Home Ownership - Why It Matters

By Guidant Realty on 12/13/2019

Making a home purchase decision is not as simple as comparing a prospective home payment to next month's rent, and here is why...


It’s that time of year when many of our fellow Realtors are creating their plans for the upcoming year. It is no different for our clients and New Year’s resolutions are widespread.  Downtime between Christmas and the New Year offers many the opportunity to be introspective with fewer work distractions – well , unless you work in retail or travel, then our collective hearts go out to you.  In the world of real estate, we see the results of this phenomenon reflected by a significant jump in activity in January as folks have had time to circle back to those important, but less pressing considerations.

Buying a home is a very significant decision and requires careful consideration and planning, which is why it is often top-of-mind with the other New Year resolutions.  Any purchase is about value and there are several different value drivers in a home purchase.  This last year, the Sacramento Business Journal published an article about the neighborhoods that were cheaper to rent rather than to buy.  It was very disturbing in that it greatly oversimplified the decision and boiled all value down to only current monthly cost – a highly misleading analysis.  Shocker, it is generally cheaper to rent than to buy and I am not sure we needed an article for that.

However, in a more complex financial consideration, purchasing a home can literally “save” money from the first day.  A rent payment is 100% expense while a home payment is both principal and interest.  That principal payment represents incrementally more ownership and for some the interest is also a tax write-off.  While it is highly inadvisable to keep refinancing your loan to take money out, this can be the only “nest egg” many people have today, especially when the future of Social Security is bleak.  That equity can be the difference in staying solvent when a job is lost, the ability to put children through college, to help with a wedding, or even to finance a new business at anything less than painfully-high interest rates.  For most, a home is a financial investment that can grow tax free with certain caps and limitations (see your accountant for details).  Ultimately, ownership should be part of most retirement plans because when it is owned free and clear of a bank it eliminates the single largest living cost most of us have.  That translates to quality of life at retirement or even the ability to retire at all.  With home values in California, the trading power into another state doesn’t even require your California home to be paid off.  A partially paid home or a condo here can translate to a nice Florida retirement.

The above benefits may be obvious to many and you might be asking yourself what is new or insightful here?  Let’s take this a step further and revisit that rent vs. buy cost argument.  Today, it might be cheaper to rent – but what about 5 years from now?  California is estimated to need roughly 180,000 new housing units each year to meet statewide growth.  Due to state and local factors, California is only building about half that amount.  Upon taking office, Governor Newsom declared housing not just a top priority, but a statewide crisis with his intent to build 3.5 million new units by 2025.  In his first year in office nothing significant has changed in the housing build arena, practically or legislatively, to address this shortfall.  That is not because he isn’t serious – it is a direct function of how complex this issue is in California.  Vegas odds on meeting that goal or anything close to it are probably not on his side but we are certainly glad he is making the issue such a high priority.  Consider that anticipated expanding shortfall in supply against the fact that when you purchase a home, you lock in your housing cost.  That is no small thing in a state where rents are rising rapidly and both economic and legislative factors show no material relief on the horizon.  For many, as little as 5 years down the road their rent costs will exceed what it would have been to purchase a condo or a home and they will still be paying 100% expense – no investment, no nest egg, no write off, etc.  So, really the question of being cheaper to rent is not the right question.  The right question is “For how long will it be cheaper for you to rent” because over the long term it probably isn’t – not even close.

Finally, there are other “quality of life” benefits.  Yes, you can paint the walls whatever color you want and not have to worry about putting them back at the end of a rental period.  You don’t have to ask permission to have pets.  The ability to change fixtures and create an environment that is truly YOU can not be underestimated in daily satisfaction.  In fact, through studies the National Association of Realtors has linked the stability provided by home ownership to better school performance in children, better mental well-being, and greater community engagement.

With all of this said, we are not advocating running out and buying a home tomorrow.  There are other factors that affect when it is the right time.  However, that does not mean you can’t reach out to our team just to see when that time might be.  Too many folks mistakenly assume that an agent is only interested when there is a pending transaction in it for them.  At Guidant, we want to be your trusted advisor and we appreciate a strategic and methodical approach.  We are happy to help you or a loved one scan now and create a solid long-term plan, otherwise you might miss your best opportunity for a better life.    

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