Most Americans aspire to home ownership, surveying our property with pride along with our spouse, our average of 2.2 kids and the family dog… or do we? Many do, except for the 0.2 children part.
However, home ownership may not be for everyone. Here are five valid reasons why you should not buy.
- You Can't Afford What You Want – Unfortunately, the subprime mortgage crisis showed us that people stretch budgets to buy homes they can't afford all the time, assuming the home will appreciate in value. That does not always happen, and as an investment, a home generally provides a poor return. It may keep up with inflation if you are lucky. In Irrational Exuberance, Robert Shiller noted that between 1890 and 2004, home values appreciated just 0.4% when adjusted for inflation.
Many people caught in the mortgage crisis could afford a home – just not the one they bought. You can equally fall in love with a rental property that you cannot afford, but at least you won't be foreclosed on or stuck with a home you cannot sell. Better yet, choose a home you can afford, and fall in love with it!
- Maintenance Issues – Owning a house requires a lot of upkeep and expenses. You may not have the time, energy or resources to be able to keep up your house – and without maintenance, your home value will depreciate.
If you are relatively handy around the house and enjoy the chores associated with home ownership, that's not a problem. If you do not know which end of a hammer to use and panic at the sight of a water leak — and cannot afford to pay for professional maintenance and repairs — home ownership is probably not for you. Buying a condominium might make better sense, as all exterior maintenance, repairs, and landscaping are performed by the association, which is funded by an assessment of monthly or quarterly homeowners’ fees.
- Limited Mobility – If you have a job that requires you to relocate often, buying a home makes little sense. The expenses and the time involved are likely to be more time-consuming and stressful than the benefits of home ownership. Plus, you are at the mercy of the market in both the area you are leaving and the area you are moving to – leaving you with a considerable risk of being stuck with two houses (and two mortgage payments).
This does not have to be related to a job. If you are more of a "citizen of the world," like to travel frequently and can do your job from anywhere, there is no need to tie yourself down with the obligations of a home.
- Poor Liquidity – While you are building up equity in your home, it's not exactly accessible. You can pay to access it through a home equity loan or other lending device, but in the end, it is far less liquid than a stock, with a much poorer return. From an investment and retirement perspective, it is certainly easier to save your money and accumulate wealth through investments.
- Excessive Debt – For most people, a house represents the most debt they will ever have, and it leaves little room for other forms of potentially necessary debt like student loans and car payments. Of course, you can manage this by realistically budgeting and buying the correct size of home (see #1 above).
The bottom line is that you should buy a home because you want to buy one and enjoy the ups and downs of home ownership – and because the mortgage interest write-off is helpful in your case – not because everyone else is buying, or you think that you may be missing out on something.
In that way, it is a bit like marriage. And like marriage, if home ownership doesn't work out, it is probably going to cost you dearly to get out of the deal.