Home ownership has a place in the American tradition as a source of control and stability in tough economic times. Owning a home has often been considered a reliable way to buffer against future financial droughts. Recent instability in the housing market has intensified doubts to these ideas of financial security in home ownership.
While some studies do highlight homeownership as a way to augment wealth and enhance savings, others doubt the benefits of homeownership in comparison to renting and investing. Simulation studies that look into the effects of renting and investing versus home owning over the course of changes in the housing market tend to reveal that renting is a better financial decision.
For the Kansas Federal Reserve, Jordan Rappaport conducted a study on the benefits of home ownership and found that renting has been a better option to buying over the past 30 years. A study conducted by Eric Belskey and Mark Duda finds that between the years of 1982 and 1990 home sellers in four metropolitan areas commonly made losses. Belskey and Duda also recorded that losses were made across socioeconomic levels. Some have criticized the use of homeownership as an investment strategy as house prices are volatile and cannot be relied on for predictable returns.
A study conducted by HelloWallet and written by Aron Szapiro investigates the effect of local and state regulations on the home buying experience. The study provides a model for understanding variations in renting and buying prices between metropolitan settings. HelloWallet then takes the value of renting versus buying that it calculates and compares it to the value ascribed by the most popular online calculators.
The study conducted by HelloWallet found that a most homeowners bought their homes when it would have been more beneficial to rent and save. It also showed that many homebuyers would not receive tax benefits from home buying and often make home buying decisions using the wrong variables. The study also found that free online calculators tend to be biased towards home buying even when renting and investing would be a better option for consumers.
Popular online calculators inflate the benefits of home buying, providing incorrect guidance to over 90 percent of renters considering whether to buy a home.”
Online buy-or-rent calculators most common mistakes in calculating the benefits of buying versus renting include improperly calculating federal tax benefits for buying, ignoring local and state tax structures, and not allowing for tax advantaged saving schemes like IRA, 529 or 401(k). In reality, only 25 percent of homebuyers are eligible for federal mortgage credit and state and local tax schemes vary widely between regions drastically changing the value of homeownership.
While buying a home has many cultural and societal implications that cannot be denied, many doubts can be cast on the validity of homeownership as a financial safety net. Many risks inherent in the housing market and the option of renting and investing can present an opposing plan for those looking for long-term financial security.
Read More – House of Cards: The Misunderstood Consumer Finance of Home Ownership (HelloWallet, Aron Szapiro)