Loan Modification

Is Home Ownership Out of Style?

By Gina Pogol

Home ownership has been sold as the American Dream for decades. Since the 1950s, over 2/3 of all homes have been owner-occupied. And for many, their homes, once paid off, are the only real asset they have. But perhaps the dream has been over sold. And maybe renters will get the last laugh, as housing markets deteriorate and home equity evaporates.

Today, home ownership doesn’t so good to a lot of folks. Even as an investment for retirees — in 1989, 26% of retired homeowners still had mortgages on their properties. By 2007, that percentage had risen to 46%. And the amounts owed has increased as well. Retirees in 2007 carried 415% more mortgage debt (figures adjusted for inflation) than retirees in 1989. Meanwhile, personal savings rates have decreased . So if homeowners aren’t managing to pay off their mortgages before retirement, and aren’t saving elsewhere to compensate, it doesn’t look like home ownership is automatically the best investment decision. It no longer functions as the “forced savings” vehicle it used to, before home equity financing was so easy to obtain and so ubiquitous.

How Do You Know if It’s Better to Buy or Rent?

Just because people have gotten burned doesn’t make home ownership a bad bet. Just don;t count on house prices always going up year after year, and don’t buy more than you can comfortably pay for. In addition, it’s probably best to avoid home purchases unless you are quite sure that you’ll be living there for some time. Homes aren’t exactly liquid assets; they are expensive and sometimes time-consuming to sell.

Real estate Web site Trulia.com has a list of major US cities, and its conclusions about buying versus renting in each city. This is good for the general public but as an individual, you’ll need to get a little more in depth. HSH.com has a good buy versus rent calculator, which can give you a more customized calculation. You’ll notice that the cost of buying (and it’s desirability) vary with the FHA mortgage rate you get.

Rental costs include the rent you pay now (subtract utilities if included in your rent), and includes anticipated rent increases over the years. The cost of owning includes your down payment, the interest that you could otherwise earn on it (about 2% these days), mortgage interest, property taxes, maintenance, insurance, and even the eventual costs of selling the home. Ownership expense is mitigated by your tax deduction and projected (or maybe just prayed for) property appreciation.

Full post as published by FHA Mortgage Guide on June 07, 2010 (boomark / email).