The Value of Long Term Ownership

Owning a home has been and perhaps shall always be the fundamental core of the American Dream. However, the recent spell of foreclosures, robo-signing scandals, bank failures, high unemployment rate, diminishing home values, tight credit and a weak economy have all battered the housing industry so badly, that a lot of people have begun to doubt the value of long-term home ownership and even question if the benefits are over hyped. Let’s analyze the benefits.

Any discussion on the benefits of home ownership without underscoring the words “long term” is incomplete. The rules that apply to the stock market apply to home ownership as well. Only the long-term stock investor reaps the riches of compound interest and capital growth. The same is generally true for home ownership as well. Even in today’s tough market, real estate is still considered the best hedge against inflation.

Despite declining prices, the typical home owner that purchased a home eight year back has experienced a median equity of $33,000, which is a 24 percent gain. Similarly, sellers that lived in their homes for 11-15 years got a median increase of 40 percent. Despite the declines in home values in recent years, the fact remains that most long-term home owners get healthy returns on their property value over time.

The need for a roof over our heads is perpetual. Population growth creates a natural, ongoing demand. Young couples raising families prefer to move to larger houses in better school districts, while empty-nesters choose to downscale to a newer and smaller home after the last child has enrolled in college. The prevailing low interest rates have also made housing very affordable. The desire to own a home of their own is cited as the number one reason to buy by 53 percent of first-time home buyers. The second biggest reason for buying  was the desire for a bigger home, followed by other reasons such as a change in family situation, benefits of home buyers tax credit, job-related relocations, and home affordability.

Despite a severe and relentless beating, the long term benefits of home ownership are here to stay. According to a recent NAR survey, 85 % of recent home buyers see their home as a good investment, and nearly half think that investment is better than stocks. NAR underscores two simple facts that support the benefits of long-term ownership. Home ownership fosters stability, and the longer you own a home, the better returns you get on your investment.