I was reading an article yesterday titled “Troubled home market creates generation of renters“. The article states that many Americans either cannot afford a home or don’t want to own one, which is spawning a new wave of apartment construction.
What do you mean “don’t want to own one”? Whatever happened to the American Dream here in Northwest Indiana?
The article states there are several reasons for people to rent. I’d like to comment on a couple of those…
1. Many of the renters are those who have lost homes in either bankruptcy or foreclosure.
Unfortunately, there are not a lot of options that would allow this particular group to be able to purchase for the first couple years after an event such as these, but a rent-to-own or lease option may be in the cards. Since many of these foreclosed homes are being sold at a loss, investors could, in theory, pick them up, fix them up, and allow an individual or family to rent for a couple years before purchasing.
While making it sound somewhat easier than it actually is, the investor can make a little money and the buyer can have the pride of home ownership that will continue after they purchase the home.
2. For others who could afford one, a home seems too costly.
Compared to what? In nearly every case I have seen so far this year in Lake, Porter, Jasper, and Newton Counties, the home buyer has saved money every month when they purchased a home in the equivalent price range of the home they were living in. In some cases, it has been a savings of hundreds of dollars just because of the property tax exemptions for owner-occupied properties. In addition, tax savings on mortgage interest (see your CPA to discuss your particular situation) could result in more money in the pocket at the end of the year for home owners.
3. Home buying seems too risky.
Although there is some inherent risk in owning a home, with prices and interest rates low, the risk is minimized. Of course, there is always job insecurity, the possibility of death or injury to the bread winner, or natural disaster, but fear of loss of value over the long run is, in my humble opinion, rather unfounded. Personally, I believe it’s riskier to not own a home right now.
In a previous article, How Interest Rates Can Erode Your Buying Power, I wrote about the effects of rates on how much house you can afford with a given payment. For instance, you can spend X amount each month for a $200,000 home at 5% interest, but you can only afford a $180,000 home at 6% interest for the same payment. Each 1% change in rate equates to a 10% change in buying power. Seems like it’s riskier to wait if rates increase.
Also, while this should not ever be a reason to buy, it could take months and months to get kicked out of your home via foreclosure, but see how long you stay if you don’t pay the rent and the landlord gets you evicted. That could literally be less than a month…
4. Not enough appreciation to make owning a home worthwhile.
While everyone has there opinions, I’ll give you mine (It’s my blog, what did you expect?). I fully expect home prices in Northwest Indiana to recover in the next few years. Note I said years, not months or days. It will take a while. However, for the buyers I have been working with, this fits their plans. They have no intention to move soon and are not using their home as an investment anyway. If you are going to invest, there are ways to do it without using your residence to do it, unlike the large number of people who were using their houses like an ATM machine and pulling the (perceived) equity out of it almost yearly, leading to bankruptcy and/or foreclosure.
If you move in a few years and get cash back at closing on the sale of your home, think of it as a bonus. In most cases, using our local area as an example, the homeowner spends less out of pocket each year to own rather than rent, can make whatever changes they like to the house, and can build equity by paying down the balance of the mortgage each month. While the renter, who can’t paint or make changes on a whim, sees increasing rental payments and nothing when they move out.
It really is a great time to own a home, despite the perceptions of many. I cannot blame others for being scared, but once they look at all the facts, I think they will come to the same conclusion as I did.
If you agree, contact me and lets get you started on the path to home ownership. Feel free to call me at 219-695-0369 or email scott@nwiloanguy.com.
Scott
Your Indiana mortgage expert specializing in FHA, VA, and USDA Rural Development loans.
Need cash to buy or refinance a home and make repairs or improvements? Ask about our FHA 203(k) Rehab loans.
