Last week, we reported on the financial reasons that the New York Times felt that homeownership was important. The Joint Center for Housing Studies at Harvard University performs a study every year surveying participants for the reasons that American’s feel are most important in regards to homeownership.
There’s No Place Like Home
The top 4 reasons to own a home cited by respondents were not financial.
1. It means having a good place to raise children & provide them with a good education
From the best neighborhoods to the best school districts, even those without children at the time of purchasing their home, may have this in the back of their mind as a major reason for choosing the location of the home that they purchase.
2. You have a physical structure where you & your family feel safe
It is no surprise that having a place to call home with all that means in comfort and security is the #2 reason.
3. It allows you to have more space for your family
Whether your family is expanding, or an older family member is moving in, having a home that fits your needs is a close third on the list.
4. It gives you control over what you do with your living space, like renovations and updates
Looking to actually try one of those complicated wall treatments that you saw on Pinterest? Want to finally adopt that puppy or kitten you’ve seen online 100 times? Who’s to say that you can’t in your own home?
The 5th reason on the list, is the #1 financial reason to buy a home as seen by respondents:
5. Owning a home is a good way to build up wealth that can be passed along to my family
Either way you are paying a mortgage. Why not lock in your housing expense now with an investment that will build equity that you can borrow against in the future?
Whether you are a first time homebuyer or a move-up buyer who wants to start a new chapter in their life, the holiday season is a great time to reflect on the intangible factors that make a house a home.
There is no doubt that the housing market has recovered from the meltdown that occurred just a few short years ago. However, in some states home values still have not returned to the prices we saw in 2006 and 2007. Here is a breakdown showing where current prices are in each state as compared to peak prices.
There are many people sitting on the sidelines trying to decide if they should purchase a home or sign a rental lease. Some might wonder if it makes sense to purchase a house before they are married and have a family. Others may think they are too young. And still others might think their current income would never enable them to qualify for a mortgage.
We want to share what the typical first time homebuyer actually looks like based on the National Association of REALTORS most recent Profile of Home Buyers & Sellers. Here are some interesting revelations on the first time buyer:
You may not be much different than many people who have already purchased their first home.
Earlier this month, Zillow predicted that millennial buyers (under the age of 35) will become the largest group of buyers, overtaking Gen X (35-50 years old) by the end of 2015. Dr. Stan Humphries, Zillow Chief Economist, explained:
“Roughly 42 percent of millennials say they want to buy a home in the next one to five years, compared to just 31 percent of Generation X, and by the end of 2015 millennials will become the largest home-buying age group. The lack of home-buying activity from millennials thus far is decidedly not because this generation isn’t interested in homeownership, but instead because younger Americans have been delaying getting married and having children, two key drivers in the decision to buy that first home. As this generation matures, they will become a home-buying force to be reckoned with.”
Two days later, Realtor.com also projected that Millennials will be a driving force in the housing market next year. In their 2015 Housing Forecast, they claim:
“Households headed by millennials will see significant growth as a reflection of economic gains. Millennials will also drive two-thirds of household formations over the next five years. Next year’s addition of 2.75 million jobs and increased household formation will be the two key factors driving first-time buyer sales.”
Has the Millennial Home Buyer already re-entered the market?
AEI’s International Center on Housing Risk also released their first First-Time Buyer Mortgage Share Index this month. The report revealed that the percentage of first time home buyers may have been underestimated in 2014. According to the report, the percentage of first time buyers “averaged an estimated 46 percent over the 12 months ending October 2014”.
That number far exceeds other numbers reported by the National Association of Realtors and others.
The Millennial generation is growing up, finding jobs, getting married and starting families. Homeownership will definitely be the next step.
The New York Times recently published an editorial entitled, “Homeownership and Wealth Creation.” The housing market has made a strong recovery, not only in sales and prices, but also in the confidence of consumers and experts as an investment.
The article explains:
“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.”
Many of the points that were made in the article are on track with the research that the Federal Reserve has also conducted in their Survey of Consumer Finances.
The study found that the average net worth of a homeowner ($194,500) is 36x greater than that of a renter ($5,400).
One reason for this large discrepancy in net worth is the concept of ‘forced savings’ created by having a mortgage payment and was explained by the Times:
“Homeownership requires potential buyers to save for a down payment, and forces them to continue to save by paying down a portion of the mortgage principal each month.”
“Even in instances where renters have excess cash, saving a substantial amount is difficult without a near-term goal, like a down payment. It is also difficult to systematically invest each month in stocks, bonds or other assets without being compelled to do so.”
“As a means to building wealth, there is no practical substitute for homeownership.” If you are a renter who is considering making a purchase, sit with a local real estate professional who can explain the benefits of signing a contract to purchase over renewing your lease!