For many, owning a house isn’t the right lifestyle or financial choice.
Financial Reasons Not to Buy a Home
Median wealth in the Untied States plummeted dramatically over the years 2007 to 2010, and by 2010 was at its lowest level since 1969. This was as direct result of the policy of encouraging the middle class to take a highly levered position in housing.
Even if you consider down-payment you’ve made for your home as an investment, housing returned 0.4% per year from 1890 to 2004. Not to mention of the 2-3% closing costs, which typically consist of lawyers, title insurance, and moving costs. And then there’s 4-6% in fees to the real estate agent when you sell. In addition to the low appreciation of house prices in most markets around the United States, your investment in your home suffers from some structural constraints:
- The investment is illiquid: you cannot cash out whenever you want.
- The investment involves high leverage for most people because they have to borrow a lot of money.
- The investment offers no diversification in financial holdings. For most people, a house is by far the principal holding in their portfolio. This significantly exceeds the 10% of net worth limit suggested for diversification of portfolios. If you examined middle half percent of the wealth distribution, the gross value of homes accounted for 65 percent of individual’s wealth. American households would be at an advantage if their savings were in diversified asset portfolios.
Maintenance and Lifestyle Choices
Regardless of how you keep up your home, you’re going to have to fix lots of things. In a substantial lifespan of your house, everything is going to break. From mowing the lawn to fixing plumbing to getting rid of mildew, either get down on your hands and knees and fix everything that’s broken or needs preventive maintenance, and/or open up your checkbook to repairmen and the supplies. Not to mention of the diminished rest and relaxation time.