Home Ownership A Bad Idea?

I know, not a headline you’re use to seeing.  We all – especially myself if you have read some of my other posts – have been told that homeownership is a great investment, a mortgage is “good debt”, and it’s much more sensible to build equity in a home than it is to throw money away in rent.  This last point, in fact, is what has been my primary motivation in possibly entering the market as a first time home buyer (though I have to say I’ve been tempted by the allure of that $8,000 tax rebate). 

But I’ve had a couple of visitors to this site actually call my decision to become a homeowner into question (based on my financial situation which I’ve tried to make quite transparent).  And as with any decision, particularly a large decision like a home purchase, I think it’s important to consider the benefits and risks involved. 

With that being said, I wanted to highlight a couple of “risks” outlined in a recent article I read that discussed common fallacies in thinking among homebuyers/homeowners.  Obviously this is just a small component of the overall “should I buy a house” decision – but I found it to be a very interesting take on assessing the value of homeownership.  Here were the main points:

1) Owning a Home Requires Significant Cash Outlays – the article pointed to the massive cumulative costs of principal, interest (particularly over 30 years), PMI and natural disaster insurance, property tax and a host of other costs. 

2) For Most Owners Tax Deductions have Minimal Value – the contention here was that the interest paid on a home loan over the course of a year are frequently very comparable to the standard deduction offered by the Federal government. 

3) Home Equity Gained Through Appreciation is Significantly Overvalued – the logic here was that to realize the value of any appreciation in the value of your home you would need to sell it at some point in the future.  And any gain seen in the appreciation of your home would also be reflected in the price of a potential new home (unless of course you were looking at a less expensive house or a different geographical area). 

4) Accurately Evaluating the Pricing Level of Homes is a Major Weakness Among Most Homeowners – the author pointed to the recent collapse within the housing market and seemed to suggest that many homeowners are too willing to buy into the myth that investing  in real estate is a no brainer.  Buying into this myth is what caused so many buyers to get caught up in the most recent bubble (in which prices were being artificially/inaccurately driven up). 

So those are some of the main arguments posed in the article that suggest that homeownership isn’t always what it’s cracked up to be – particularly if new buyers haven’t done a sufficient amount of homework (I’ll post the link below for those who would like to read it in its entirety). 

And that’s the scenario I find myself in – trying to make the right decision about possible homeownership.  As I’ve posted elsewhere, I despise the idea of sending a rent check in every month and having nothing (financially speaking) to show for it.  The arguments above – while somewhat compelling – certainly don’t seem to outweigh the benefits of homeownership in my mind. 

To be clear, the article certainly didn’t seem to frown upon the idea of homeownership.  Rather it seemed to suggest that individuals move into this decision more cautiously, having done their homework, and fully aware of not only your individual financial situation, but the financial health of the housing market in your area. 

The article has an interesting formula that it recommends using to assess the relationship between median incomes and median home prices to determine whether or not homeownership in your particular area makes sense. 

Here’s the full link –

http://finance.yahoo.com/real-estate/article/108679/when-owning-your-own-home-doesnt-pay?mod=realestate-buy

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