Home Buying Not The Best Investment

Buying a home is often called the American dream. But for those who buy with a 3 percent down payment (or no down payment at all), it can be a poor proposition.

A Harvard University study of home sales in Philadelphia, Boston, Denver, and Chicago found that sellers of low-priced homes lost money up to 40 percent of the time once transaction costs were included.

Economists at Wellesley College say whether home ownership is a good or bad investment often depends on the time of purchase. The odds of taking a loss are higher if the seller bought after home prices had already risen and if the buyer stayed in the home for only a few years.

Regular investing in stocks and bonds could be a better alternative. Returns on housing tend to be lower than returns on stocks. The risk of losing money is high when most of a family's wealth is tied up in a single asset. Factors to consider:

* When satisfactory rentals are not available, buying a family home could be the best option in any case.

* Owning a home can cost more than renting when house payments, taxes, insurance, and maintenance are considered.

* For those who don't plan to stay in a home for seven years or more, the risk of losing money on a home sale is higher.

* Buyers may not benefit from the tax deduction for interest because their standard deduction is a better deal.

* Easy home-equity loans could mean little forced saving or equity building.

* Those who make a small down payment may pay higher mortgage interest rates and the cost of mortgage insurance.

Over time, buying a home can be a good wealth-building strategy. When housing prices rise, the owner benefits. But housing prices don't rise very much in some areas, and many people don't stay in a home long enough to build equity.

 
Home Buying Not The Best Investment

 
Long Island Families - Long Island, NY
 

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