2 Reasons Homeownership Is More Expensive Than Ever — and Why You Should Buy Anyway
Written by
Yaël Bizouati-Kennedy
Edited by
Cory Dudak
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The dream of homeownership has been out of reach for many Americans lately due to a combination of factors. High mortgage rates have not only put pressure on buyers but have also triggered a domino “lock-in effect” on supply, as many owners feel “locked in” with the lower mortgages they secured a few years back and are hence unwilling to sell.
In addition, high home prices — partly due to low inventory — and inflation have left many buyers on the sidelines.
Now, while mortgage rates have come down in recent weeks, it might be a while before inventory increases significantly and therefore a while until prices decrease in a significant way as well.
Yet, some experts say that despite these challenges, homeownership is still worthwhile for many reasons, including the fact that it provides stability and enables owners to build equity.
2 Factors Driving Costs of Homeownership
Realtor.com senior economist Ralph McLaughlin noted that the costs of homeownership have hovered at, or near, historic highs; which, as he explained is “not just in a nominal sense, but also in real terms and compared to household incomes.”
A big reason for this is high inflation. This has impacted not just home prices but every expense that homeowners must pay, including maintenance, insurance and taxes. In some cases, such as hazard insurance, rising costs have outpaced inflation, he added.
Now, when it comes to mortgage rates, they are starting to slowly come down thanks, in part, to the expectation of the Federal Reserve’s impending rate cuts. As of Sept. 5, 2024, the 30-year average mortgage rate stood at 6.35%, according to Freddie Mac. To put this in context, however, long gone are the days of 2% or 3% rates. For instance, for the corresponding week in 2020 (Sept. 3) these were standing at 2.93%. So the bite of higher rates is also eating into homeowners’ budgets.
So Why Should You Buy Anyway?
Some experts said that despite these challenges, you should still buy a home as it can be a strategic move for long-term financial stability and equity growth.
“With falling interest rates, there’s an opportunity to secure favorable terms that could lead to substantial equity accumulation over time,” said David Gebbia, principal at Siebert.
Another reason why buying a home is a wise financial move is that historically, it’s also a vehicle of wealth-building in the country.
“Real estate has historically always been the greatest wealth generator in the U.S. Despite the market or brief instabilities, home values consistently grow, building equity for homeowners,” said Alex Blackwood, CEO, co-founder of mogul Club.
Consider this: Homeowner wealth is a startling 40% higher than renters, according to a National Association of Realtors report. “Property appreciation has surged along with home prices in the last decade, giving most homeowners more than $100,000 in equity over that time period and lending further evidence that homeownership is an important avenue to build household wealth,” per the report.
Finally, another factor is the financial stability it provides as you are locking in your housing costs — especially with a fixed-rate mortgage. Unlike renting, where you might face annual rent increases, your mortgage payments remain consistent, offering predictability in your budget, said Chad Gammon, CFP, owner, Custom Fit Financial.
What Should Buyers Do To Navigate This Market?
It can be difficult to navigate this housing market and in turn, it may be tempting for buyers to attempt to time it, something that “is likely to be a fool’s errand,” since the benefits of homeownership accrue over much longer periods such as decades rather than years, said McLaughlin.
“While we don’t suggest households jump into homebuying, we do suggest they get into homeownership as soon as it makes sense for them to do so, since it does take decades for the financial benefits of homeownership to arise,” he added.
In addition, he said that while it may feel like a stretch to buy a home now, the beauty of the 30-year mortgage is that payments stay constant while incomes do tend to rise over time.
Other tips include expanding your search area to nearby areas that offer more affordability and staying focused on long-term goals. “While it’s easy to get caught up in short-term market conditions, remember that buying a home is a long-term investment,” said Gammon.
Finally, for buyers who are looking to purchase a home as an investment, the key is to prioritize location, seek properties with strong appreciation potential and collaborate with seasoned professionals to make informed decisions, said Gebbia.
“Real estate can be a powerful addition to your investment strategy when approached with patience and a well-considered plan,” he said.
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