5 Financial Reasons Harvard Recommends Buying a Home

5 Financial Reasons Harvard Recommends Buying a HomeA paper on homeownership penned by Harvard's Managing Director of the Joint Center of Housing Studies, Eric Belsky, offers compellingly positive reasons for Americans to invest in real estate. In "The Dream Lives On: the Future of Homeownership in America," Belsky lays out 5 financial reasons Americans should consider buying a home.

Here are his 5 reasons:

1. Housing is almost always a leveraged investment.

As Americans are decreasingly interested in borrowing money to buy stocks and bonds (and lenders are less willing to lend them the money), homeownership can now take advantage of this situation:

"...homeownership allows households to amplify any appreciation on the value of their homes by a leverage factor. Even a hefty 20 percent down payment results in a leverage factor of five so that every percentage point rise in the value of the home is a 5 percent return on their equity. With many buyers putting 10 percent or less down, their leverage factor is 10 or more.”

2. You're paying for housing if you're renting OR buying.

In fact, in most places (including Chicago), it is much cheaper to buy a home than to rent one. Additionally, as Belsky explains, Americans are paying a debt service regardless of the living condition. As a homeowner, however, the debt service is being paid to their own principal. As a renter, the debt service is being paid to the principal of a landlord.

3. Owning a home forces savings.

Many Americans have trouble saving money. Making housing payments, Belsky suggest, is a way to force a savings plan to help make the payments.

"...owning a home can overcome people’s tendency to defer savings to another day.”

4. Owning a home comes with substantial tax benefits.

“Homeowners are able to deduct mortgage interest and property taxes from income...On top of all this, capital gains up to $250,000 are excluded from income for single filers and up to $500,000 for married couples if they sell their homes for a gain.”

5. Inflation can be avoided.

It isn't exactly new knowledge that housing costs and rents are continuing to climb with time. The longer you wait to become a homeowner, the more the prices (and mortgage interest rates, as they are projected) will climb. Becoming a homeowner sooner rather than later not only hedges this inflation, it capitalizes on it for future resale.

Real Group Real Estate

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