Homeownership Myth August 22, 2007Posted by federalist in Finance, Real Estate.
For a long time Homeownership has enjoyed the status of Unconditional Social Good, right alongside such metrics as Employment or Life Expectancy. Witness the degree of government intervention to foster home ownership — personal tax breaks (the mortgage interest deduction) as well as government-backed loans and loan subsidies.
A typical low-income household might spend half the family income on mortgage costs, leaving less money for a rainy day or investing in education. Their less-marketable homes apparently also tended to tie them down, making them less likely to relocate for a job.
Bottom line: Homeownership likely has had an exceedingly poor payoff for millions of low-income purchasers, perhaps even blighting the prospects of what might otherwise be upwardly mobile families.
I would point out that even wealthy individuals should not blindly assume that homeownership is right for them.
People often get hung up on the fact that renters don’t “build equity” the way homeowners paying off principle on a mortgage do. Home equity has historically appreciated, but so have many other assets in which one could invest spare cash. No money manager, looking at a home as simply another investment, would advise an individual to put a significant portion of his portfolio in a single house.
It is true that owning a home can sometimes be cheaper than renting, but that is a function of cyclical and regional market conditions. Sometimes renting is cheaper — especially when one considers the illiquidity of individual real estate.