Not sure if homeownership is worthwhile these days? Here are some reasons to consider it.
When newspapers have headlines like “Foreclosure Mess: Much Bigger Than You Thought” and “U.S. House Prices in Fresh Decline,” 2011 doesn’t seem like it’s ripe for real estate purchases. Why would anyone in their right mind buy a house now? Well, as a real estate agent, I can think of many reasons. Here are the top five:
1. A mortgage is an enforced savings plan.
Even though Americans are saving more money than they were before the economic slump (our personal savings rate is up from near zero to nearly six percent, says the Vancouver Sun), we’re really not a nation of savers. Paying a mortgage makes that hard chore automatic. That’s one reason I personally bought a home—to go back to that old model in which you bought a home when you were young, spent thirty years paying the mortgage off, and then sold the home and used the built-up proceeds to help with retirement.
Make this work: You’ll get the greatest equity buildup if you can stay in your home for at least seven years.
2. You expect long-term inflation.
Borrowing money (which is what taking out a mortgage really is) makes sense if you think you’re going to pay the loan back in the future with dollars that are worth less. That’s pretty much the environment that the United States has been in since World War II, so lots of people are betting we’ll see it again. The opposite is deflation—a swamp of little growth and falling prices.
Make this work: To protect yourself against deflation, keep some of your savings in cash or the equivalent: CDs or other short-term savings accounts.
3. You want to lock in your housing costs.
If you own a house, your maintenance, insurance, and property taxes will probably keep going up. But the biggest expense you’ll have—your mortgage—can be locked in for thirty years. That provides some peace of mind compared with renting, where your costs can change every year. To feel richer, you want to pair your locked-in costs with a rising income by making more money as you build your career.
Make this work: Take out a fixed-rate instead of an adjustable-rate mortgage. Keep investing in your career by making sure you always add new skills.
4. You feel differently about your submarket.
One big problem with housing data is that it’s national … but the level of foreclosures in Arizona may not matter a lot to you if you’re buying in Chicago. Just as it doesn’t rain everywhere all at once, you may be looking at a submarket that you think is in better shape than most.
Make this work: Watch local levels of employment to make sure that people can get jobs to provide demand in your submarket. Also, plan to make your home nicer over time by slowly fixing up the bits that need to be renovated.
5. You’re trying to time the housing market.
You figure that since we’ve been in a slump for a few years, an upcycle will eventually come, and you’ll be buying at or near the bottom.
Make this work: Buy a place large enough for you to live in for the next few years, in case you have to wait out the market.