Why buy a home when rent is so cheap…because owning a home reaps benefits beyond the obvious

15 Apr

Despite the challenges facing the housing and mortgage markets, 65% of Americans would still prefer to own a home rather than rent, according to a Fannie Mae national housing survey.In addition, 43% of respondents cite safety as a key reason to buy, while 33% are motivated to buy because they perceive schools to be better in neighborhoods where most homes are owned by their residents.A full 70% said they believe buying a home continues to be one of the safest investments available compared to 74% who think putting money into a bank account is safe, and only 17% believe buying stocks is a safe investment.

In addition, there are some deeper other valid reasons why people want to buy a home even in a soft rental market like we are experiencing now. Socially, owning a home provides life and residential satisfaction, as well as contributing to better health. As far as the community is concerned, home ownership encourages neighborhood stability, civic participation and better youth behavior.

As far as economics are concerned, home ownership allows the individual to have better quality housing, reduced housing costs, improved portfolio wealth, and better access to credit. In the neighborhood, home owners improve house price appreciation and job mobility.

These are all fantastic theories, but is there evidence that home ownership is more socially and economically beneficial than renting.

The theory is that owners live in bigger units of higher quality and with more amenities. There is empirical evidence that:

  • owners enjoy an average of two more rooms and 600 more square feet than renters;
  • owners are twice as likely to have a separate living or dining room; three times as likely to have a working fireplace; twice as likely to have a washer and dryer; and twice as likely to have a garage or car port;
  • renters are twice as likely to suffer from rodents; holes in walls, ceilings and floors; wiring deficiencies and water leaks and;
  • renters are three times more likely to live in crowded conditions—more than one person per room.

How do we know that monthly housing costs are lower for renters than for home owners? There is evidence that:

  • owners pay less per square foot than do renters;
  • owners pay a lower percentage of their income for housing costs than do renters;
  • housing costs-to-income ratios diminish over time, but these savings may be eaten up with maintenance or transaction costs; and
  • owners enjoy substantial tax benefits through the mortgage interest deduction.

The theory is that owners see civic involvement as a means of protecting their investment and have stronger attachments to neighborhood and community. Evidence is strong and consistent that homeowners are more likely to participate in voluntary organizations and engage in local political activity.

Home owners accumulate assets through homeownership in two ways: (a) home owners reap the full return (or loss) associated with house price appreciation; and (b) as their mortgage is amortized through repayment, a household builds equity—the difference between the value of the home and what is owed on it. Housing equity represents roughly 45% of the average home owner’s net worth; and home owners have better access to both secured and unsecured credit.

When you add it all up, home ownership is a winner….no matter what the rent is!!!

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