Many people struggle to decide when is the right time to purchase a home. There is a popular school of thought that you should wait until the housing market is in your favor before buying a home. Those subscribing to this way of thinking are reluctant to buy a home unless they feel that home prices and mortgage rates are low enough. As Lawrence Yun explains though, you really should be buying instead of renting regardless of the state of the housing market.

In an article for Forbes, Yun breaks down the difference in net worth between homeowners and renters. The difference is truly gaping. In 2013, according to the Federal Reserve, the net worth of a typical homeowner was $195,400 versus only $5,400 for the typical renter. The next figures will be released in 2016. Based on the state of the market since 2013, and with a conservative projection of what will happen in 2016, the gap should only widen when next year’s numbers are released. Projections are showing the net worth of the average homeowner to jump to around $225,000 while renters’ net worth should be down to around $5,000. These numbers make it hard to argue against buying a home.

Yun gives a simple example to illustrate the steady wealth accumulation of a homeowner. Most homebuyers take out a 30-year fixed rate mortgage when purchasing a home. He explains that the increase of the home price over that time is the equity the homeowner accumulates. So, if you consider the change of the median home price of a single-family home over the last 30 years from $75,500 to $220,000, that would mean someone who bought a home in 1985 would have accumulated $144,500 of equity through the life of their mortgage. Even if home prices stayed exactly the same, after the 30 years the homeowner still has $75,500 of wealth and no more monthly mortgage or rent to pay.

This is just a simple example used to clearly demonstrate the monetary value of buying a home. Yun acknowledges that situations rarely play out exactly like this in the real world as people often times change houses before the life of that 30 year mortgage is up. He points out though that these housing changes are made easier because of the equity built up during the span of owning the original home.

An argument can be made that the stock market offers a bigger return than real estate, but there is a sense of stability in real estate investments. The stock market can be volatile as prices can fluctuate drastically. By contrast, buying a home in a desirable area is almost always a safe and sound investment. It is rare for prices in a desirable area to go down so your risk is minimal.

Yun recognizes that timing does hold significance when considering whether to buy a home. The timing should deal more with your financial standing though and not the standing of the market. Many young adults under the age of 25 have not found the financial standing necessary to buy a home, while those between the ages of 45 and 55 are in their “prime-earning years”. This is reflected in homeownership statistics for these two groups. Historically, the homeownership rate for households under 25 is a little below 25% while about 75% of people between the ages of 45 and 55 own a home. Your financial standing is obviously important when considering whether or not to buy a home. But the state of the housing market is not. You shouldn’t wait for low home prices. As the numbers show, buying a home is a sound financial investment that can help you steadily build wealth and come out far ahead of renters.

Buying or selling a home? Give me a call at 713.829.3052 or email me at cynthia@cynthiamullins.com.

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