In today's economic climate, I think many homeowners would say that their homes own them. The inability to sell their home is like a noose around their neck. They feel trapped and unable to move on. They are anchored to a particular home and community which may no longer fit their needs or budget.
Home ownership is said to be The American Dream. For many, it has become The American Nightmare.
I remember back to those carefree early days of my marriage before we jumped into home ownership. How easy life was! No yard to mow, snow to shovel, no worries about the roof leaking or basement flooding. No windows to replace, no property taxes to pay, no bushes that need trimming. But of course, like many young couples, we dreamed of owning our own home and were so excited when we were finally able to do so.
After all, there are many benefits to owning your own home. As a young bride, I was focused mostly on being able to paint and decorate to my heart's desire. Beyond this pride of ownership (your home truly is your castle!); there are also considerable tax benefits and the ability to build your own equity instead of paying your landlord's mortgage for him. You also gain a sense of belonging to the community and the security of knowing that you can't be kicked out by a landlord at a moment's notice.
All of this comes at a price, especially in today's market.
Home ownership is, I believe, one of the keys to long term wealth. Generally speaking, it has always been seen as a way to increase your wealth as your home gains value and you build equity. Now is widely regarded as an excellent time to purchase because houses have become more affordable and interest rates are very favorable.
On the other hand, if you aren't careful, you could end up in the same boat as millions of Americans: anchored to your home, unable to sell, owning an asset that is worth less than what you paid for it. In short, you could end up being owned by your home instead of the other way around.
So should you buy your own home or continue to rent?
It all depends on your circumstances. First, you must have a very stable job. You must have a decent down payment. You must purchase in the best location you can afford. You must be willing to stay in the home you purchase for several years...long enough to ride out any additional price declines.
Historically, home values increase over the long term. Indeed, the value of our own house has increased about 20% since 2001...which is much more than we would have earned in the stock market. If the market hadn't declined, it would be worth even more. However, if we had purchased our house in 2007 and tried to sell it in 2008, we would be sitting here with a house worth less than when we purchased it. Timing is everything, isn't it?
Does home ownership still embody The American Dream? I think so. It's not a get-rich-quick strategy (as it perhaps was during the boom years) but it is still a terrific way to build long term financial security and stability. If you are considering purchasing a home in today's market, you must carefully weigh the pros and cons and consider your own personal financial situation. You should enlist the help of a trusted financial advisor, mortgage professional and real estate agent to help you decide if the right time to buy is now.
Dream big, but be smart.
If you are looking for a real estate agent and don't know who to trust, give me a call. As a referral agent (I'm no longer involved in the day to day real estate business), I can help match you with the perfect agent to help you buy or sell your home.
wow - very powerful post, Kelly! all good things must be entered into with a clear vision and understanding. Yes, owning a home is still the american dream but people need to be careful!
I remember my first home, then my first home in MI. We bought during a recession when we first moved here. The house went from 100K to 63K and we were tickled pink to get it on a land contract with 11%. Now that sounds outrageous. I don't think first time buyers have any clue what an opportunity they have. Yes, Home ownership always works out in the end, but not when they use their homes as an ATM.
Leesa: A good real estate agent is priceless right now!
Missy: How right you are! Too many used their homes as ATMs over the past few years...no more!BTW, I finally saw Kim & John's new home during the holidays and it's wonderful! :)
Kelly - Excellent Post. You nailed it! Owning a home is not for everybody and sometimes we CAN become slaves to the upkeep. I've often thought of how nice it would be to sell and rent for a couple of years while we take our time to decide where we want to live. But, it would not be a good idea to sell in this declining market to buy 2 years later if prices are on the increase by then. It is indeed all about timing too.
Kelly, love the "dream big be smart" line. It's funny. My husband and I purchased a home right when we got married, so we've never known life together (going on 25 years now) without all the responsibilities. Only lately though, all of it has felt a little like a form of entrapment. Maybe because we stretched about 3 years ago to get the "dream home" and still have college for 2 kids. I still believe in the dream though, and can't imagine living somewhere where I couldn't take a wall down if I want, or would have to ask permission to paint a room.Or pay someone else's mortgage!
Carol: I've thought the same thing myself! In some cases, selling now and banking that cash (because the market may still decline and our homes could lose more value), and paying less rent than a mortgage payment would be for a few years (even though you lose a tax deduction) may still make more sense in the short term for some people. We could potentially save around $25000 by renting for three years and we wouldn't lose any additional equity if the market continues to decline. Of course, then we must deduct our costs to move and the lost tax benefit which would whittle that $25000 down...and consider the other "costs" of living in a smaller space...not too appealing for many.
Colleen: Home ownership is definitely for me for all of the reasons you mention, although as I mentioned above to Carol, we would consider renting short term under the right circumstances if the benefits were great enough. We know we will be wanting to move out of this house within a few years (after my son graduates) because this house is just more space than we need (why pay for all that unused space?), so that makes all the difference. On the other hand, I'm glad you are living in your dream house!
Hi Kelly...This topic is very appropriate for me today. We woke up to no running water.
Our analysis as laymen is that our submirsible pump in the well called it quits. That was at 6:30 this morning. My husband called me a short time ago (I'm at the office) to tell me that the water is running again.
We are keeping our date with the repair man as who knows what is going on.
While building our house we rented a waterfront home. What a vacation that was. All of the yard work was taken care of including mowing the grass and raking leaves, the appliances were quickly repaired (we only had two problems), and we had no out of pocket expenses.
Own or not own...for me it is own.
We designed our home with an architect and loved the "whole" process (I think I grimaced a little when I typed whole) so the house is very, very special for that reason as well.
Kate
P.S. I see you are still smiling. Wonderful.
Kate: Yes, still smiling! :) I hope you got your water problems solved - and happy that you have a very special home designed just for you!