Interesting Gallup Poll on the various reasons homeowners and prospective homeowners state as why they want to own a home.

Financial reasons:

-good investment that appreciates in value (16%)
-building equity / good credit (12%)
-equate renting with “throwing money away” (12%)
-it’s cheaper or more cost effective (11%)
-financial security (9%)
-tax deductions (5%)

Non-financial reasons:

-general belief in homeownership (12%)
-aversion to living in a “rental” or paying rent to someone else (10%).
-wanting a family home (7%)
-wanting the freedom to do what one wants with one’s home (6%)
-pride of ownership (6%)
-the “American Dream” (2%)

Financial reasons outweigh non-financial reasons, but not overwhelmingly — 51% say they are expecting home prices to rise in their area (up from 33% a year ago)

 
 

Source:
U.S. Homeowners’ Reasons for Owning More Than Financial
Renters mainly cite lack of financial means as reason they rent rather than own
Lydia Saad
Gallup, April 18, 2013 
http://www.gallup.com/poll/161966/homeowners-reasons-owning-financial.aspx

Category: Psychology, Real Estate

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18 Responses to “Why Own a Home? (Lots of Reasons)”

  1. Livermore Shimervore says:

    I think home ownership is going to be a disastrous choice for millions of middle class Americans.
    It goes something like this: couple goes to the bank they apply for a loan at a low rate. They are approved for X amount. The bank doesn’t care about their retirement planning, emergency cash reserves, whether they want to fund say 30% of each child’s undergraduate degree, etc. Neither do the couple sit down with a fiduciary to plan exactly what they should be spending. Instead millions of Americans start looking up what they can buy and find that nothing really completes their wish list unless they leverage themselves. They then spend the next 30 years plowing a signficant portion of their income into their home whose equity is beating eaten up by taxes and ownership expenses. Meanwhile their primary mode of savings (401K) is quietly eating up 2-3% (when both fixed and variable costs are factored in) over that same 30 year period. The result is a double whammy: too much income went into the mortgage, local taxes and mutual fund company’s coffers. They’re left with 10 years of underfunded retirement puttin yet more strain on the federal and local govt’s tax-payer’s.
    Oh and a payed off house whose property taxes they can’t afford to keep up with on their reduced pay check.

  2. Julia Chestnut says:

    We rent. We just had to go through finding a new rental house, and it was stressful. The result is not exactly what I’d like in a living situation – but it really is wonderful, frankly. The rent is costing me roughly a thousand to $1500 less than a mortgage on a similar house would run in my neighborhood. Yes, prices did not go down – they just kept ballooning at a slower rate. Real estate is intensely local.

    I rent because it is much cheaper, but also because it frees up capital that we need elsewhere. My kids are only home for another 5-6 years: after that, I can think about buying something small without attendant concerns about selling to “downsize.” I can pick up and move for the new phase of my life. I can make lots of decisions about how I want my life to look that are not dependent on disposition of the largest asset in my portfolio. The payment stream is also constant without the need to put aside money for repairs and attendant disasters. For me, now, it’s worth not painting the walls the color I’d like or having the kitchen just the way I want it.

  3. Union Agitator says:

    I wonder if those folks who think a home is an investment are figuring in taxes, maintenance and upkeep, and interest. Oh yeah, insurance, and whatever your yard work and chore labor is worth. I also like knowing I can pick up and move on short notice.

  4. Thomaspin says:

    An illiquid, highly levered (4:1 or more) bet on the Vampire Squid not blowing up the US ever again, and a wooden box that rots.

    Plus phased out itemized deductions in coastal cities where you cannot get a decent home for less than a $1mm mortgage.

    Rent.

  5. DiggidyDan says:

    I have found at the lower end of homes, owning is much cheaper than rent on a monthly basis. Even underwater, I still am break even with the rent I would have spent. As a tradeoff, I am less mobile, and on the hook, so more risk is involved, but I guess you can’t have your cake and eat it too. Maybe that’s the premium on rent for lower end properties. Either you are in it because you want the flexibility, or you have no choice, so the monthly nut is higher.

  6. theexpertisin says:

    Rental clients purchased my luxury home, my boat and my country club memberships. Rental clients have provided me with over thirty five years of expanded income. Rental clients have provided me with lots of cash to invest in securities. Rental clients make my first day of the month cause to celebrate.

