Is Buying a Home Still Worth It?

Buying a home has long been considered a cornerstone of the American dream. It is a purchase that can afford you greater financial security, and in some cases, can be a good investment. But there is no point in getting tangled up in buying a home if your financial situation is in a fragile state. TIME makes the case that in the current environment, job security should be an important factor when making a home purchase  decision. If you don’t feel secure in your current role and do not have an emergency fund applying for a mortgage, even with rates at historic lows, is likely not a good idea. 

In addition, the cost of buying a home is not just in the purchase price. There are closing costs, property taxes, homeowners insurance costs, private mortgage insurance, ongoing maintenance, and repairs to consider. 

Demographics of the Current Homebuyer

The national median income of married homebuyers was $106,300 in 2018. When it comes to millennials, 40% owned a home in September 2020. However, nearly two-thirds (63%) have regrets of making the purchase. CNBC suggests this is because people tend to underestimate the hidden costs associated with purchasing and owning a home. This year, more than half of the people who bought houses after March 2020 regret taking out a mortgage.

However, the pandemic has given way to appealing buying conditions for first-time homebuyers. The Wall Street Journal interviewed a range of first-time homebuyers that decided to purchase because of:

•  Record-low mortgage rates
• A desire for more space during the lockdown
• A sense that they had a competitive advantage while the market was quiet 
• The freedom, given telecommuting, to move further away from their workplaces

With more than 40% of Americans working from home, the urge to have a home as the perfect living and working space is rising. Those who can, are looking for bigger living spaces which has led to an increase in home prices. Im New York City, for instance, house prices fell while suburban homes saw a sales boom as people moved out. 

Where is it Worth It To Buy A Home?

When it comes to buying a home vs renting a place, the best choice will vary city by city. It largely relies on the ratio between home prices and rental costs. For instance, San Francisco’s median home value is 50 times the median annual rent while the ratio is 16 in Dallas. So buying a home in Dallas makes more sense while  you are probably better off renting than buying a house in the Bay Area. 

Is Now The Right Time to Buy a Home?

Teresa Ghilarducci, Schwartz Professor of Economics at the New School for Social Research, suggests waiting is the current best strategy. There is too much uncertainty which has led to decisions being made on short-term thinking. No one knows how permanent working from home will be. And while you wait, you might be better off allocating home buying-funds to growing your savings. Buying a house is even more complex with the social distance protocols put in place because of the pandemic. Above all, it is important to make sure you are making an informed decision when it comes to neighborhoods, real estate agents, loans, and home inspections. 

While every case is unique, most individuals currently considering buying a home should take into account their own capacity for risk. Renting offers more flexibility than owning a home. As a renter, you can readily move in the case you are physically required to be back at the office or are laid off and need to downsize. 

Above all, it is a good idea to first have a financial plan  before buying a home.. A financial advisor can help you get organized and build confidence towards the big decision of owning your home once you have taken the necessary steps to build a strong financial foundation.