But when you look at the way we live today — how long we stay in one place, what kind of amenities we want — it turns out that home ownership may not be the universally advantageous deal we’ve all been led to believe.
Take mobility — our ability to pack up the kids and move for, say, a new job. All things being equal, someone who rents is in a far better position to quickly and easily pick up and move to new location for a new opportunity. If you own a home and need to sell it, that’s a process that can drag on for months. Being locked into a mortgage can severely limit potential opportunities in an ever-changing employment market.
If you are forced to sell your home and move because you have lost your job and are relocating for another one, that’s a pretty easy decision. But what about home owners who aren’t forced to move?
In 2011, the National Association of Realtors reported that the average home-seller lived in their house for nine years. That means if you have a 30-year mortgage (the most common type of mortgage), about one-third of the house should be paid off after those nine years, right?
Wrong. In fact, it’s usually not until about the 21st year that an owner will have paid off just half of the principal on a mortgage. That’s because the nature of an amortization schedule front-loads the interest payments to the bank, and back-loads the equity-producing payments on the house. In short, the average homeowner is simply paying rent for nine years to a bank instead of a landlord.
There is no question that with today’s historically low rates, this is a great time to buy. In addition, in most cases there is a significant tax incentive to own your own home. But even if you pay off your mortgage in 30 years, there’s still no guarantee you’ll come out on top of a renter. If you factor in standard home-ownership expenses such as closing costs, maintenance, taxes, etc., you’ll see that renting is still a good option.
There is, of course, a time and place to buy a house. For some people, there’s absolutely no price you can put on the social and emotional benefits of owning your own home. If that’s you, and you’ve considered all the alternatives, then you’ll be hard-pressed to find anyone who can argue with your logic.
But if you think you’re not an adult because you’re renting, or that purchasing a house will guarantee you the best, most secure return on your money, then perhaps it’s time you re-evaluate this aspect of American dream.