Owning a Home: What You Need to Know

by | Feb 20, 2024 | Blog

Over the last four years, owning a home has become something of a conundrum for a lot of people.  Is it possible?  Is it worth it?  Is now a good time to buy?  We’re going to break down a few things you need to know about owning a home in this post.

Since the start of the COVID-19 pandemic, housing prices across the country skyrocketed.  People were stuck at home, and a lot of people living in congested cities were turning to the real estate market in the suburbs.  Trading in their monthly apartment rent for a mortgage payment, it was a mad dash to buy up any available houses.  This sent the market into a frenzy.

Fast forward just about four years, and prices are still inflated.  Pair that with the steep rise in interest rates from the Fed in 2023 sending mortgage rates higher, and owning a home just became a much more expensive proposition for folks.

Plenty of young, first-time home buyers are finding themselves still being outbid by cash offers or simply being priced out of desirable areas because mortgage rates are too high, and the monthly costs are too much.

This is causing some folks to reconsider owning a home overall.  Is it worth it?

What are some of the benefits of owning a home?

Here are a few benefits of owning a home:

  • Long-Term Price Appreciation
    • The key word to focus on here is “long-term”. Owning a home can be a great investment.  For a lot of people, having a place to live and build a family tends to take priority over the financial implications, but it certainly doesn’t hurt.  According to Realtor Magazine: “Census data shows the median price of a home jumped from $172,900 in Q4 2000 to $417,700 in Q4 2023. That’s greater than 6% appreciation per year on average.”  There are exceptions to every rule, of course, but given a long enough time horizon, owning a home *should* turn into a net positive financially.
  • Stability
    • Like we touched on in this previous bullet, owning a home provides stability for your family to grow and prosper. Unlike with a rented home, you won’t have to worry about leases coming up or finding somewhere new to move to every so often.  You can put down roots in your home and feel comfortable knowing you have a place to live for the long haul.
    • Financial stability factors into the equation as well. With something like a fixed rate mortgage, you know your monthly payments will not fluctuate.  Rental agreements can fluctuate every time you have a renewal.  Especially during the pandemic, we’ve seen monthly rent prices skyrocket right alongside home prices.  Some folks are even getting priced out of renting in desirable locations.
  • Tax Benefits
    • If you itemize your tax deductions, you can write off interest paid on your mortgage each year AND up to $10,000 of property taxes paid under the current tax law. When you decide to sell your house, the first $250,000 of capital gains could be excluded for single filers and $500,000 of capital gains for married couples.  These tax benefits aren’t usually the main factors behind wanting to own a home, but they should definitely factor into the final equation.

There are a handful of other factors that make owning a home a great idea for a lot of people.  You can truly make your own home YOURS.

When you rent, you’re usually limited in what you can change inside and outside the apartment.  In your own home, if you want to tear down some walls – tear them down!  If you want to put in a swimming pool in the backyard – go right ahead!

The ability to customize anything inside or outside your house is a big selling point for a lot of people.

Putting all those benefits aside, is now actually a good time to buy a home?

As we said before, home prices across the country are still elevated from pre-pandemic levels, and it’s not clear when they will come down.  To add onto that, it’s not clear if they will ever come back to pre-pandemic prices at all!

Just because prices are elevated, and have been for a while, does NOT mean they are due to come crashing down anytime soon.  Prices may start to trickle down, but anticipating some kind of cratering in the housing market might leave you holding your breath for quite some time.

The other component that’s making owning a home difficult is higher interest rates.  The Fed raised rates from essentially zero to just north of five percent in a year, in 2023.  This was one of the most aggressive rate hiking cycles we’ve seen from the Fed.  The idea behind the rate hikes was to get inflation under control across the economic landscape.  While those rate hikes did help lower the overall inflation rates, it didn’t do all that much to housing prices.

The problem with relying on interest rate hikes to combat higher housing prices is the amount of cash that people had lying around.  Higher interest rates don’t impact buyers who pay with cash.  During the pandemic and through today, many homebuyers are still utilizing larger amounts of cash to purchase homes.  This has thrown a wrench into the conventional thinking behind home prices and mortgage rates.

We’re now at the point in the interest rate cycle where the Fed has begun discussing rate CUTS, which could help lower mortgage rates.  It might not be as quick as some homebuyers might like, but rates could potentially be a few points lower by the end of the year.  That should help some folks find more affordable homes.

Owning a home has been a tough task for people over the last few years, but we might be getting closer to a more normal housing market.  As mentioned before, it might just take a little longer than people would like, but patience is almost always rewarded.

Owning a home IS possible, and for a handful of reasons IS a good idea.

It might not be a good idea for everybody, so it’s worthwhile to think these types of decisions through all the way before making any sort of decision.  If you need help thinking through these decisions, we’d be happy to speak with you.  Click the Schedule a Consultation button at the top of this page!

 

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