REwatch: Homeownership Makes Sense

2013-09-08T09:15:00Z REwatch: Homeownership Makes SenseMichelle Krueger Times Columnist
September 08, 2013 9:15 am  • 

Most homeowners (95 percent) and renters (72 percent) believe that over a period of several years, it makes more sense to own a home than to rent, according to the National Association of REALTORS® (NAR).

In addition, NAR’s 2013 National Housing Pulse Survey shows Americans overwhelmingly believe owning a home is a good financial decision, while a majority of renters now say homeownership is one of their highest priorities for the future:

• 8 in 10 Americans think buying a home is a good financial decision.

• 68 percent believe now is a good time to buy a home.

• 36 percent of renters are now thinking about purchasing a home, up from 25 percent last year.

• 51 percent say that eventually owning a home is one of their highest personal priorities, up from 42 percent.

• The proportion of renters who say they prefer to rent dropped from 31 percent to 25 percent.

When it comes to the benefits of homeownership, 88 percent of current homeowners report that owning a home has been a positive experience, with the majority citing the fact that it is a good financial investment (77 percent) and also an important part of achieving the American dream (70 percent).

This summer, the US median existing-home sales price was up 13.5 percent to $214,000 from $189,000 after 16 months of consecutive year-over-year price increases.

“Anything that’s priced right is gone immediately. The average market time is about 2 months for a sold property in our office, and we’ve had multiple offers on many properties this year,” Brian Rossi, Broker and President of Rossi & Taylor in St. John, said. “I had five new listings in the last ten days that all sold right away. Three had multiple offers, and one was priced at $650,000.”

That’s especially good news since housing is a key driver of the US economy, accounting for more than 15 percent of the national gross domestic product (GDP). NAR estimates that for each home purchase, approximately $60,000 in direct and indirect spending occurs, contributing to our national, state and local economies.

“Our buyers are primarily move up buyers,” Rossi explained. “So most of them are going conventional now – putting 5 percent down instead of the 3½ for FHA – that extra 1½ percent down now means they won’t be paying PMI for the life of their loan. That’s the upside to being a homeowner in this market. Equity and established credit generally give you more attractive financing options.”

Consider the dynamics of a healthy housing market by visualizing a ladder. First-time buyers are the first step with homeowners on the various rungs above. When first-time buyers enter the market and invest in a community, they enable owners of lower-priced homes to move up to the next step so those owners can move up and so on. Sustained activity along the way also encourages new construction.

“We’ve been showing homes throughout northwest Indiana, and it’s evident that new construction is growing by leaps and bounds,” Rossi added. “From one new area to the next, in both Lake and Porter counties, you see multiple homes going up. New construction is selling very well - often with multiple offers as well - when it’s available and ready to move.”

While the financial aspects of owning a home often dominate the conversation when purchasing one, there are many other considerations that reach far beyond the upside of not paying rent to a landlord for first-time buyers.

Homeownership has been shown to offer a better lifestyle for families. Along with the freedom to choose where you want to live, it provides a stable and safe environment, allows you to make modifications and renovations as you see fit and also gives you the opportunity to own a home prior to retirement.

While no one is truly able to predict where prices or interest rates are headed, and no one can dispute the fact that buying a home is one of the most important financial decisions you will ever make; most people know when the time is right to buy and pride of ownership often plays a huge role.

Just keep in mind that sacrificing a huge part of your income to pay the mortgage can make homeownership a burden rather than a point of pride. As a general rule, your overall debt should not be more than 36 percent of your gross income, and your housing debt (monthly mortgage payment including principal, interest, real estate taxes and homeowners insurance) should not be more than 28 percent.

For example, the total debt payments each month for a gross income of $40,000 a year is $1,200 - $40,000 times .36 equals $14,400 and $14,400 divided by 12 months equals $1,200 – and the maximum amount for monthly mortgage-related payments is $933 - $40,000 times .28 equals $11,200 and $11,200 divided by 12 months equals $933.

Keep in mind that 28 percent of your income can buy very different things depending on where you want to live.

“While things have cooled down a bit since the big rush to move before school started, I think there’s going to be a mad rush in October/November with people wanting to get in their new homes before the holidays,” Rossi said.

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