Is Buying a Home a Good Investment or Not?
You can invest in the stock market to increase your wealth. You can invest in bonds or high-yielding savings accounts. You can also put your money to good use by investing in real estate, whether you plan to rent it out or live there. 78% of Americans believe that homeownership is a part of the American Dream.
Is buying a home a wise investment? This depends on a number of factors, such as your short-term and long-term objectives. You should also consider the dynamics of the real estate market at the time. With high housing prices and mortgage rates, becoming a homeowner is a costly endeavor. You should carefully weigh the pros and cons of a real estate purchase and have realistic expectations about your return. Here’s a deeper look.
Is purchasing a home still a wise investment?
Many people view owning a home as an important milestone in their journey to success. According to Bankrate’s latest Home Affordability Report, the vast majority of Americans still view it as a crucial part of their American Dream.
This dream has become increasingly out of reach for many Americans as low inventory, high rates and high prices combine to create a triple-whammy on prospective buyers.
If you can overcome these obstacles and become a homeowner, it is an investment that will likely pay off in the long run. Most experts agree that purchasing a home is a smart investment for the majority of people. The housing shortage is not going to end anytime soon, and the lack of supply will likely keep home values high in the next few years.
Why buying a home is a wise investment
Real estate is an easy investment to make if you’re a professional investor, a landlord looking to rent the property out, or a flipper who wants to quickly upgrade and resell. What about those who intend to live in the property? In this context, should they consider a home as an investment? Is it worth it? Here are some of the reasons why homeownership can be a great investment.
Appreciation
Home values have risen dramatically over the past few years. This is called appreciation. According to statistics from the U.S. Census Bureau the average sale price of U.S. houses in the first quarter 2024 will be $513,100. Ten years ago, this figure was $331,400.
Appreciation is one way that home ownership can help build wealth. Some believe that the price of homes will not fall anytime soon because there are so many more buyers than houses available.
Homeownership has a long-term value that is hard to deny. Long-term, real estate is usually appreciated. Real estate can be a bad investment for a short time due to economic cycles. However, if you wait 10 years, or more, the buyers usually end up ahead.
Equity
Renting is not a good investment because you do not build equity in your home. Rent is paid directly to the landlord and no equity is built.
Home ownership is a great way of building equity that can be used for other investments down the line. Equity is built in three ways: the downpayment you make, a portion of your monthly payments, and any increase in property value.
Rental Income
You can also earn rental income by owning property. You can rent out part of your house while you are still living there if your local laws permit it. This can help you pay your mortgage or other costs.
You can offset your mortgage payments by renting out the space in a house that has a mother-in-law apartment above or below the garage. You can also buy a duplex and rent one side while living in the other.
A place to live
You need to live somewhere. A house can be used as your primary residence, even if you don’t have a savings or stock account.
Let’s say your home increases in value by 5 percent per year. You could also consider a bond, which pays 5 percent, but you cannot live in it.
Why buying a home may not be the best investment
Real estate is not always a wise investment. Here are some downsides of buying a house.
- The cost of acquisition is high. Housing prices are skyrocketing and mortgage rates remain high, which reduces your purchasing power. A home purchase today costs more than before.
- Appreciation does not always happen. The value of a home in a particular area is largely dependent on the economy of that region. Detroit is an excellent example of the impact urban decay has on real estate prices.
- The cost of homeownership can rise. If you have a mortgage with a fixed rate, your principal and interest payments each month will not change over the course of your loan. Other homeownership costs, such as property taxes and maintenance costs, are also likely to rise over time.
- Renting allows for more flexibility. You can move from one rental to another without any hassle. Selling a house is not so easy. A lot of money is usually invested in the house by homeowners. You will have less cash and less liquidity to use for other expenses or emergencies.
When should you buy your house?
Both home prices and mortgage interest rates are high. Whether it is better to wait or buy now, regardless of the current economic climate, depends on your financial situation.
You may want to buy now if you have good credit and a steady job. Also, make sure you are ready and can afford a house you like, with regards to the monthly payment, the downpayment, and the closing costs.
If you want to keep up with inflation and rising costs of living, buying now is the best option. If rates drop, you can refinance at a lower rate.
If you are not financially stable, you may want to wait. You could use the time to improve your credit score or build more savings.
