The need for shelter is basic, often closely followed by the desire for community. In the United States, this often translates into a desire to take on a very large mortgage to buy real estate. These basic human emotions drive much of the activity in real estate markets. Most people buy because it is the right time for them. Their career, age, family circumstances all come together to push people toward ownership at different times. Some are fortunate and buy at the bottom of the real estate cycle. Some are not so fortunate and buy at the peak. The most damaging aspect of our current system is the price volatility. It capriciously rewards some and destroys others. Home price volatility creates a culture of Ponzi borrowing and dependency. The goal of government policy should be price stability, but lately it seems their goal is price maximization. The end result of their policies is an endless series of market stimulus and manipulation which creates even more volatility. Reasons to buy a house Many people choose to rent to avoid the negatives associated with home ownership, and many more rent because they can't meet the down payment or credit requirements to qualify for home ownership. However, most people who hold down productive jobs have a choice. Anyone who chooses not to buy is making a choice to rent by default. There are many different reasons people chose to buy homes to live in, some of them are good reasons, and some of them are not. Have a place to raise a family The primary reasons to buy a home are emotional, not financial. At the top of the list is the desire to provide a safe and comfortable home to raise a family. It's a primal urge. Although it shouldn't make a difference, there is an emotional quality to home ownership that is not replicated by renting. Satisfying one's emotional needs is an instinctive drive, and this compels many people to buy houses. Unfortunately, some people turn this emotional satisfaction from home ownership into a reason to feel superior to their renting brethren, a group they perceive as being less involved with family, neighborhood and community. Be a part of a neighborhood and community As people grow and develop during their life cycle, they first learn to take care of themselves, then their families, then their neighborhood and community, and finally the whole world. Being part of a broader community one can work to build and improve is a basic human need. Most people see this as a natural extension of buying a house. They dream of watching the children play with the others in the neighborhood, enjoying block parties, and participating in organized events. All things being equal with the house, people will chose to locate in neighborhoods with others of their same demographic with whom they can make friends and socialize. Following parent’s advice Many people buy homes simply because their parents did. People grow up, get married, buy a house, have children, and become part of a community because that's what their parents did, and often this behavior is strongly encouraged by the parents who will even help with down payment money to get started. There's nothing wrong with this. Parents generally have good advice due to their broader life experience. Unfortunately, parents can sometimes be mistaken as many were that pushed their children into home ownership at the peak of the housing bubble. Build equity and hedge inflation Houses tend to go up in resale value over time as workers in a community earn higher wages. The inflation of wages translates into more buying power that allows potential buyers to bid up the price of residential real estate. There is a strong connection between local wages and local house prices. The rising value of real estate serves as a hedge against the ravages of inflation preserving the value of an owners investment. Also tied to the growth of wages in a community is the cost of rent. People who chose to rent rather than own face the likelihood of rising rents over time as they compete against other renters for available properties. There is no way for a renter to fix their cost of ownership. Sometimes they may find a landlord content to leave their rent alone for years at a time despite the rising rents around them, but once the renter wants to move, they bear the full brunt of increases in local market rents. As wise homebuyers use fixed-rate mortgages, the loan amortization serves as a forced savings account. Fixed-rate amortizing mortgages are the best tools for retirement savings available to most Americans. The gradual increase in value and the gradual retirement of mortgage debt combine to create equity for homeowners. It is the primary benefit of long-term home ownership. Acquire an asset to pass on Many people buy homes because they are a tangible physical asset to pass on to heirs. Since these assets appreciate over the long term, houses become a reservoir of value and a great vehicle for passing wealth from one generation to the next. Gain a tax deduction Many people buy a house to obtain a tax deduction on the mortgage interest. As a general rule this is not wise because the borrower is incurring a dollar in expense to obtain a quarter in benefit. However, since most people finance real estate, and since the alternative to ownership is renting, which has its own costs, many people take on a mortgage because they save money on taxes for an expense they would have incurred anyway. Unfortunately, the mistake many borrowers make is to over-borrow to the point that the after-tax cost of home ownership is higher than a rental. Perhaps they believe they are throwing away money on rent, but they are throwing away even more money on interest. It doesn't make much sense. However, if the net cost of home ownership after the tax break is positive, then the tax deduction has value. Whether the deduction has value or not, many perceive it does, and this motivates them to buy houses with very large mortgages. Reasons not to buy and rent instead Between 35% and 40% of Americans chose not to buy and rent their primary residence instead. This is generally a lifestyle choice although during the housing bubble it also became a wise financial move. The reasons vary, but they all generally relate to commitment and finance. It's said that the decision to own is emotional whereas the decision to rent is financial. Flexibility to move The primary reason people chose to rent is to have flexibility. Selling a house takes time and effort, and with real estate commissions and closing costs, considerable expense. Renters face none of these issues. For a renter, at the end of their lease, they simply pack up and move, and they have no further financial obligation to the property. Owners don't have it so easy. As a general rule, it costs an owner about 8% of the resale value to move (6% commission plus closing costs). If houses appreciate 3% to 5% per year, it takes two or three years of ownership before an owner can reasonably expect to get out at breakeven. Most people who recognize their current living situation is not likely to last more than two or three years generally chose to rent, and wisely so. Unless they want to become landlords or take a loss, people who must move within two or three years of buying a house give up their freedom of movement. No money spent on upkeep Homeowners must pay all the costs of upkeep on their properties. If a dishwasher or water heater goes out, if the roof springs a leak, or any of a number of other maladies strike, the h
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