A new paper on homeownership recently released by Eric Belsky, Managing Director of the Joint Center of Housing Studies at Harvard University, gives five financial reasons people should consider buying a home rather than renting.
1. Housing is typically the one leveraged investment available
People typically can't borrow money to buy stock and bonds, but homeownership allows households to leverage any appreciation in the value of their home. With 20% down, every 1% rise in value results in a 5% return on their equity; with 10% down that rises to a 10% return on every 1% increase in value, and with less money down the return is even greater.
2. You're paying for housing whether you own or rent
When you rent, you are paying down the principal of your landlord; when you own, you are paying down your own mortgage and increasing the equity in your home.
3. Owning a home is usually a form of "forced savings"
If you are like many people, you have trouble setting aside savings. But you have to pay for your housing one way or another; owning a home can be considered to come with a built-in savings plan.
4. There are substantial tax benefits to owning
I have had some people buy a home for the tax savings benefits alone. Homeowners are able to deduct mortgage interest and property taxes on their income taxes... plus capital gains up to $250,000 for singles and $500,000 for married couples are excluded when they sell.
5. Owning is a hedge against inflation
Housing costs and rents tend to go up at or higher than the rate of inflation, while payments on a fixed mortgage remain constant for the life of the loan.
Sharlene Hensrud, RE/MAX Results