Are you confused about whether to buy or rent in this market? Well, you are not alone. The negative focus from the media makes it difficult to know if now is a good time to buy. Here is a blog from Liz Davidson’s Forbes Magazine, The Next Mortgage Crisis that puts a different spin on homeownership. She is the CEO of a financial education company , called Financial Finesse, argues that renters set themselves up for financial failure in retirement:
“Today, there’s another mortgage crisis in the works — that is, NOT having one — choosing to rent when you can afford to buy; choosing to forgo building equity in a home as a major source of retirement security — something that may be more necessary now than ever before with a soft stock market and low-interest rates.”
She compares the consumer who buys a $300,000 home and has a $1,500 monthly mortgage payment with the consumer who rents.
If rents rise at the pace of current inflation (3.2% a year) the renter will pay $900,000 for housing over 30 years, while the home owner will pay $540,000 because his payment continues to be $1,500 a month.
If his house appreciates 1% a year, the home owner heads into retirement with $100,000 in equity in addition to the $300,000 he paid for his house. The home owner does have to keep paying housing expenses like property taxes and insurance, but the monthly mortgage is paid off.
Meanwhile, the renter has paid nearly twice as much to keep a roof over his head for 30 years, has given up $400,000 in retirement assets, and has to continue paying rent during retirement.
Becoming a nation of renters will bring on a future financial crisis, Davidson predicts:
“If Americans don’t recover soon from their pessimism around home ownership, we predict another fallout from the financial crisis will surface many years from now when a nation of renters tries to retire. They won’t have equity in their homes. Their paychecks will be stretched to the limit, not leaving room for saving and investing for retirement and other financial goals such as college funding. Instead of their expenses reducing through retirement, they will look straight down the barrel of increased rent payments for the rest of their lives.”
Are you happy or sorry you choose to buy a home?