Home > Housing > Seven Reasons We’re Buying a Home and Four Reasons We’re Not

Seven Reasons We’re Buying a Home and Four Reasons We’re Not

March 28, 2011


Although the housing bubble and bust may have shattered notions that home prices have nowhere to go but up, Americans haven’t lost their love for owning a home.  In the latest Allstate/National JournalHeartland Monitor poll, homeownership ranked second, just behind raising a family, in people’s definition of the American Dream. Despite new home sales’ drop to a record low, about four-fifths of respondents said that owning a home is still a better financial decision than renting, and nearly nine in 10 homeowners say would buy their home again.

Those results also underscore the extent to which Americans see buying a home as a deeply personal decision. It seems the decision to buy a home is made from the heart, while the decision to rent comes from the wallet.

That is a great way to look at the situation. Most people want to buy and own. Those who look rationally at the costs often chose to rent, not because it’s the most emotionally pleasing choice, but because it’s the most financially sound decision. Those who chose to rent recognize that being house poor is its own form of unhappiness that so takes away from the joy of ownership as to make it undesirable.

We reveal the top seven reasons why Americans are still drawn to owning a home, and the four reasons that make them hesitant to buy, according to the Heartland Monitor poll.

Reason to Buy No. 7: Getting a tax deduction

Only 2 percent said they considered the tax deduction for homeowner’s a reason to buy a home. That number may come as a shock to members of the Obama administration, who designed the first-time homebuyer tax credit, now expired, as an incentive to bring more buyers to market.

That is a surprisingly low number. Nationally, only about a third of home owning taxpayers take the home mortgage interest deduction, but the proportion in Irvine will be much higher. For high wage earners borrowing upwards of a million dollars, the tax deduction is very motivating.

Reason to Buy No. 6: Following in your parents’ footsteps

Following the path of mom and dad tied with a tax deduction among participants. Only 2 percent said they considered it important to own a home because they had grown up in a house.

I suspect this number is so low because people are unaware of their true motivations. So much of our behavior is subconscious, and the familiarity of house and home provides a psychological anchoring to real estate that runs very deep.

Reason to Buy No. 5: Being part of a neighborhood and community

Putting down roots in a community was a reason to buy a home among 6 percent of participants.

This is another area where Irvine is a special subset of buyers. Many people chose master planned communities like Irvine because they want neighborhood involvement. The number may only represent 6% of America, but it is much higher among readers of this blog.

Reason to Buy No. 4: Acquiring an asset you can pass along

The security that used to come with owning a tangible property may have faded, but 9 percent of participants said they still consider it a reason to buy a home.

Our society has become so mobile that people have come to recognize the impermanence of all living arrangements. We no longer buy family homes and stay there through our passing.

Personally, I plan to acquire several investment homes to pass on to my son. I guess I am one of the 9 percent.

Reason to Buy No. 3: Making a good, long-term investment

Although foreclosure rates may tell us otherwise, 13 percent still believed that owning a home is a good, long-term investment.

The question is a bit vague and misleading. All the terms are up for interpretation: What is good? What is long-term? And what is investment? I believe a good long-term investment is an income property with an 8% cap rate in today’s market. Some believe a good long-term investment is a speculative flip in the North Korea towers. Over the very long term, real estate values rise in nominal dollars along with inflation. Is that good?

Reason to Buy No. 2: Building equity rather than paying rent

Building equity was the strongest of all financial reasons to own a home. Twenty-six percent of participants said they would own a home to build credit through a mortgage payment rather than earning less credit through paying rent.

The reason people want to own the home is to obtain appreciation. This nonsense about paying down a mortgage is not what people really think. No California Ponzi believes they have to reduce the balance of their mortgage. Mortgages are made to get larger.

realtors like to spin this as “throwing money away on rent.” Of course, they ignore the fact that they are throwing away much more money renting the bank’s money, but the tax deduction makes it all okay, right?

Reason to Buy No. 1: Having a place to raise a family

An overwhelming 40 percent said that raising a family in a place of their own was the ultimate factor in their decision to buy. The housing market may rise and fall, but the value of the home to the American family seems set in stone.

People have come to equate ownership with stability. Unfortunately, our concept of ownership has been perverted into money rentership. Ownership with a huge mortgage is tenuous compared to renting. Capricious landlords evicting good tenants are much less common than robo-signing lenders evicting delinquent borrowers.

The timeless and the new

The reasons listed above are timeless. No matter when an article like this is written, the above reasons will be on it, and they will be just as compelling to buyers. The new are the reasons not to buy. These are a direct response to the collapsing housing bubble.

