Member FDIC NMLS #772685
Vice President - Mortgage Division
Is Buying a Home a Smart Investment?
Americans have often used homeownership as a way to expand their wealth and increase their sense of financial security. However, many homeowners are currently losing money on their homes due to the state of the economy. So some experts think that owning a home could be a poor investment in this market. If you don't yet own a home, should you pursue homeownership?
A home gives you two different returns on your investments: it stores a large amount of your money in a similar manner as a bank, and it provides you with a place to live. If you want to see whether or not a home is a good investment, you have to determine whether or not these returns could actually be found somewhere else.
The first return on investment mentioned is often a source of controversy among mortgage and housing experts. Many individuals have profited off of buying and selling homes at the right time. However, this is completely dependent on the market and is not always guaranteed. Homes are usually a secure investment, but the returns tend to be approximately the same or slightly less than investments made in other places. With the current economic conditions, the returns are slightly negative for real estate. Therefore, the ROI of buying a home for financial reasons doesn't justify purchasing a home.
However, the second return on investment is worth something to homeowners: if you have a place to live, you are fulfilling a need that is a major part of your budget. Whether you rent or own, you will have to pay for a place to live. Mortgage payments are slightly higher than rent payments, but not by much. When you are paying rent, however, your money isn't being stored with the potential of additional financial return. Therefore, purchasing a home is more cost effective than renting one.
Owning a home gives you two returns for the price of one: a return on your money, and a return on a place to live. Renting a home doesn't provide you with a return on your money, but a stock portfolio doesn't provide you with a place to live. If you buy a home, you get both. So despite the changing market, which is always volatile, purchasing property allows you shelter, equity building, and the the prospect of appreciation with a turn in the right direction. One thing is for sure - in a down market, interest rates are often low, and they are now. If there's ever a time to save money on a purchase even in less than favorable economic conditions, it's now!