Soft Case for Home Ownership: Forced Savings/Low Interest Rates

Sold HouseNew Orleans        Dueling columns in the Times smashed the drunken or doped spin of the Realtors Association trying to claim that the housing market was “back” and in the “Your Money” section made a soft and shrugging case for home ownership:
“Indeed, many people who are buying at the moment are locking in mortgage rates of about 4.5 percent. A year ago, they might have paid 5.25 percent on a $300,000 loan for a monthly payment of about $1,657. Today, you could lock in a lower monthly payment of around $1,520 on a mortgage that size, or you might not need to borrow that much, given that prices have fallen in many areas.


FORCED SAVINGS You may make nothing at all beyond inflation over time on a home, but the part of your mortgage payment that goes toward principal is a form of forced savings.
Sure, you might do better by renting and investing the difference between the rent and the total costs of ownership. But at least three things need to go right.
First, you need to actually save the money. Americans have trouble with that sort of plan. Then, you need an after-tax return that’s better than whatever a home would deliver. That’s a task that might not have gone so well over the last 10 or 12 years, and it involves its own future risk, given how little safer investments are returning now. Finally, you must not raid the savings along the way.”
Of course it goes without saying that the “forced savings” part of this equation only works out at the point of sale, and even the “nothing at all beyond inflation” somehow has to take in the cost of property taxes, insurance, and maintenance (which can easily be another $5-10000 per year).  Additionally, a family would have to factor in the computations the fact that after cashing out the house, you would either need to buy another house to escape capital gains consequences on the first sale, or make sure that you included those taxes in your figuring as well.    Taking all of those things into account, the house might have to appreciate more than $100,000 every 10 years to breakeven.
None of that says that owning a home is still not an asset providing more citizen wealth than renting, but all of this has to be part of the cold shower that boosterism must be forced to confront before continuing, unrealistically, to argue that home ownership is a guaranteed method of reducing poverty in the US and elsewhere.

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