Home Ownership: To Buy, Or Not To Buy? That is the Question
- Friday, May 07, 2004
I do some of my best thinking in airport terminals. (Maybe that's because I spend so much time in them!) Presently it's Saturday afternoon and I'm waiting for my plane from Nashville to Detroit where I'm due to present the No Debt No Sweat! Christian Money Management Seminar at a church tomorrow. My mind keeps wandering back to an email I received earlier in the week from a Crosswalk reader.
The lady was concerned about her adult daughter who was about to purchase a house she simply could not afford. In desperation the mother wrote me asking for advice on home buying. So here goes...
Today, home ownership in American is at an all-time high. According to the Heritage Foundation, prior to World War II less than 50% of Americans owned the homes they lived in. But by 1950, the postwar boom saw home ownership catapult to a record 55%. By 1960, the numbers had risen to 60%. Finally by late 2000,
68% of all Americans owned their homes.
Compared to the population as a whole, homeowners have far greater financial security. A survey found that while the median net worth of renters was only $4,200, the median net worth of homeowners (counting both their homes and other assets) was an unbelievable $132,100.
People in America aren't shy about moving either. According to the National Association of Realtors, most homeowners sell their first home within 5 years. Second time buyers usually stay put a little longer-usually 7 to 11 years. And, in the course of a lifetime, many of us will own 4 different homes.
But the simple fact is: No matter how great home ownership is, it isn't for everyone. Even most real estate agents will admit this in their more lucid, honest moments. There are all sorts of good reasons to buy a home-but there are some equally good reasons to wait. Home ownership is a huge decision, and it shouldn't be taken lightly. Jesus warned that prudent people "count the cost." Although He was talking about discipleship, that's pretty good advice for home buying, too.
Renting (or, even living with family) is sometimes the best option. I believe there are at least six times when renting may make good sense:
1) When your future is uncertain and there is a likelihood that you will move within a couple of years. Granted, some homes appreciate in value quickly, and there are cases where people have sold homes shortly after buying them and made a profit. But that is the exception-not the rule. When you factor in loan and closing costs, moving expenses, and other outlays, it usually takes at least 2 to 3 years before a home can be resold at a profit.
2) When you are in a sellers' market. Real estate is like most other investments-there are better times than others to buy. Occasionally, people find
themselves dealing with market conditions that make home buying dangerous, especially if they hope to resell their home at a profit in the near future.
This is what happened in the late 1990's in the Silicon Valley area. Because of the unusual growth in the high-tech world, homes in that area of California became so pricey that average folks simply could not afford them. There were reports of little two-bedroom cracker boxes fetching over $500,000. But, many of those tech savvy folks proved to be less savoir-faire when it came to financial matters. Some of them jumped headlong and purchased these overpriced houses. And, then the bust of Spring 2000 hit! Suddenly, all those promises of unbridled stock value growth in many of the high tech firms began to crumble. Housing prices fell-and people found themselves stuck with houses they couldn't even sell at break-even prices. The "smart" people who had invested so heavily in those dot coms started looking, well-dot dumb.
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