    I love renters.

  7. sellstop says:

    How about owning a home so you don’t have to make a payment?
    That’s right. OWNING a home.
    And I’ll let you in on a little secret. The best time to buy is when interest rates are about 12%.
    So save a real downpayment and wait a few years……
    gh

  8. Alex says:

    I am surprised I do not see the main reason I finally bought, which was far better availability of better public schools. In the Washington D.C. suburbs, there are VERY few rentals available in areas with the best schools. And the public schools in the area are really good. So if I look at either paying for private school or living next to an excellent public school, the whole financial equation changes tremendously.

    I will say that while I have not done a nationwide study, my experience is that home ownership tends to allow considerably better access to better public schools. Is this not usually true in other cities? Not assuming, I am genuinely curious about the experience of others.

    Now I have to admit I was getting tired of being treated like a renter, which is to say being controlled in what did with my property. But owning a home is a ton of work and expense, so I consider that one a push at best!

    Another factor in favor of buying for me is that the market here is definitely coming back strong. So while I am not exactly planning on major price appreciation, I think I can at least count on a tail-wind with respect to price appreciation.

  9. Livermore Shimervore says:

    @theexpertisin
    Was that before or after you lost 30% on the value of that property when RE market collpased?
    RE and the stock market seem to be following a similar long term trend going forward. While In the past it was slow, steady uptick in prices, very slow. Now with Helicopter BB with his deep-pocketed intervention and Wall Street’s securitization of everything and the kitchen sink, RE like the stock market have become a series of 10 year bubble to bust cycles. I’m even more certain about this because its really impossible to escape the reality that RE prices will rise not any fundamentals like rising incomes for the bulk of middle class workers but simply the whims or “ingenuity” of Wall Street to expand the availability of mortgage credit to keep home prices rising. If home prices are not rising then the appeal of buying is erased. So how can you have such incongruence in wage growth and housing values that must keep going up. That’s a virtual gurantee that the banks and Wall Street will find news ways to screw the pooch.

  10. auric says:

    Why do I own a home? So I can have a dog! I acquired a dog when I was renting a place with a strict no pets policy, so I had to buy a house (this was in the days when there were no dog-friendly rentals available, especially if you had an Irish Wolfhound). It’s that simple. Money had nothing to do with it. True story.

  11. justarenter says:

    Twenty two years ago my husband and I moved to Portland, Oregon, and were thrilled to find we could afford to live in a beautiful large apartment in a fairly safe and very attractive neighborhood within walking distance of downtown. With a 20% downpayment, a mortgage and property taxes on a comparable sized cottage in the same neighborhood would have cost more than twice as much as the rent. Had we bought then and had there been no major expenses in upkeep for the house, what we would have spent on the downpayment, mortgage payments, property taxes, insurance, and utility bills — minus what the house appreciated and tax deductions — would have cost us almost $200,000 more than what we’ve spent on rent. By my calculations, in thirty years when the hypothetical house was paid off we would then have to live in it to at least the age of 120 before we got beyond merely breaking even on the additional expense. Throwing money away by renting? I don’t think so. It’s nice to be good at arithmetic. And even nicer to be able to call the landlord when there’s a plumbing problem. Home ownership may be a must for big families but for most people it’s just an expensive luxury.

  12. CSF says:

    Alex nailed it. If you have kids it’s all about schools, and where there are great schools there aren’t many great rentals. The financial arguments are mostly rationalizations.

  13. Livermore Shimervore says:

    ^ that’s a pretty poor justification. What you’ll pay in property taxes in those upper income school districts to send your kid to a top public school will work out being the same as paying for a top tier private school. Many studies have been done on this point. Particularly in the North East: from NJ up to Maine home owners are paying insane property taxes and some are still sending their kids to private schools to boot. (good bye retirement savings). Even if you can’t afford to send your kid to an excellent private school, with what you pay in outlandish, equity-destroying property taxes you could easily bring in a small team of fresh-out-of-college-up-to-their-eyeballs-in-loans tutors to work with your kids each and every evening in math and science. $15k-$30K in property taxes every year for 30 years? That’s a lot of tutoring…
    Financial arguments simply show someone has sat down with a financial planner instead of putting on blinders to their overwhelmingly underfunded retirement portfolio. Or some just relish the idea of going back to work in their late 70′s.