Reason Not to Buy No. 4: Entering into many years of debt

The bursting of the bubble and the horror stories that followed made 13 percent of respondents hesitant to agree to pay the high price of a home.

Five years ago, nobody cared about debt levels.

Reason Not to Buy No. 3: Losing the flexibility to move if you need to find a new job

In our mobile society and fickle job market, 21 percent said they would be hesitant to lock into a place that they may not be able to sell should they have to move to take a job.

Five years ago, everyone assumed you would simply sell your house for a huge profit if you needed to move.

Reason Not to Buy No. 2: Risking you home losing value if real-estate prices drop

“Price Reduced” signs cropping up in the yards of neighbors desperate to sell led 21 percent to back away from buying a home that could sell for less than the price they paid for it.

Five years ago, with exception of a few of us crazy bloggers, very few people believed prices could go down.

Reason Not to Buy No. 1: Monthly mortgage payments are too high

As opposed to the familial emotions that made 40 percent lean toward homeownership, the harsh realities of high monthly mortgage payments was the ultimate reason that 40 percent of participants said they would not buy a home.

The last reason is why house prices still need to come down. Despite the low interest rates, the cost of ownership is still too high in many markets.

What’s it like to be immobile?

Today’s featured property is an example of reasons number 3 above. People who buy now, or who bought since 2009, are facing the problem of a flat or declining market. When prices don’t go up, people have to pay the sales commissions out of their down payment. That was their money rather than the market’s. When free money from the appreciation fairies doesn’t materialize, owners generally price their properties to accomplish three things:

  1. Provide negotiating room to lower price,
  2. Pay the realtor, and
  3. Get their down payment money back.

Hence, we see properties priced just over breakeven like today’s.

I want every buyer looking today and over the next two or three years to be forewarned that they could find themselves in this situation. And reinforcing risk #2 — dropping prices — it could even be worse.

Imagine this is your house. What would you do?

Irvine Home Address … 8 WHITECLOUD Irvine, CA 92614

Resale Home Price … $700,000

Home Purchase Price … $660,000
Home Purchase Date …. 3/20/09

Net Gain (Loss) ………. $(2,000)
Percent Change ………. -0.3%
Annual Appreciation … 2.8%

Cost of Ownership
$700,000 ………. Asking Price
$140,000 ………. 20% Down Conventional
4.82% …………… Mortgage Interest Rate
$560,000 ………. 30-Year Mortgage
$141,986 ………. Income Requirement

$2,945 ………. Monthly Mortgage Payment

$607 ………. Property Tax
$0 ………. Special Taxes and Levies (Mello Roos)
$117 ………. Homeowners Insurance
$82 ………. Homeowners Association Fees
$3,750 ………. Monthly Cash Outlays

-$714 ………. Tax Savings (% of Interest and Property Tax)
-$696 ………. Equity Hidden in Payment
$258 ………. Lost Income to Down Payment (net of taxes)
$117 ………. Maintenance and Replacement Reserves
$2,716 ………. Monthly Cost of Ownership

Cash Acquisition Demands
$7,000 ………. Furnishing and Move In @1%
$7,000 ………. Closing Costs @1%
$5,600 ………… Interest Points @1% of Loan
$140,000 ………. Down Payment
$159,600 ………. Total Cash Costs
$41,600 ………… Emergency Cash Reserves
$201,200 ………. Total Savings Needed

Property Details for 8 WHITECLOUD Irvine, CA 92614
Beds: 4
Baths: 2
Sq. Ft.: 1860
Lot Size: 1 Sq. Ft.
Property Type: Residential, Single Family
Style: Two Level, Cape Cod
Year Built: 1980
Community: Woodbridge
County: Orange
MLS#: S652539
Source: SoCalMLS
Status: Active
On Redfin: 1 day
Location, Location! One block from the Lake. .. 4 bedrooms, 2.5 bath single family detached home in premium ‘inside the loop’ location. Walk to award winning elementary and middle school or perhaps stroll to the lake and enjoy the view or activities at the South Lake Beach Club/Lagoon. Rarely on the market, this spacious Wildflower model has an open floor plan, cathedral ceilings, newer Low E dual paned vinyl windows throughout, newer roof. Separate living room with charming inglenook seating area with own fireplace, large slider window and door invites the entertainer’s backyard into the room. Kitchen has updated stainless steel appliances, countertop, tile flooring and recessed lighting – separate family room flows from the kitchen with built in shelving. Bathrooms have updated glass shower doors and lighting fixtures. Closet organizers in all bedroom closets. Great location, great house, come see and make it your home.

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