider your net worth.
Weigh the Opportunity Cost of Renting Versus Buying: While your home might not be the best investment, in the end, it’s still yours. Even if it barely outpaces inflation, at the end of the day, you own it, and that’s worth something. When you rent, you own nothing—the money is given to someone else. So lots of people argue that you should own a home because one day, you’ll pay that home off and it’ll be yours, rather than continuing to pay rent for the rest of your life.
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