Tucson Home Rent or Own
October 31, 2007
Post Tags: Home-ownership , tucson-homes
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This quote from a recent article based on an interview with Laurance Yun.
http://www.realtor.org/reinsights.nsf/pages/economistcommentary
“A Home is Not a Stock Certificate — Thank God!
Consumers and homeowners who purchase a home who are in it for the long-term are
once again coming out well ahead.Because of the power of leveraging, $10,000 used for a down payment on a typically priced home in the United States at a typical appreciation rate of 5 percent will return $110,000 after 10 years. The same $10,000 invested in the stock market appreciating 10 percent annually will result in $23,600. No wonder the data from the Federal Reserve show consistent results year-after-year of the staggering difference in net worth between homeowners and renters. A typical homeowner had $184,400 in net worth versus only $4,000 for a typical renter.”
This is a good example of why you would want to buy even if you could rent for the same amount. What is lost in the Rent Ratio senario is the Renter has Nothing to show for his money when it is all said and done. The home owner has paid the same amount as if he had rented but he has something of value in his possession The Home Itself.
Of course this is based on home ownership as a place to live and not an investment vehicle to be traded every couple of years or sooner.
November 6th, 2007 at 8:39 am
David,
Actually, this is a false analogy. The problem here is that with the stock, you haven’t taken on the risk of borrowed money. The gains that you realize in the housing market are only realized if you can sell it and get out from under the loan.
I agree that buying a house is ultimately better for long term wealth, but leveraging that much isn’t the way to do it. $10,000 isn’t nearly enough cash down to mitigate the risk of the borrowed money. You need to put down at least 20%, and pay it off as fast as possible. That makes for a sound economy.
So, if people don’t have at least 20% down, then they SHOULD NOT buy a house right now. They should wait and save.
I hope David, that you do not encourage people to buy a house with less than 20% down. If you are doing so, then you are contributing to this whole mess and not really helping your customers.
November 6th, 2007 at 3:00 pm
Chris,
If you read this blog very often you will find that we never encourage people to buy what they can not afford.
As far as that goes, we never encourage them one way or the other. We do counsel buyers they should never buy more than they can afford.
We have buyers at all levels, some are first time, some are investors, some are second home purchases, in each case there are different financial circumstances.
One size does not fit all, but as a general rule what you say about not buying unless you have at least 20% down is very wise. I would never buy with less than 20% down.
However, your last statement is almost borderline, first you make a statement then almost indicate we would do a dis-service to clients, that is something we would not, will not, and do not do.