Deciding whether to buy or rent a home these days can be a difficult decision. Should you jump in and buy a home knowing that home values are falling across the country, or should you just rent an apartment or house until better times arrive? The mortgage meltdown debacle, tightening credit rules, and the government's intervention into the mortgage lending market have complicated matters beyond what most home buyers care to understand. In the past, buying a home wasn't difficult and almost anyone that wanted to own their own piece of the American pie was able to do so. Today, however the situation is quite different and the government appears ready to abandon home buyers in favor of institutional credit lenders.
Anyone that has paid any attention to the angst in the financial markets has a fair understanding of the reasons for the troubles we are facing. There is plenty of advice and explanation being passed around, although very little of it is of any value to the family preparing to invest their life savings into what could turn out to be a significant financial loss, or gain depending upon location and other economic factors. From an economic perspective, most, if not all, sectors of the economy are now being affected by the economic downturn and the unforeseen, or ignored, threat of losing thousands of jobs in manufacturing sectors has many consumers hedging their investments and curtailing spending until some sense of rationality returns to the marketplace. In the meantime, foreclosures and unemployment continue to rise, home values and the stock market continue to fall, and the credit market is at the mercy of the government.
There is little doubt that buying a home is normally a good decision. As real estate agents and financial advisors will tell you, home ownership has tax advantages. The interest paid on a mortgage is an allowable tax deduction. They will also tell you that real property is scarce, although in today's housing market there are plenty of foreclosed homes available, although the risk of buying a foreclosed home can be significant. They will also tell you that owning your own home is a secure investment and a way to generate wealth for future generations. This may have been the case for a housing market that behaves rationally, but today's market has been turned upside down, creating a situation where the risk of investing in a new home, always a long-term investment, is significant. Whereas you previously could depend upon rising home values to offset your investment expenses, in today's market that is no longer the case. Falling home values are not tax deductible and the opportunity cost of investing in other assets, those that provide cash flow, should be given serious consideration. As millions of prospective home buyers are faced with such uncertainty, many may be opting to wait for a return to normalcy and adopt a strategy of rent now, save and pay down debt, and leverage as much of the purchase price as possible when the right opportunity presents itself.
Of course, real estate brokers will argue that people need a place to live, the government is backing up the credit market, and you should probably buy now for a hundred other reasons. In this type of a situation, the weight of the phrase "Buyer Beware" is significant. Those thinking about making a home buying decision in the near term should bear in mind that their mortgage is owned by their lender until paid for in full, a period of 30 to 40 years in many cases. If there is any possibility of unemployment or missing a payment for any reason whatsoever, they could easily face foreclosure and possibly bankruptcy. If your home is foreclosed upon, you lose all your equity, which includes the down payment as well as the interest, taxes and insurance already paid out. Additionally, any money you've spent on improving or repairing your home and property is lost. The impact of foreclosure on your credit rating and your ability to secure further credit is significant.
While renting a home may be distasteful and the thought of paying rent to a landlord is objectionable, it may be the wisest option for some. The financial burden of owning a rental property, including taxes, insurance, maintenance and upkeep, fall upon the landlord. Overall these expenses are pro-rated among all rents, thereby reducing the overall cost for each renter. There are other financial, social and recreational advantages to renting as well. For example community playgrounds, swimming pools, club houses and social groups, and common transportation and location near shopping centers or employment centers can be powerful attractors.
In today's turbulent financial times, making the decision to buy or rent a home is not a simple as it once was. Prospective home buyers should be cautious and skeptical about the advantages of owning a home. The national financial structure and underlying principles of our economic system is reforming itself under the unpredictable pressure of the global economy and redistribution of wealth. Private ownership of a home will certainly continue to be a desirable component of the American dream for a very long time. Buying and owning your own home will always make financial sense, but the consequences of home ownership has become a matter for serious deliberation.