We have reported many
times that the American Dream of homeownership is alive and well. The personal reasons
to own differ for each buyer, with many basic similarities.
Eric Belsky, the Managing Director of the Joint
Center of Housing Studies at Harvard University expanded on the top
5 financial benefits of homeownership in his paper -The
Dream Lives On: the Future of Homeownership in America.
Here are the five reasons, each followed by an
excerpt from the 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.) You're paying for housing whether you own or rent.
“Homeowners
pay debt service to pay down their own principal while households that rent pay
down the principal of a landlord.”
3.) Owning is usually 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.
“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 hedge 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.”
Bottom Line
We realize that homeownership makes sense for many
Americans for an assortment of social and family reasons. It also makes sense
financially. If you are considering a purchase this year, contact a local
professional who can help evaluate your ability to do so.
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