Eric Belsky is Managing Director of the Joint Center of Housing Studies at Harvard University. Last year, he released a paper on homeownership and in his paper reveals five financial reasons people should consider buying a home.
1. Housing is typically the one leveraged investment available.
“Few households are interested in borrowing money to buy stocks and bonds and few lenders are willing to lend them money. As a result, homeownership allows households to amplify any appreciation in the value of their homes by a leverage factor. Even a hefty 20 percent down payment results in a leverage factor of five so that every percentage point rise in the value of the home is a 5 percent return on their equity. With many buyers putting 10 percent or less down, their leverage factor is 10 or more.”
2. You’re paying for housing whether you own or rent.
“Homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord.”
3. Owning is usually a form of “forced-savings.”
“Since many people have trouble saving and have to make a housing payment one way or the other, owning a home can overcome people’s tendency to defer savings to another day.”
4. There are substantial tax benefits to owning.
“Homeowners are able to deduct mortgage interest and property taxes from income…On top of all this, capital gains up to $250,000 are excluded from income for single filers and up to $500,000 for married couples if they sell their homes for a gain.”
5. Owning is a hedge against inflation.
“Housing costs and rents have tended over most time periods to go up at or higher than the rate of inflation, making owning an attractive proposition.”
We realize homeownership makes sense for many Americans for an assortment of social and family reasons. It also makes sense financially.
ARTICLE COURTESY OF KCM BLOG