    • Alex says:

      No, not true in my case. You are making a vast over-generalization based on some pretty concentrated and competitive markets. The taxes are deductible and aren’t really that much for me. They sure as hell aren’t $30,000. That is more than my entire housing cost. On a total return basis, renting a nice apartment worked out to be the same as my gross housing cost including property taxes. That is likely true in other places as well. Not everyone lives in the Northeast. Look at average housing costs throughout the U.S. and I think you will find they are well south of the numbers you are talking about.

  14. zorkon says:

    Every time I have done a rent vs. buy analysis for a single family home, rent would be flat out higher than my mortgage payments including taxes and insurance. This has been in the Tampa and Austin markets in the best school districts. Assuming utilities are a wash and 20% down is possible, then:
    For renting:
    + home maintenance costs are lower
    + easier to move
    - not your house. Can’t customize or improve it at will. Landlord could choose not to renew
    - rent cost changes over the years, typically going up

    For purchasing:
    + home mortgage interest deduction
    - have to sell it eventually
    + home payment can be relatively fixed (except taxes and insurance) for up to 30 years! I imagine if I get to year 20 in a house then the principal and interest payment will seem so tiny by then
    + Do whatever you want to the house

    Sort of like owning a car, the longer you will be in it, the more sense it makes to own.

    Renters are a landlord’s income. For practically every property being rented, it was purchased at some point at a price that now makes it worthwhile to rent out.

  15. Livermore Shimervore says:

    “easier to move” seems to be downplaying that advantage. If your ownerships costs spike from one year to the next, most will bite the bullet and eat it…few will pick and sell. If my landlord raises my rent, thanks to the housing bubble, there’s a metric ton of newly built houses with landlords looking for well-payed tennants. Does a renter want to spend 20% more or 40% less? They have lots of options, sometimes in barely a 30 minute drive in either direction.
    The pattern I see in the future: families who can no longer deal with the high cost of ownership in high income states decide to sell. Then they simply rent in lower income states where they’re not stretched so thin. The average American really isn’t tied to a zip code as far as work. Most jobs with exception of perhaps the high end of finance and tech, are portable. They’ll move to states like Florida where paying a mere $1000K a year in property taxes for a 2,000 sqft condo is not unheard of. Meanwhile in places like Bergen Couny, NJ you’ll be paying $12K a year for the same square footage. It’s a trajectory of madness.

  16. Giovanni says:

    My day job is figuring out the true cost of ownership (I’m in the apartment business) and one thing that most analyses of rent vs. own ignore, gloss over or radically understate is maintenance and repairs. Granted it’s not easy to forecast them high enough even for people who do it every day. In fact if your property is regularly under budget on maintenance & repairs a deferred maintenance issue is probably building up somewhere onsite.
    For a piece I wrote last summer on rent vs. buy I built an .xls to model real homeownership costs over time. Using a $300,000 purchase price with 20% down on a 30 year fixed mortgage at 3.62% which was the average Freddie Mac backed rate posted yesterday (8/21/12). For taxes and insurance I used the national averages of $1,180 and $860 respectively. For repairs and maintenance I went on the low side of the range at 1.5% percent of value annually. I used Case-Shiller’s 100 year house price appreciation of 3.3% which is slightly higher than FHFA’s House Price Index appreciation from 1991 to 2012 of 3.0%.
    Over forty years you would have put in $985,431 and gotten back $957,803 after selling it, in other words, at the end of the day it would have cost you only $27,628 to live in that house for 40 years. That’s less than 58 bucks a month, a pretty good deal for a nice place to live but as an investment 0% over 40 years is not going to get you on Bloomberg TV wowing the hosts with your investment genius while promoting your latest deal. Of course that’s 0% return after coming up with the $60,000 down payment and the out of pocket cash for payments, taxes, insurance, maintenance & repairs for those forty years, oh and qualifying for the loan in the first place.
    To see these results charted: http://ashworthpartners.com/rent-vs-buy-and-the-great-myth-of-homeownership-as-an-investment/#more-1407 If you would like a copy of the interactive .xls there is a link at the bottom of the piece.