There are so many confusing headlines out there for homebuyers:
“Home sales down 20%!”
“Prices are at an all-time high with no end in sight!”
“Mortgage rates have increased, and buyers are backing out of their search!”
2021 was the largest year for home sales in 16 years, with 100,124 home sales in Massachusetts. With such a large number of home sales, and with the way the market has been performing the past few years since COVID hit, there was bound to be a shift and an opportunity for the market to cool off towards historically normal levels. While this is what many buyers had hoped for, the headlines distorted their view, pushing them to think that maybe renting was the way to go. Renting though is not working out well for people either – rents are up dramatically from when interest rates increased, and property owners need to accommodate for the increased costs of their own mortgages and inflation.
Despite all of the scary headlines, there are many benefits to homeownership to keep in mind as you think about your next move.
1. You Control your Domain
Let’s face it, most of us have been tenants at some point in life. Do you like it as much as when you own a place? Being able to make the space your own with paint, flooring, changing the layout, or having pets. And it doesn’t stop at the interior, you can do what you want with the exterior too, add a patio, put in a pool, or paint your home. When you own, the space is completely yours to do what you’d like with it. There are significant benefits to controlling your own domain.
2. Having a Fixed Monthly Payment
When you rent, your landlord can change your rent payment once your lease is up which is typically after 12 months. When mortgage rates went up, it drove many people to rent, but monthly rents also went up, leaving people stuck on what to do – pay the high rent, or put that money towards a mortgage? Think about it this way, if you do a 30-year fixed rate mortgage, you know what your payment is going to be each month and as the years go on, you will make more money, but your payment will be the same, saving you more money in the long run. You don’t have that guarantee as a renter and you’re also not doing anything for your financial portfolio by paying someone else’s mortgage.
3. Asset Growth
The wonderful thing about real estate in comparison to stocks is if you want to buy $100,000 worth of stock, you have to put $100,000 on the line. With real estate, you can buy a $100,000 asset with maybe 5%, 10%, or 20% down, and you own the entire asset. Historically, and in a more normal market compared to the past few years, properties appreciate anywhere from about 5%-7% annually. Your asset value is going up every single year as you’re paying your mortgage down. As you move through the home search process, you will see some competition, and it’s important to be competitive, your REALTOR can help you with this process to make sure you are competitive against other offers.
4. Mortgage Interest Deduction
Mortgage interest is tax deductible, rent is not. And when you first have a mortgage, you pay a high amount of interest and a low amount of principal. You will notice in the early years of owning a home the total amount that you owe on the loan only goes down a little bit at a time because you’re paying a lot of interest, but that interest you can write off and you can deduct as an expense on your taxes. This is another way to make your money work for you; your asset is growing in value over time, you’re creating more equity with each monthly mortgage payment which is fixed (depending on your mortgage type) and not going to be raised unexpectedly on you, and where you live is yours to make your own.
When thinking about your next steps, it’s important to keep these 4 benefits in mind, and while there are plenty more, these are the most prevalent! As we head into Fall and school begins, this will be an excellent time to buy. Mortgage rates are holding steady, and more and more homes are being listed each day, giving buyers more opportunities. As you move through the process though, it’s important to remember what not to do when buying a home! Hold off on big purchases or co-signing on loans, to name a few. When you see the headlines about the market and begin to get nervous about buying reference these to remind yourself how wonderful it is to own a home.