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.
| Alec Hicks Jr Ltd, 209 Barton Ave, Palm Beach Fl 33480 |
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| Atlantic Creek Real Estate Partners, 420 Royal Palm Way Ste 310, Palm Beach Fl 3 More ... |
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| Barone Realty, 180 Royal Palm Way Ste 211, Palm Beach Fl 33480 |
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| Beck Group, Po Box 2088, Palm Beach Fl 33480 |
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| Belmont Associates, 7 Lagomar Rd, Palm Beach Fl 33480 |
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| Bertram Properties Palm Beach, Po Box 403, Palm Beach Fl 33480 |
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| Bluegate Partners, 420 Royal Palm Way Ste 310, Palm Beach Fl 33480 |
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| Bob Jackson, Po Box 2201, Palm Beach Fl 33480 |
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| Brown Harris Stevens Of Lake Worth, 353 Worth Ave, Palm Beach Fl 33480 |
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| Brown Harris Stevens Of Palm Beach, 353 Worth Ave, Palm Beach Fl 33480 |
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| Brown Harris Stevens Of Palm Beach Referral, 353 Worth Ave, Palm Beach Fl 33480 |
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| Business Associates, 1185 N Lake Way, Palm Beach Fl 33480 |
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| Choice Management, 11888 Lake Shore Place, Palm Beach Fl 33480 |
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| Christian Angle Real Estate, 179 Bradley Pl Ste 1, Palm Beach Fl 33480 |
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| Christie's International Real Estate, 313 1/2 Worth Ave # 4b, Palm Beach Fl 3348 More ... |
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| City Plaza Realty, Po Box 2783, Palm Beach Fl 33480 |
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| Civog Realty, Po Box 1001, Palm Beach Fl 33480 |
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| Corcoran Group, 340 Ryl Poinc Way Ste 302, Palm Beach Fl 33480 |
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| Dale Pincourt, 1270 N Lake Way, Palm Beach Fl 33480 |
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| Denise A Hanley, Po Box 2525, Palm Beach Fl 33480 |
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| Dorothy Engels Gulden, 220 Sunrise Ave Ste 100, Palm Beach Fl 33480 |
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| Earl A Hollis, 217 Peruvian Ave, Palm Beach Fl 33480 |
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| Fite Group, 101 N County Rd, Palm Beach Fl 33480 |
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| Gruner Realty Co, Po Box 2716, Palm Beach Fl 33480 |
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| Gwinn Realty, 316 S County Rd Unit B, Palm Beach Fl 33480 |
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| Hall Real Estate, 140 Royal Palm Way Ste 201a, Palm Beach Fl 33480 |
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| Harold T Goffe Realtor, 235 S County Rd Ste 9, Palm Beach Fl 33480 |
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| Heaton Realty, 277 Royal Poinciana Way # 156, Palm Beach Fl 33480 |
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| Hoadley Donohue Real Estate, 256 Worth Ave Ste 210, Palm Beach Fl 33480 |
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| Hoadley Donohue Real Estate Palm Beach, 256 Worth Ave Ste 210, Palm Beach Fl 334 More ... |
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| Hollis Realty Group, 217 Peruvian Ave, Palm Beach Fl 33480 |
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| Interamericasrealty, Po Box 2673, Palm Beach Fl 33480 |
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| John D Pinson, Po Box 3386, Palm Beach Fl 33480 |
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| Lawrence A Moens Associates, 245 Sunrise Ave, Palm Beach Fl 33480 |
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| Linda R Olsson, 101 Bradley Pl # 240a, Palm Beach Fl 33480 |
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| Linton Real Estate, 350 S County Rd Ste 205, Palm Beach Fl 33480 |
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| List Management Co, 340 Royal Poinciana Way, Palm Beach Fl 33480 |
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| Matheson International L C, 44 Cocoanut Row # T-9, Palm Beach Fl 33480 |
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| Menin Realty Services, 324 Royal Palm Way Ste 100, Palm Beach Fl 33480 |
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| Mirasol Realty, 101 N County Rd, Palm Beach Fl 33480 |
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| Moira Jaye Realty, Po Box 1026, Palm Beach Fl 33480 |
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| Monique Matheson Properties L C, 44 Cocoanut Row # T-9, Palm Beach Fl 33480 |
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| Northstar Homes Realty, 241 List Rd, Palm Beach Fl 33480 |
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| O'connor Property Management Of South Florida, 125 Worth Ave Ste 316, Palm Beach More ... |
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| Ocean Via Realty, 2880 S Ocean Blvd, Palm Beach Fl 33480 |
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| Palm Beach Ocean Realty Corporation, Po Box 28, Palm Beach Fl 33480 |
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| Palm Beach Real Estate Group, Po Box 608, Palm Beach Fl 33480 |
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| Palm Beach Real Estate, 189 Bradley Pl Unit N, Palm Beach Fl 33480 |
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| Palm Beach Residential Properties, 44 Cocoanut Row, Palm Beach Fl 33480 |
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| Patricia Watts Wearn Pa, 205 Worth Ave Ste 201, Palm Beach Fl 33480 |
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| Pierre Hostyn Realty, 235 Sunrise Ave, Palm Beach Fl 33480 |
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| Plaza, 3456 S Ocean Blvd Ste 505, Palm Beach Fl 33480 |
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| Precise Properties 1, Po Box 2173, Palm Beach Fl 33480 |
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| Private Asset Exchange, 445 Brazilian Ave Ste 11, Palm Beach Fl 33480 |
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| Q Palm Beach, 340 Ryl Poinc Way Ste 340, Palm Beach Fl 33480 |
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| Raith Properties, Po Box 2207, Palm Beach Fl 33480 |
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| Rinker Realty, 225 Peruvian Ave, Palm Beach Fl 33480 |
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| Robert E List Co, 340 Royal Poinciana Way, Palm Beach Fl 33480 |
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| Robinson Realty And Property Management, Po Box 368, Palm Beach Fl 33480 |
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| Sbzz Palm Beach, 353 Worth Ave, Palm Beach Fl 33480 |
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| Sothebys International Realty, 340 Ryl Poinc Way Ste 337, Palm Beach Fl 33480 |
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| Sothebys International Realty Referral Company, 340 Ryl Poinc Way Ste 337, Palm More ... |
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| Thorstad Group Real Estate, 110 El Pueblo Way, Palm Beach Fl 33480 |
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| Tina Fanjul Associates, 220 Sunrise Ave Ste 103, Palm Beach Fl 33480 |
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| Tricony Florida Corp, 313 1/2 Worth Ave Bldg B # 1, Palm Beach Fl 33480 |
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| Tricony Management, 313 1/2 Worth Ave Ste B-1, Palm Beach Fl 33480 |
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| U Realty, 44 Cocoanut Row # T-11, Palm Beach Fl 33480 |
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| Valore Group, 340 Ryl Poinc Way Ste 311, Palm Beach Fl 33480 |
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| Victoria's Luxury Estates, 340 Ryl Poinc Way Ste 328 # 444, Palm Beach Fl 33480 |
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| Villa Valentina Realty, 3589 S Ocean Blvd Apt 136, Palm Beach Fl 33480 |
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| Wilshire International Realty Co, 205 Worth Ave Ste A # 307, Palm Beach Fl 33480 |
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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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