Shamrock Financial Corporation

August 24, 2010

by Dean Harrington

Recent articles and news editorials (disguised as reporting, naturally) have begun to indict home ownership as a bad idea. While we await news that Santa Claus is evil and nice weather is harmful to your health lets examine the argument against buying a home.

Most pundits that rail against buying a home in today’s market do so by pointing out that the value, or relative price, isn’t, well, yesterdays market. In other words, they suggest that buying a home at today’s price will not give the market value benefits afforded buyers in earlier market cycles. OK, perhaps that’s true but it misses the MUCH larger point.

When confronted with a statement about the price or cost of something, we know the appropriate question is always: Compared to what?. Well, today’s home buying naysayers always compare buying now with buying before.  What they should be comparing is buying to RENTING; owning your own home vs. living in someone else’s – and paying them to do so. That’s the relative comparison.

If today’s automobiles became a lesser price value than yesteryear’s automobiles would people resort to walking everywhere? Buy a horse? No, they’d buy a lesser car or even a used one. The whole benefit of owning a car isn’t tossed out when the relative projected return on investment changes.

The argument against buying a home also fails on a number of more empirical levels that never seem to enter the discussion with today’s news media. Like:

1. Rental units are almost always smaller than a house or condo. This makes an apple- to-apples comparison more like grapes-to- apples. Some value must be attached to additional living space.
2. Uncle Sam has a rooting interest in you owning a home instead of renting one. He lets you write off the interest payments and real estate taxes when you own. When you rent, the owner passes interest costs and real estate taxes to YOU and pockets the benefit themselves!
3. 1st, last, security vs. Down payment and closing costs almost the same nowadays.
4. Need good credit to rent a nice apartment. Need good credit to buy a home.
5. An average rent is $1,000-$1,200 a month. You can OWN a home for $1,000 or less a month!
6. 30% of all homes in this country have no mortgage. 30% How can owning a home be bad when so many live mortgage-free?
7. If buying a home with a 4% mortgage is not a good idea, can anyone ever advocate buying with, say, a 6%, 7% mortgage?

Look, owning a home is not the right choice for everyone. But the notion that real estate is suddenly an unwise decision for the vast majority of Americans because it proved to be a bad decision for a vast minority of Americans is the kind of Headline News that needs a new headline writer.

Dean can be reached at dean.harrington@shamrockfinancial.com .