As we are sure you have heard, the housing market is hot—and neither a pandemic nor rising home prices can put out the flames. Mortgage applications to purchase a home have steadily increased year-over-year since May, while real estate continues to get more expensive across the country at the same time.
So, the question is: Is chasing the dream of homeownership in an uncertain economy and expensive market a good long-term investment? The fact is that there may be financial and non-financial benefits of homeownership.
Buying a home is usually the largest single investment that any of us will ever make. According to the Federal Reserve’s 2020 Survey of Consumer Finances, homeowners are worth more than someone who rents. Similarly, homeowners have a net worth that is more than 40 times greater than their renter counterparts, which reinforces the idea that owning a home is a smart financial move.
Wealth creation doesn’t stop upon purchase of a home, but continues through the “forced savings” – or mortgage payments – that help to build equity. By financing a home with a mortgage, a homeowner is able to continuously save by paying down the mortgage each month. Homeownership also provides the potential for earning a return on the money invested into it that occurs when you sell it for more than you originally paid.
Gaining Tax Deductions
Finally, home ownership provides a number of tax breaks, most notably a deduction for the interest and property tax portion of the mortgage. This deduction is particularly useful for off-setting the initial financial outlay that comes with purchasing your property, since in the first years of owning your home you’re mostly just paying more towards the interest on your mortgage, as opposed to the principal, or loan balance. Of course, we are not CPAs are tax advisors, please consult a tax professional for more information about your financial situation.