My parents have always owned a home. It’s a part of their American Dream. They would actually like all of their kids to own homes too.
“It’s the most important investment you can make,” says my father, every chance he gets. And he’s right — for his generation.
In those days, scraping up the money for a down payment and getting your family into a home was a statement that you were responsible, that you were making it in this life, and that you knew a good investment when you saw one. And on average, a home appreciated in value about 8 percent a year. Not a bad return. Property taxes and interest rates were also reasonable in days gone by.
Nope, I’m not buying into that
But the biggest factor perhaps in home ownership was that a man went to work for a company and stayed with that company his entire life. Retirement came with a pension, the house was paid off by that time, and senior years were “sweet.” And when those seniors died, they could leave a major asset to their kids in their wills or trusts. Now life has changed, and with it, the American Dream. Buying a home today is not a good idea, and here are 13 reasons why.
Corporations are bought, merge with others, ship jobs overseas, and are often forced to downsize. This means layoffs and terminations, usually without warning. All of a sudden you have a big mortgage and your income has been reduced to unemployment checks, which will barely cover food, gas, and utilities.
And, if your job search results in a need to move, now you have a house to sell. In a sluggish home sale market, your home could be on the market for months, continuing to drop in price. When it finally sells, you have either made nothing or you will be bringing a check to the closing.
If the crash of 2008 taught us nothing else, it was that we can no longer rely on home ownership as an investment. During this terrible downturn, homes actually decreased in value. And many newer homeowners who had very little in their homes, went “underwater”; that is, they came to owe more than their homes were worth. And if the downturn meant loss of a job, many of them just left the keys on the living room floor and walked away.
We can no longer count on homes appreciating in value, so they are no longer a good investment. If you want to own a home just for the sake of having one, then do so. But don’t kid yourself into thinking it is a solid investment.
Depending on the interest rate of your mortgage, after 20 to 30 years, when that mortgage is paid off you will have paid one and a half to two times the original purchase price. Unless that home has steadily increased in value, you have actually lost money over that time. And don’t count on your mortgage interest deduction making up for it — it doesn’t.
As people look for a home to buy, they are often tempted to select one that is really more than they can afford at the time. And realtors tend to push this — after all, the purchase prices determine their commissions. Buyers move into homes they cannot even afford to furnish, and if taxes and insurance go up, they are really strapped. The high mortgage payments mean they have little left for savings or even simple luxuries.
The amount of debt you have in proportion to your income is a large factor in your credit score and, even more important, a large factor in getting credit for any other purchase, like a car. And if your credit score is lower, the interest rate you will pay on a car or any other loan will be higher.
There is a lot of discussion in Congress right now about eliminating or at least reducing the mortgage interest deduction. What little advantage there is in a mortgage loan could be eliminated in the near future.
You are fully responsible for all of the repairs, maintenance, yard care, painting, and replacement of things such as furnaces, water heaters, air conditioners, and other appliances. One economist estimates that the maintenance and repair costs of a home can add another 50 percent of that mortgage payment to home ownership expenses. When you rent, you simply call the landlord or maintenance person when things break.
Whether your taxes are included in your mortgage or not, every increase in taxes either increases your mortgage payment or the amount you must fork over at the end of each year.
Your homeowner’s insurance will never go down. But it will usually steadily rise as your continue to own your home. If there was a major storm in your area, even though it did not strike your home, your rates will go up, so that the insurance company can pay itself back for the costs of that storm. Likewise, if you should have a major claim that was not an “act of nature,” such as a fire, your rates can easily double.
There are a number of additional expenses in the purchase of a home — appraisal, closing costs, mortgage loan points. If you roll these additional expenses into your mortgage loan, it will be seven years before you even break even on these costs. And these first years, the bulk of your payment is interest, with just a very tiny amount going toward paying off the principle of the loan amount. If you do not stay in a home you buy for at least seven years, you have actually lost money.
Millennials have figured this out. They are not buying homes at the rate their parents did. Most of them have a significant amount of student loan debt, and the thought of going into even more debt to buy a home is simply not an option they would consider or can afford. Add to this the fact that millennials like to be mobile and like their leisure time, homeownership is just not “in the cards” for them.
When you are renting an apartment, condo, or home, you don’t have weekly “to-do” lists that become a major part of every weekend. It’ time to get rid of the bucket, hit the big box home improvement store, and fix that plumbing leak; it’s time to paint the family room, or install new hardware on doors and drawers. Then, there’s that sticky window, the carpet shampooing, the yard work, replacing a screen door — the list goes on and on and truly never ends. If you enjoy that type of thing, then homeownership if for you; if not, you need to be in a rental, so that your weekends are free for travel, concerts, sports events, or just kicking back with a good book.
You may have 20 percent to put down, and that will get you both a better interest rate and a lower mortgage payment. But to scrape up that 20 percent you have virtually wiped out your savings. Should a major emergency like a large medical bill occur, or should you lose your job, you have no cushion — you spent it on your down payment. And now that chunk of cash is no longer earning any interest at all.
So, how is homeownership looking now? There is a lot of pressure for you to buy a home — maybe from your parents; certainly from the advertisement that realtors bombard social media and the airwaves with; and maybe even you have bought into the media’s insistence that home ownership is of value. Don’t be fooled by all of this. It’s a new day and a new time.
Think about these major points as you weigh the value of owning a home:
- You can be stuck when you want to pursue an opportunity in a different locale. Maybe you are an entrepreneur with a business you’d like to run from the south of France now. That home you own will be an albatross around your neck until you can get it sold.
- Homeownership is expensive.
- Homeownership saps your leisure time.
- Homes are very “iffy” investments without the appreciation in value that they once had
If you want to own a home, do it for the right reasons — because you like the concept of owning a little piece of the planet, because you enjoy yard work, because “tinkering” around on the weekends is fun for you. Don’t buy as an investment or because you want to please your dad.