On Monday, we looked at the top five reasons why Americans buy homes. The reasons dealt with family, wanting more space, the freedom to make changes to the home, and investment purposes. Today let’s look at why investing in a home is a good deal.
According to a recent study by Trulia of the 100 largest metro areas in the U.S., on average, in all 100 areas it is currently 35% cheaper to own a home than to rent. Jed Kolko, the chief economist of Trulia said this:
“While it’s hard to believe after the recent spike in mortgage rates, it’s still more than one-third cheaper to buy a home than to rent. Recent mortgage rate and home price increases have made buying significantly more expensive than last year, but not enough to tip the math in favor of renting. This is because rates remain well below historical norms, and prices are still slightly undervalued, too.”
This is very interesting. Do keep in mind that last year it was 45% cheaper nationally to own than to rent. So like Kolko explained, increases in home prices and mortgages this year have made buying more expensive, but we are still in a place where it is cheaper to own than to rent.
Now let’s look at the housing market compared to other investments. This chart compares the return on investment over the last thirteen years for the Dow, S&P, NASDAQ, and real estate.
Over the last thirteen years, real estate has trumped the others! Now certainly there were lots of issues that went on in those thirteen years, and the chart would look different if we were to go year by year, but overall, real estate is ahead.
How about looking at the last twelve months? Check it out:
Now you can see that real estate comes in lower than both NASDAQ and the Dow, but it is a bit higher than S&P. What this is showing us is that real estate is competitive with other markets.
And here’s some food for thought. If you buy $100,000 in stocks, you are putting down $100,000. If you buy a home for $100,000, chances are you are only putting down $10,000 – $20,000. For the most part, the return on actual cash investment in real estate skyrockets over any of the other markets. Owning a home can be a real financial advantage.
On Monday, we will begin to dissect the average American family’s net worth. Until then, the next two days’ blog posts will be short and sweet.
[Content for this article comes from KCM, Trulia and Forbes.]