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The housing market took the spotlight in 2022, eating up plenty of airtime on every news outlet. 2023 is shaping up to be no different as every financial institution constantly updates their predictions. Between rapid shifts in prices and the ever increasing interest rates, many people are asking the question; is now still a good time to wait?
The short answer, in our opinion, is a resounding yes! While any potential buyer will need to closely examine their finances to determine how much house they can afford, there is still a long list of benefits to becoming a new homeowner.
1. Forced Savings
An interesting way to look at a mortgage is by thinking of it like a forced savings account. It's not too dissimilar to enrolling in a savings or retirement plan through your work. It's the type of savings that you don't really have to think about; it's just happening.
Each month you pay your mortgage, and eventually, you'll have complete ownership of your home and property. Now you own a piece of property that you can sell at anytime to generate some cash. Much like a typical savings account, you have 100's of thousands of dollars 'saved' in your property that you can utilize by selling the property. Alternatively, if you were to live in your house forever and never sell, you can think about the money you save each month by not having a rent or mortgage payment.
2. Pride of Ownership
According to a 2011 study by Timo Zumbro and the University of Münster, home ownership seems to have an overall positive affect on an individual's life satisfaction. Owning a home can instill a person with a great sense of pride, particularly in the United States where home ownership has long been tied to success.
Thinking of the classic "American Dream" drums up images of owning a home with the white picket fence, and while that idea may be outdated, it's affect on American culture is lasting. In fact, a survey from Bankrate in March of 2022, showed that 74% of Americans view homeownership as a sign of the "American Dream". In fact, it beat out having a successful career (60%), being able to retire (66%), and even having children (40%)!
Suffice it to say, there really is a sense of pride of owning your own home. A space that is really your own. You can paint the walls. Renovate the kitchen. You can even put in shag carpeting! We don't really recommend the last one, but the point is, it's your home so do what you want and be proud of it!
3. Tax Benefits
This one is pretty straight forward but home ownership comes with some relatively straight forward tax advantages. In fact there are three separate deductions that you can claim to help lower you tax bill.
Mortgage Interest - Interest paid (up to a certain amount) on your mortgage is tax deductible.
Property Tax - State or local property taxes you pay (up to a certain amount) is tax deductible in the year you pay it.
Private Mortgage Insurance - Did you take out PMI with your new mortgage? The federal government counts that as a tax deduction!
There are a few more niche items that are tax deductible, so make sure to consult with a tax professional qualified to give accurate tax advice.
4. Potential for Appreciation
Everyone knows that the prices of homes change over time. Historically, home prices have increased over time. That means, the average home owner will see the value of their home increase by the time they are ready to sell the home. That makes the investment even more worthwhile as you have the potential to actually turn a profit on your purchase!
For example, if you purchase a home for $300,000, that property can appreciate and be worth some amount more than what you paid. This is certainly not guaranteed to happen, but is typically a realistic expectation. Keep in mind, if you let your house fall apart during your ownership and do minimal maintenance, you won't see the same level appreciation.
5. Sense of Stability
If you have been a long time renter, something you may be used to is rent increases and frequent moving. In most circumstances, landlords are free to raise your rent when your lease term expires. That means renters often see the price of their home increase year over year. This can also lead to frequent and unexpected moves, which can be rather stressful. Not only that, if your landlord decides to sell their property or otherwise not renew your lease, you will be forced to move.
When you take out a mortgage, you know your payment is locked in for the duration of the loan. Unless you were to stop paying on your mortgage, you will have the peace of mind knowing that you will remain in your home for as long as you decide. The price won't go up and nobody else can decide they are selling the place! The stability of owning a home can make a huge difference.
It is important to understand that you stay within your financial means when making your purchase. If you take on a more expensive mortgage than you can comfortably afford, you may end up feeling more stressed! It is critical that you analyze your financial situation and lifestyle before biting off more than you can chew.
6. Building Equity
As you make your mortgage payments, you'll begin to build equity with your property. As your total mortgage balance lessens, the value of your home will quickly exceed the balance due. That means you could decide to sell your house at any point after that and have the proceeds of the sale pay off your loan, and keeping the extra money in your pocket!
The equity of your home is why it works as a kind of forced savings plan. You are building up an asset that can be sold and provide you with money in the bank.
7. Sense of Community
Owning a home can come with a great sense of community. Living in one place for years will give you a deeper connection to the neighborhood and over time you'll typically be able to make similar connections with your neighbors. Feeling attached to your home and neighbors offers many people a deep sense of satisfaction that is often missed when renting. If you are looking to develop an attachment to the place you live, purchasing a home could really be a huge benefit.
Of course, even with all of these positives, buying a home is not the right decision for everyone. You should go over your finances, think about your lifestyle, and make sure it is the right decision for you. In the event that you do choose to purchase, you can rest easy knowing that 72% of homeowners would purchase their home again if they could do it all over again according to Bankrate!
Happy house hunting!