Homeownership is the quintessential American Dream. There are many reasons, why “Home Ownership Matters,” as many reasons as there are people in the world today. America continues to draw people from every continent and nearly every country on the planet for the promise of a brighter future for themselves and their children. It starts with a place to call home.
Last year, The New York Times published an editorial entitled “Homeownership and Wealth Creation” which said, “Homeownership long has been central to Americans’ ability to amass wealth; even with the substantial decline in wealth after the housing bust, the net worth of homeowners over time has significantly outpaced that of renters, who tend as a group to accumulate little if any wealth.”
Interestingly, the Federal Reserve Survey of Consumer Finance concluded that the average net worth of a homeowner was nearly $200,000, or $194,500, which is 36 times that of the average renter at only $5,600.
Let’s examine several of the economic factors that motivate Americans to buy a home and other real estate.
First, it provides the opportunity to leverage capital. Buying real estate is one of the very few opportunities most Americans will ever have to substantially leverage their cash. A hefty conventional 20 percent down payment will allow the borrower to leverage their money at a 5-to-1 ratio. That 10 percent down allows for a 10-to-1 leverage of their money, and the Federal Housing Administration buyer with only 3.5 percent down is actually leveraging their money 28.5 times. Certainly Wall Street won’t loan that type of money to purchase stocks.
Next, rent or own? Everyone is paying someone’s mortgage, so it might as well be their own.
Make the investment in forced savings. Many people can typically justify spending the extra dollar in their pocket now rather than putting it away for tomorrow. Paying down the principal on a home loan every month is usually a form of “forced savings.”
Don’t forget the tax benefits. Homeowners can deduct their mortgage interest and property taxes from their income taxes and have a hefty allowance to exclude capital gains when they sell for a gain.
Lastly, inflation plays a part. Despite the housing issues of the past decade, the costs of owning a home have historically been less than the rate of inflation which makes owning a home an attractive proposition.
The real reasons for homeownership are usually more personal.
While financial incentives are important for everyone, the truth is that most people are motivated by what homeownership represents. The Joint Center for Housing Studies at Harvard University conducts an annual study seeking to find the reasons why Americans truly feel home ownership is important, and what’s most important about owning their own home.
It’s a place to raise the children. The number one reason that Americans across the nation want to own their own home is because they want to have a good place to raise their children and provide them with a good education. Temecula was recently named the sixth “Safest City in America” by the FBI, and Murrieta was named the second safest city on the same list. The public schools, private and parochial schools are consistently some of the top rated schools throughout the state.
Even homebuyers who don’t have children, or even plan on having any in the near future, consider the quality of schools, neighborhood characteristics and amenities when purchasing a home. They want to keep the possibility of a family open and to improve the home’s resale value.
Comfort and security are the second most popular reason to purchase a home. It should not be a surprise that everyone wants to be secure and not to worry about their own comfort and security or the security of their possessions.
Space to do the things the family or individual wants to do is the third most dominant reason. Who doesn’t like having a garage to drive into and walk directly into the home? Who doesn’t like having an expansive open floor plan so they can be busy in the kitchen and simultaneously interact with family members and guests in different parts of the home?
Americans agree that owning their own home allows homeowners the ability to define spaces in their homes that meet their own unique wants and needs – something that can be very difficult when renting.
Control over living space. Is there anyone out there who would not like a say on what color the walls of their bedroom are? Having control over living space, being able to update or renovate on personal terms is a major driving force that motivates Americans to buying their first home and pursuing homeownership throughout their life.
And the bonus reason: While not appearing as a motivating reason in the referenced surveys, one of the major benefits of owning a home, rather than renting, according to a 2003 study conducted by Donald Haurin, professor of economics at Ohio State University, is the long-term impact it will have on the children of the homeowner.
The children of homeowners are much more likely to attain a higher education; they are 25 percent more likely to finish high school and 116 percent more likely to graduate from college.
Furthermore, there are social benefits to the children of homeowners as well. Their daughters are 40 percent less likely to become pregnant teenagers, out of wedlock and are 40 percent less likely to be dependent on welfare or other public assistance.
Regardless of the social and family reasons that motivate people, homeownership is the most practical method for Americans to build wealth. A renter that desires to build wealth should seriously consider working with a local real estate agent who can expertly review the local real estate market and explain the benefits of purchasing a new home rather than leasing it.
Call (951) 296-8887 and get the information needed to make an educated decision.
For questions regarding available inventory or other real estate matters, contact [email protected] Mike Mason, Broker/Owner of MASON Real Estate Cal. BRE: 01483044, Temecula Valley resident for 30+ years, Board of Director (since 2011) Southwest Riverside County Association of Realtors.