While home ownership is often promoted as part of the “American Dream” and a sound financial decision, another point of view might be considered. Home ownership may not be for everyone when considering these drawbacks:
- A home is not an investment. Over the past 120 years, the real return of the value of homes has been less than 0.5 percent a year,
- Home ownership can be a money drain. Mortgage payments and other costs, such as property taxes, maintenance, repair, insurance, and utilities can add up to a significant portion of a household budget.
- The mortgage tax deduction may not be worth it. If you do not itemize on your taxes, you will not get the benefit of this deduction.
- Consider the “rent-price ratio.” This analysis is determined by dividing the average home sale price by the average annual rent. A ratio of 1 to 15 is considered a range when it is better to buy than rent. Between 16 to 20, you are getting in to risky buy territory. Over 21, it may be better to rent than buy. Be sure to also consider how much space you need. Homes are usually larger than apartments.
- People often buy a larger house than needed, resulting in higher mortgage, insurance, energy, and maintenance costs as well as higher property taxes.
For additional information on the financial drawbacks of home ownership, click here.
- Have students ask homeowners for suggestions they would offer to people planning to buy.
- Have students create a financial analysis comparing renting and buying for comparable housing.
- What factors might you overlooked when deciding to buy a home?
- How you decide whether to rent or buy your housing?