4 Reasons Your Friends Are Crazy Wrong If They're Telling You Not to Buy

The current narrative is that home prices have risen so much so that it is no longer a smart idea to purchase a home. Your family and friends might suggest that buying a home right now (whether a first-time home or a move-up home) makes absolutely no sense from an affordability standpoint. They are wrong!

Homes are more affordable right now than at almost any time in our country’s history except for the foreclosure years (2009-2015) when homes sold at major discounts. As an example, below is a graph from the latest Black Knight Mortgage Monitor showing the percentage of median income needed to buy a medium-priced home in the country today in comparison to prior to the housing bubble and bust.

As we can see, the percentage necessary is less now than in those time periods.

The Mortgage Monitor also explains that home affordability is better today than it was in the late 1990s in 47 of 50 states.

Homeownership will always be a part of the American Dream. There are advantages to owning your own home (educational, health, social) that far transcend any economic impact. However, today we will look at several of the financial advantages of homeownership in today’s post.

1. Buying is Cheaper Than Renting

The results of the latest Rent vs. Buy Report  from Trulia show that homeownership remains cheaper than renting with a traditional 30-year fixed rate mortgage in the 100 largest metro areas in the United States.

2. Homeownership “Forces” You to Save

According to SavingAdvice.com, homeownership is a great way to save. Their advice is quite simple:

“Homeownership is a “forced” savings account because you own the home, you have no choice – that monthly housing cost has got to be paid no matter what…Homeownership can be an outstanding way to force yourself to be more frugal in the rest of your spending so that you can save and build equity in your home.”

3. Homeownership Offers Several Tax Deductions

According to the Tax Policy Center’s Briefing Book -“A citizen's guide to the fascinating (though often complex) elements of the federal Tax System” - there are several tax advantages to homeownership. Here are three:

1. Homeowners who itemize deductions may reduce their taxable income by deducting any interest paid on a home mortgage.

2. Homeowners who itemize deductions may also reduce their taxable income by deducting property taxes they pay on their homes.

3. Homeowners may exclude, up to a limit, the capital gain they realize from the sale of a home.

4. Experts Expect Home Price Appreciation to Continue

Every quarter, Pulsenomics surveys a nationwide panel of over one hundred economists, real estate experts, and investment & market strategists about where they believe prices are headed over the next five years. They then average the projections of all 100+ experts into a single number.

Over the next five years, home prices are expected to appreciate 3.22% per year on average and to grow by 17.3% cumulatively, according to Pulsenomics’ most recent Home Price Expectation Survey.

Bottom Line

Your friends may be afraid that home values may have already peaked. However, we believe that purchasing a home now will prove to be a sound financial decision for years to come. As Warren Buffet said, “When others are greedy, be fearful. When others are fearful, be greedy.”

Your friends and family have your best interests at heart. However, when it comes to buying your first home or selling your current house to buy the home of your dreams, let’s get together to discuss what’s best for you, not your friends.

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© 2017, Tonya Brown. All rights reserved