A central pillar of the American Dream is to own your own home. But as we all know the nation-wide housing crisis has made a lasting, sometimes devastating, impact on the concept of home ownership. In response to the housing catastrophe, some have wondered if renting a home will become more acceptable over time and possibly even become the new American Dream.
No doubt that house ownership has dropped in the last few years. But this trend doesn’t mean that a shift in the American psyche is taking place, or that we’re completely moving away from homeownership. To the contrary, in fact. According to a recent National Public Radio segment, “After the Housing Bust, Revisiting Homeownership,” journalist Chris Arnold reports that the ambition of owning a home is still alive and well.
So what are the reasons for buying a home, so soon after the housing bubble burst? The short answer is that it still makes economic sense to do so. Home prices are down by 30% nationally.
Here are some things to think about as you weigh the decision of going ahead with homeownership.
Interest Rates are Extremely Low
Besides lower housing prices, interest rates are extremely low. Historically low, in fact. It’s generally believed that these rates really have only one direction they could go from here—and that’s up. So for any potential homebuyers, now may be the time to move forward. Businessweek columnist Marc Roth boldly stated in 2009, “If you have a steady job, good credit, and the down payment, then you really are being offered the gift of a lifetime.”
But be sure to pay close attention to the interest rate. As it changes from one point to the next (say from 5% to 6.25%, both low), the financial implications are significant. But there are other issues to consider than just the interest rate. You should also consider, for example, the closing costs attached to your interest rate. A lower rate may have higher closing costs.
Renting is Becoming More Expensive
Another reason for potential homebuyers to more forward is that rent is becoming more expensive. Often, the costs of a renter are equal to those of a homeowner with a mortgage.
There are numerous resources available that can help you to smartly evaluate your decision of renting vs. buying. Here are just a few: Buy vs. Rent Comparisons; Buy vs. Rent Calculator; How Much Can I Afford? Calculator.
Foreclosed Homes Might Equal Huge Savings
Lenders are trying to recoup their losses with foreclose homes, and potential homebuyers looking into this option may find an advantageous situation. Kiplinger reports that “bank-owned foreclosed homes are sold for an average discount of 35%.” The general advice is that if you can wait for legal issues to be resolved and the subsequent time delays associated with foreclosed properties, you might find a great house for a great deal.
If this if of interest to you, it’s useful to work with a realtor who has experience with foreclosed home sales. For more tips on this issue, take a look at the article “Foreclosures at Rock-Bottom Prices.”
Are you a potential homebuyer? What factors are influencing your decision, for or against?