To own or rent a home? Market, jobless rate issues add to complex question
After the steep drop in the housing market revealed cracks in the long held belief that there was minimal financial risk in owning a home, does it still make sense to buy a house? The economy and high jobless rate have only made it more complex for many families, despite low mortgage rates.
Many are reconsidering homeownership as a lifetime goal and no longer consider renting a taboo, says Peggy Alford, president of Rent.com, an online rental listings service. But owning a home is a “mainstay of the American psyche’’ that offers numerous benefits, says Moe Vessi, president-elect for the National Association of Realtors.
Alford and Vessi walk through some common misconceptions surrounding homeownership and its economic benefits:
■ Homeownership is a good investment. Home prices over the long term often pay off. That’s even though prices have dropped in the last few years.
Still, nearly 11 million homeowners got caught in the housing slump and owe more than their house is worth. They can’t sell at a profit or refinance. Any down payment they contributed to their home is lost, unless its value rebounds.
“Appreciation is all about timing. If you buy low and sell high, then it is a good investment,’’ Alford says. “But you should not consider homeownership solely on whether or not you will be able to sell at a profit. That’s because it is likely you will not be able to predict where the housing market is when you want to or have to sell.’’
■ A home is a good way to save money. Renting is just throwing away cash.
Part of every mortgage payment goes to paying back the principal of the loan and building a little more home equity. So, a homeowner is using a house as a piggy bank.
However, the cost of owning a home is more than just the mortgage payment. Homeowners must pay for maintenance and repairs, expenses that renters don’t have.
“The problem with rent-versus-buy calculators is they usually don’t take into account property taxes, costs associated with maintaining a home, or unexpected costs like education expenses, medical bills that a family needs to consider when putting money into an illiquid asset,’’ says Alford.
■ Homeownership builds a stronger economy. Construction has fueled economic recoveries. Each new home creates an average of three jobs for a year and $90,000 in taxes. “Every time you sell a home in America, you create 40 jobs, you touch almost 80 occupations and generate almost $60,000 in peripheral activity like painting, roofing, plumbing, furniture, carpeting, and landscaping,’’ Vessi says.
However, currently many Americans are stuck in their homes, unable to sell. Workforce mobility is at its lowest level since World War II and is a drag on the recovery if workers can’t move for a new job.
“Many Americans are realizing that the flexibility to be able to move if necessary to get a better job in down economic times is important,’’ says Alford.
Janna Herron writes for the Associated Press.