With spring in full swing, many people are trying to decide whether they should buy or rent a home. In order to make this decision, potential home buyers should consider the increasing cost of rent, the value of home equity, and the intangible benefits associated with homeownership.
Increasing Cost of Rent
Home buyers typically enjoy fixed housing expenses. Renters are consistently asked to cough up more money each year. According to the Census Bureau, median rent prices in 1988 were $350. In 2000, median rent prices approached $500 per month. Currently, the median asking rent in the United States is $717 per month. The KCM Crew discusses the rising cost of rent in their blog post yesterday.
Building Home Equity
When you pay a mortgage, a portion of that payment goes directly toward building equity in your home. When you pay rent, you will never see that money again. It’s important to note that home equity takes time to build and during the early years of a mortgage, payments go primarily to the interest on the loan. However, the sooner you purchase a home, the sooner you will begin to reap the benefits of a reduced principal balance and higher equity.
Social Benefits of Homeownership
According to the National Association of Realtors®, research has shown that homeownership brings substantial benefits for families, communities and the country as a whole. Some of the documented social benefits to consider in your decision to buy or rent include:
- Increased charitable activity
- Civic participation in both local community and national issues (including voting)
- Greater awareness of the political process
- Higher incidence of membership in voluntary organizations and church attendance
- Greater social capital generated
- Greater attachment to the neighborhood and neighbors
- Lower teen pregnancy by children’s living in owned homes
- Higher student test scores by children’s living in owned homes
- Higher rate of high school graduation thereby higher earnings
- Children more likely to participate in organized activities and have less television screen time
- Homeowners take on a greater responsibility such as home maintenance and acquiring the financial skills to handle mortgage payments and those skills transfer to their children
- Homeowners reported higher life satisfaction, higher self-esteem, happiness, and higher perceived control over their lives
- Better health outcomes, better physical and psychological health
- Tremendous wealth gains for homeowners under normal housing market conditions (outside of the terrible bubble/bust housing years)
- Homeowners not only experience a significant increase in housing satisfaction, but also obtain a higher satisfaction even in the same home in which they resided as renters
- Family financial situation and housing tenure during childhood and adulthood, impacted one’s self-rated health (in particular, the socioeconomic disadvantaged indicated by not being able to save any money or not owning or purchasing a home are less likely to self-rate their health as excellent or very good).
- Less likely to become crime victims
- Homeowners better maintain their homes, and high quality structures also raise mental health -renter-occupied housing appreciates less than owner-occupied housing
- Housing prices are higher in high-ownership neighborhoods
- Maintenance behavior of individual homeowners is influenced by those of their neighbors