Buy Your Home for Living – Not a Retirement Investment
For decades Americans purchased homes as a major part of the American Dream. You buy a home, maintain it, maybe upgrade it a bit, and someday you can sell it and have a chunk of money for retirement. Homes appreciated nicely for decades, up until the real estate and mortgage crash that began at the end of 2006 and peaked in early 2008. The real estate recovery took some time, but it eventually returned to normal. Buying a house was considered part of the American Dream, but so was working at the same company your entire life. Times have changed. Today, people switch jobs and careers at the highest rate in history. This movement along with your personal temperament must be considered when purchasing real estate. The American Dream is certainly alive, but it needs to be defined individually.
Should we rethink the American Dream?
The financial crash of 2006 created many foreclosures, and it had the psychological effect of souring the attitudes about homeownership by younger buyers. However, real estate like the stock market makes for a great investment. Over the last year homes, in Worcester County, have appreciated over 15%. Does this mean that the American Dream should include owning a home in the future? Definitely not, ownership should be a goal for the right reasons. You need to ask yourself if you plan on staying in the area for at least 5 years. If not, you might want to rethink your residential buying plan and hold off. Another option is to think like a long-term investor, hire a property manager and build a portfolio that can be used in retirement.
Slower Value Appreciation Might Be the Norm
Nobody can predict how residential homes will fair, however, home buyers as a group should have realistic goals and not expect the high rates of value appreciation we’ve seen recently. There is value growth, but it is expected to remain in the single digits for the foreseeable future. This is not retirement savings, but it can, if the home is held long enough, give the owner(s) equity to be used for other things, to leave to heirs, or to add to other retirement savings resources.
Changing Employment and Geographic Influences
Generations of employees are not working or living like their ancestors They move around a lot geographically, and for employment. This means that, even if they buy a home, they are probably not keeping it for decades like their parents and grandparents. My own children and their friends, have purchased and sold several homes while I still live in my first home. Differences in life philosophies and cultural influences affect each person’s ideas regarding home ownership. With a breakeven estimated between five and eight years depending on location, purchase and sales costs, and other variables, some younger buyers are concerned about jumping into a mortgage. Well educated Millennials are also saving more than past generations, and are making principal payments thereby shortening the terms of their mortgages.
Up to this point, everything in this discussion has been financially related, but for many home ownership is simply a “lifestyle choice”.
Owning a Home as a Lifestyle Choice
Renting is fine for the right person, just as owning a house is. The connotation that renting is “throwing your money out the window” does not hold true for certain individuals.
Being able to live in a home with the freedom and creativity to change it is one of the many benefits of homeownership, but it comes with a cost. Be aware that homeowner and condo associations may put limitations on use, but overall, the owned home gives the owner the power to make it their own.
Overall, today’s buyers, and particularly first-time home buyers, should keep the financial considerations in mind. They should not look at a home as a retirement fund, though it may help. What they should consider is how an owned home may better fit their desired lifestyle, family needs, and nesting tendencies. How does it make you feel?
My advice to new buyers is to buy a home you want to live in, but not primarily as a financial investment. Though, if you buy at the right price you can’t beat the opportunity.