Is Purchasing A Home Always the Very Best Choice?

The dream of home ownership is woven into our collective psyche as Americans.  We even say, its part of the American Dream.  And certainly, no society has made home ownership more desirable and more affordable than the United States.  Recent statistical samplings reveal that more of our fellow citizens own homes than at any time in our history.

Is it always a wise investment?  The purchase of a home delivers certain benefits that should not be minimized, but also require careful judgment.

span style="font-weight: bold;">The Immediate Benefits of Home Ownership:
Home ownership provides forced savings.  Home ownership provides a type of forced wealth accumulation, and for this reason, over a life time, the home equity can easily become one of the largest single investments in a family's wealth portfolio.  Every single month, albeit small, some portion of your payment increased your principle.  Would you save the same amount if your were renting?  You certainly could, but most renters do not have such a dependable habit.

Home ownership frequently provides a leveraged inflation hedge.  There are a number of factors that cause home prices to increase.  Stability of a region.  A growing population seeking home ownership drives prices up.  More expensive commuting can raise the perceived values of homes closer to metropolitan areas.  And inflation, even at only 2% to 3% a year, a rate that seems to be built into our economic metrics, assures that a $200,000 house will increase an average of  $5000 per year.  The house does not know if it is paid for.  Therefore, the inflation increase, tax free, can represent a pretty handsome return on your down payment.  

Home ownership is encouraged by our Congress through the Internal Revenue Code.  We may deduct home interest, property tax, and when we make improvements, it adds to our basis in the property.  So, if we are in the 35% bracket, and have $10,000 of deductible interest expense, our real cost to maintain the interest payment on our home is $6500.  It is important to remember that the money is still gone, whether it went to taxes or interest, but our tax code rewards home ownership with this important benefit.  And of course now, you may sell your home every couple of years, if you are inclined and take all the gain out tax free up to a remarkable $250,000 per person.

Home ownership seems to make us more mature.  It contributes, at least statistically, to stability in employment, and to the process of becoming a functioning member of our local society.  Home owners are much more involved than their renting peers in politics, religious practices, local charities, and local concerns.

So there are big benefits.  Now to your question. 

Should everyone buy a home?  No.  Absolutely not!  There are those who even with the benefits set forth above should not buy a home.  Who should not be buying a home?  

There are citizens in our society that are incredibly mobile.  Their job is transferring them every year or two.  Unless your employer is picking up the cost of selling your home, and buying your new home, the constant churning of homes will leave you far behind simply renting.  Why?  When you buy a home you and the seller are absorbing a real estate commission, loan origination fees, transfer costs, and you are going to spend a significant amount of money personalizing your new home.  If you are moving every year, inflation, even in a robust market cannot keep up with your costs of selling, and buying. 

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You will generally find that your personal interests are far better served to simply rent a quality dwelling, and force yourself to save the additional funds you would be spending to purchase a home in an investment account.  Homes rent for an amount significantly beneath the cost of ownership.  The person renting can afford to rent for less than the actual cost of ownership because of the tax benefits coupled with the inflation hedge.  Use this to your advantage if you are one of those in a geographic locale for a very short period of time.

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