I’ve run across a few trends on home ownership lately.
Home ownership is at the lowest levels for the 18-35 crowd in the last 40 years.
The midlifers (35-50) were likely most impacted by the housing bubble and have cooled the most on the idea of mortgage mania.
Overall, every demographic category is down and rents are on the rise. Yay for landlords.
Is this a bad thing?
Looking at shackling yourself to a mortgage vs renting is a great exercise. It makes sense to examine each case individually and not swallow the mindset that owning your home is the way to go. It might be, but let’s take a look at several factors.
The common questions are:
- Can you afford to purchase a house? In addition to the down payment and monthly note, also consider the cost of additional utilities, maintenance, insurance, and/or any assessments associated with the property or neighborhood.
- Do you plan to stay put for the foreseeable future? Mortgages makes it a little challenging to be transient.
- Are you ready to handle the interior and possible exterior concerns of home ownership?
- Do you like to shovel snow (depending, of course, on your proximity to the equator).
So those are basic, high level tick marks to review. Beyond the basics, home ownership is still not a given.
1. Location, location, location. Unless you possess an adventurous spirit or are interested in community development, your location is important. Not only for your quality of life, but for appreciation and potential resale.
2. Buying a home requires cash up front. What else can you do with that cash? Can you pay off debt faster by renting? Are you interested in investing in a business that may ultimately lead to more income down the road?
3. Are you in a decent school district? While you may not have children (yet), they have a tendency to come as we get older. Better school districts generally come with higher costs of living.
4. Seriously, do you like to shovel? Whether you maintain the home’s exterior personally or contract out, that’s an additional expense and activity to monitor.
5. Are you willing to build and maintain a maintenance emergency fund? Hot water heaters go out. Air conditioning units need to be replaced. Dryers stop drying. Those are a few of the items we dealt with in the 18 months in our new home.
On the other side:
1. Apartment rents will generally double every 10 years. You are building the net worth of your landlord by renting indefinitely.
2. It’s possible to have better control over your living expenses (excluding taxes). However, you’re paying property taxes when you rent as well. The tax benefit just goes to your landlord.
3. Eventually, you can pay the mortgage off…eventually.
4. If your lifestyle is not transient, you will miss out on the potential appreciation and wealth building power of investing in real estate.
5. You don’t need a degree in Finance to understand investing in a home. At least for me, I understand real estate!
At this point in my midlife status, home ownership (at an affordable price, in a decent neighbor, with assessments that take care of snow and lawn care) works well. We actually compared renting to purchasing. I talk all about it in A Short Sale Short Story.
However, right after college, I moved to Dallas for a temporary stint. It would have been harder for me to uproot and move to attend graduate school while having a mortgage to contend with. Thankfully, I kept my rent low to free up cash for savings (and travel).
I do like the idea of condo/town home living for those who can stomach shared walls. It’s a nice transition between no responsibility and full blown “it’s on you if it breaks” home ownership. However, in this case, assessments need to be added to your expense list. Know also that assessments rise pretty much every year. The key is to keep those low.
In case I wasn’t clear, home ownership is still worth it – eventually and if you are in a good place financially and a fix it frame of mind.