Costs and benefits of homeowning

Date posted: February 6, 2012

Home sales have improved. But they’re still 25 percent under pre-recessionary levels. The percentage of households renting is up. N.C. State University economist Mike Walden says people are evaluating the buy-a-home versus rent decision differently today.

“When you buy a home, you’re not only obviously buying a place in which to live, you’re buying an asset. I mean, the home is an asset. It is an investment. And when home values are going up, essentially that makes buying a home more lucrative. And then essentially it means the cost of owning that home is less, because you’re gaining back some of that money you’re paying to buy the home — you’re getting that back as the home value appreciates.

“And so, for example, if we look back to the days when homes were appreciating at very rapid rates, one reason why everyone was buying homes … is because they saw it as a good investment. Now in the last four years, as most people know, on average homes have depreciated. That is, they’ve not been good investments. And I think that is affecting how people look at … the buy-a-home versus rent decision.

“And renting now looks much better. Many people are saying, Well, why should I buy a home now if I’m going to lose money on it if the value is going to go down? Now I think this attitude will definitely change if we see the price trend in homes begin to shift — if we go from depreciation to appreciation, and especially if we get some steam built up in appreciation, then I think people will look more positively on home buying and we’ll probably see some of those numbers shift people out of renting into home buying.”

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