*Updated 2018
Homeownership has long been a symbol of financial security for individuals across the globe, and the US government has implemented steps to help its citizens become homeowners. With entire television channels devoted to the quest to own homes (and then make them cozy), the allure of homeownership is not likely to abate any time soon. However, following the mortgage crisis of 2008, which is estimated to have cost some 10 million homeowners their homes, the appeal of homeownership has come under greater scrutiny. Plus, with natural disasters on the rise and wreaking havoc on homes throughout America, is homeownership all it’s cracked up to be?
Let’s look at three disadvantages and advantages of homeownership.
Papa was a rollin’ stone
Homeownership is not a worthwhile investment
While home values don’t often depreciate, they certainly can. Moreover, home value don’t often appreciate either. (Housing price increases are often perceived as a rise in the property value when the new price basically accounts only for inflation). In reality, homeowners spend exorbitant amounts of money on interest: For instance, a $300,000 mortgage at the standard interest rate of 3.5% will cost nearly $653,000 over thirty years. And this is to say nothing of the hundreds of thousands of dollars that homeowners spend on property taxes, home repairs, and upgrades that do not necessarily add to the value of the house. Investors and economists agree that this capital is better spent on products with a higher return on investment.
Homeownership ties you down
The word mortgage literally means death pledge. How’s that for final? More than tying homeowners (those with a mortgage, at least) to a lifetime of debt, homeownership locks the owner to a specific location, complicating relocations for professional or personal reasons. What’s more, no one can promise that a home can be resold at the buying price. Being tied to one place can be especially problematic if your town or city is on the decline. Take Detroit, for example. Once a bustling metropolis, in 2015, houses that once sold for tens of thousands of dollars went go to auction for one dollar. Talk about a cautionary tale.
Widespread homeownership dampens the economy
Studies have revealed a concerning connection between high rates of homeownership and unemployment; they also suggest that homeownership may undercut the formation of new businesses. This connection can be seen in Europe. Germany, a country with the second-lowest homeowner rate in the EU, is unsurprisingly Europe’s economic powerhouse, dwarfing the economies of countries like Spain, which has high rates of homeownership. In light of different studies that demonstrate how homeownership often functions to hold back individual workers and entire economies, it seems unreasonable for the US government to continue encouraging homeownership to the tune of $200 billion in yearly revenues in the form of homeowners’ subsidies and tax breaks.
Home sweet home
Homeownership garners stability
Unlike renters, who are frequently at the mercy of the market and their landlords (especially in minimally regulated markets like in the US), homeowners know exactly how much (adjustable interest-rate loans notwithstanding) their housing costs will be for the long-term. In 2016, rental rates rose four percent, four times the rate of inflation. Renters are forced to dig deeper into their pockets to stay in the same place, or to move. This is a process which is both time consuming and costly. Rent fluctuations are especially onerous for retirees on fixed income, making the lifelong process of acquiring a home well worth the effort. More than avoiding unpredictable raises in rental fees, homeowners know which schools their children will attend, and they and their family have the ability to form deep ties with their neighbors and community. In this way, the stability afforded to individuals and families through homeownership significantly increased quality of life.
Homeownership can help you weather a rainy day or accomplish other financial goals
If you have it, home equity, gains from a home’s appreciation value minus monies owed, can be a powerful financial tool. Home equity loans and lines of credit can help to turn a fixed asset into a liquid one. This can be a godsend if you need quick cash for unexpected home or car repairs, or if you suddenly have a medical crisis. Home equity can also help homeowners to finance anticipated expenses like college tuition and vacations at significantly lower interest rates than those offered on student or personal loans. (Plus, the payments are tax deductible – woohoo!). And, homeownership can provide monthly dividends for those who decide to turn their homes into rentals. Even if you downsize to a smaller rental of your own, you’ll pocket the difference each month, which can help turn into savings or even an extra vacation.
Home is where the heart is
If homeownership were merely about financial imperatives, there would probably be much fewer homeowners. But buying a home is much more than a financial transaction. Buying a home first and foremost answers the human desire for rootedness and continuity. Homes provide a space for families to grow, convene throughout large spans of time, and create memories. A home can house a family through several generations and is a natural nexus of intergenerational bonding. A house’s market value may rise and fall, but a home is truly priceless.
The Bottom Line: In light of new research and market forces, the advantages of homeownership for individuals as well as economies may have been overstated. While homes may not necessarily be the financial boon they were once thought to be, they still offer the benefits of security, stability, and familiarity. When we talk about what is possibly the biggest purchase of your lifetime, do you think a home should be it?
