The High Cost of Owning a Home

The real reasons that renting can be more cost effective than buying

The American Dream of owning a home with a white picket fence has become ingrained in our society. The thought is that renting a home or apartment is temporary while owning one gives you permanence and roots in your neighborhood. Although there is some truth to that, the costs of owning a home can outweigh the benefits you receive.

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As the housing bubble of 2008 revealed, owning a home is not as permanent a situation as consumers had been told. It also highlighted several fictions about owning a home that had been downplayed prior to that time.

In the ten years since the housing bubble burst, the market has struggled to regain its former standing. Many of the people who were hurt during the bubble take a jaundiced view of the current state of the housing market and are unwilling to invest.

Fool me once, shame on you

Since the end of World War II, banks and government agencies have pushed to expand home ownership for all classes of people. In many cases, this was done for people who had neither the income to afford a home nor had the assets to cope with problems in the volatile housing market.

The result of this push was to create a market where housing was valued much higher than its actual worth. When the valuation plummeted, investors were forced into bankruptcy or they lost their homes. The market’s collapse hurt homeowners, investors, banks and mortgage companies in the same way. Homes were not the bulletproof securities that they had been sold as.

Fool me twice, shame on me

Unfortunately, as the housing market improves, many of the same issues that caused the collapse of 2008 have returned. New home construction is down, interest rates are rising and the dearth of construction over the last decade has created a seller’s market for homes.

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This is causing an increase in the price of used homes, making the value of homes higher than it should be. This situation could create another housing bubble within the next few years, once again hurting people who overpay for their homes hoping to use it as an investment.

The realistic view of renting

The volatility of the housing market is not the only reason to delay or defer purchasing a home. There are many reasons why renting is a more attractive option than owning. These include:

  • No maintenance or upkeep costs. Home ownership comes with several large headaches. One of those is maintenance and upkeep. As a renter, upkeep is factored into your lease payments while homeowners must pay for it out of pocket.
  • No property taxes. Depending on where you live, property taxes can range from a minor inconvenience to a major problem. Prior to buying a home, you should investigate the property tax rates of where you are looking to buy.
  • Rentals don’t depreciate. The housing market over the last decade has proven investors wrong about homes and property. They can and will depreciate over time. Since your rent is not directly tied to the value of the property, depreciation is not something renters need to worry about.
  • Down payments are easier. Traditionally, the buyer of the home is responsible for a 20 percent down payment. For a home that costs $250,000, the buyer would have to come up with $50,000, plus closing costs out of pocket. That is a lot of money. Especially when compared to the costs of renting a home, condo or apartment. Even if you must come up with first, last and a security deposit, it will be considerably less than the down payment on a home.

These are just a few reasons that choosing to rent an apartment can be considerably more attractive than buying a home. In today’s housing market, it is easy to defer living the American dream for something more closely resembling reality.

 

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