Traditionally, buying a home was considered to be The American Dream. It was the ultimate proof of financial stability. However, buying a home is not all that it is cracked up to be.
Here are some reasons why home ownership isn’t the best choice for a lot of Americans.
Houses are Poor Investments
The housing crisis of 2008 demonstrated that buying a home is not necessarily the good investment that it is touted to be. The housing crisis was triggered by a large decline in home prices, leading to a high number of mortgage foreclosures and delinquencies. The housing crisis also caused housing-related securities to be significantly de-valuated. Nobel Prize economist Robert Shiller agrees that houses are poor investments.
Although conventional wisdom says our homes are a great investment because the value of a house will certainly appreciate, Shiller found that the opposite is actually true. Between the late 1890s and 1990, the actual rate of return on owning a home has been virtually zero. This award winning economist argues that stocks have historically shown much higher returns than the housing market. Therefore, if accumulating wealth is your goal, it is probably a better idea to rent and put money in stocks.
The Equity in Your Home Is Not Liquid
While you might have $100,000 in equity in your home, it is not easily accessible if you really need it. If you lose your job and need cash, you can forget about getting it quickly from your home. Although you might be able to get a home equity loan, it will just saddle you with even more debt. There are much better places to invest your assets, such as a money market account. These allow you to earn interest and have relativity easy access to the cash if it is needed in an emergency.
Buying a House Typically Involves Debt
Most people take out a mortgage to buy a home, and many of those people borrow more than they really need. When buying new furniture or a pair of shoes, people usually focus on the cost of the item alone to determine how much they should spend. However, when it comes to mortgages, people often justify taking out a larger loan because they believe they are making an investment.
Banks may approve customers for mortgages that they cannot truly afford. This is what partially contributed to the housing bust of 2008. People purchased houses with mortgages that they could not really afford by using subprime mortgage lenders. Subprime lenders make mortgages to people with low down-payment and poor or no credit.
People are often emotionally attached to the idea of buying into The American Dream. They are tempted to take the bait and sign for a mortgage even though it might not be affordable. When you are truly debt free, you have much more freedom. A mortgage is a commitment that involves being saddled with debt for decades.
Houses Require Constant Time and Attention
Not only will you probably end up having to move across the country to find a more affordable area to live in, the costs and hard work only begin once you say goodbye to the long distance movers (NY to LA is no easy feat on your own). Homes need regular TLC to keep them in good condition. This upkeep requires both money and time. Eventually, you will need to replace the carpet. Even before replacing it, you will probably have to steam clean it every so often to remove dirt and grime. Rooms will need to be repainted every so often. Landscaping can require huge amounts of time and money. These small things add up, both in time and money.
As you can see from the above points, home ownership isn’t all that it is cracked up to be. In fact, it may be a far worse option for many people than renting.
Featured photo credit: VIKTOR HANACEK/Old House Window in Colorful Retro via picjumbo.com