The reasons individuals choose to buy a home differ from buyer to buyer, but as a collective, there are a few universal truths. A paper written by Eric Belsky, the Managing Director of the Joint Center of Housing Studies at Harvard University, examines the topic of the five financial reasons that everyone should buy a home.
The listed reasons are all followed by an excerpt from Belsky’s 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. Whether you rent or own, you are paying for housing.
“Homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord.”
3. Owning a home is typically 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 a home.
“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 barrier 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.”
Many people wish to purchase a home for an assortment of social, stability, and familial reasons…but it makes a lot of financial sense too. If you or anyone you know is considering buying a home this year, contact me today for a personal consultation.