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Is Buying A Home Worth It? To Find Out,

We Asked Nearly Two Dozen Experts

Natalie Campisi
Forbes Advisor Staff

Updated: Nov 20, 2020, 9:19am

Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this
page, but that doesn't affect our editors' opinions or evaluations.
The housing market is white hot—and neither a pandemic nor rising home prices can put out the
flames. Mortgage applications to purchase a home have steadily increased year-over-year since
May as real estate continues to get more expensive across the country.

Balancing these growing price tags are steadily falling mortgage rates, which this week broke
another record low, according to Freddie Mac. The average 30-year fixed rate mortgage now sits
at 2.72%. This time last year it was 3.66%.

Here’s the big question, though: Are Americans foolish for chasing the dream of homeownership
—in a shaky economy and pricey market—or is buying a house a good long-term investment?

Related: Compare Personalized Mortgage Rates From 6 Lenders

Forbes Advisor put this question to nearly two dozen financial and real estate experts. The
majority (57%) said that buying a house is a good investment, while 38% said it depends on
certain factors and just 5% said that buying a home is not a good investment.

A Flourish chart
Yes No It depends
“Our biggest advice to first-time
“Noble laureate economist
owners is not to look at this as a
“Owning a home is how most and Yale Professor Robert
‘wealth-building’ move. This is
Americans build wealth. A Shiller makes a compelling
where you are going to live. It’s
portion of every housing case that real estate,
the place where you and your
payment made by a particularly residential homes,
family will build memories, and
homeowner is applied toward is a much inferior investment
it’s not something you can easily
paying down the home loan when compared to stocks.
cash in, as the roof over your head
balance (principal payment), Shiller finds that on an
is shelter for your family. That
which increases the equity in inflation-adjusted basis, the
being said, homeownership can
the home and helps to build a average home price has
lead to wealth-building. The
homeowner’s net worth.” increased only 0.6% annually
critical element to consider is
over the past 100 years.”
location. Where is this home?”
—Robert R. Johnson,,
—Carlos Miramontez, vice —Sonya Mughal, COO of Bailard,
professor of finance, Heider
president mortgage lending at an independent boutique wealth
College of Business,
Orange County’s Credit and asset management firm in San
Creighton University in
Union in California Francisco
Omaha, Nebraska

Net Worth is 40 Times Greater for Homeowners Than

Renters
If you’re a homeowner, chances are you’re worth much more than someone who rents, according
to the Federal Reserve’s 2020 Survey of Consumer Finances.
Homeowners have a net worth that is more than 40 times greater than their renter counterparts,
which reinforces the idea that owning a home is a smart financial move. Homeowners had a
median net worth of $255,000 in 2019; renters had a median net worth of just $6,300.

But the advantage of homeownership is not just the property you own (or are mortgaging, for
many people) but the financial mindset that helped you arrive there.

In other words, you have to be financially responsible to own a home: you have to save for a
down payment, qualify for a mortgage and budget for homeownership costs like taxes and
insurance.

This wealth-building mindset likely impacts other financial decisions, such as saving, spending
and investing, says Sean Wilson, senior director of product and portfolio solutions and
distribution at the financial services firm TIAA.

“Once the home is purchased you build equity through forced savings and now you are an
investor. Behaviorally, those are some wealth-building patterns,” Wilson says. “Real estate helps
establish a structured and disciplined investment plan.”

Here we’ll look at when buying is a good idea and when it’s probably better to wait.

Your Finances Are In Good Shape

Experts unanimously recommend that would-be buyers should be financially fit before buying a
home. That means having enough money saved for emergencies as well as for some retirement
savings, a low debt-to-income ratio and a dependable income.

“If a homebuyer is financially stable, able to manage monthly mortgage costs and can handle the
associated household maintenance expenses, then it makes sense to purchase a home,” says
Jessica Lautz, vice president of demographics and behavioral insights at the National Association
of Realtors.

Closing Costs Are Important

Homebuyers should also factor in closing costs, which can range from 2% to more than 6% of
the purchase price depending on the type of loan, the type of property, the location and other
factors.

For example, a $350,000 home with closing costs of 5% will set the buyer back $17,500. This
means that homeowners need to stay in the home long enough to recoup those costs. The general
wisdom is about five years, but it depends on the market. Prices in some markets rise rapidly,
while others can take a tumble due to unforeseen circumstances.

“There are exceptions to the five-year rule,” says Jackie Boies, senior director of housing
services at Money Management International, a credit counseling service. “If you’ve managed to
get into your home with very low upfront costs, an extremely low interest rate or live in a market
with skyrocketing rental costs, the five-year rule may not apply to you.”

If You’re A Spender, a House Can Force You to Save

Some people consider buying a home a forced savings account. If you’re someone who tends to
burn through money, a house can be a way to direct those funds toward something that typically
appreciates over time.

“Generally, a person will make the most money by investing their money into these three things:
private businesses and ventures, private real estate, or mutual funds and publicly traded stocks,”
says Holmes Osborne, principal at Osborne Global Investors. “If you invest in a home, you can
make money in a hot real estate market. But once you figure in taxes, insurance and the upkeep
on a home, it’s the least desirable. Of course, it’s better than spending your money on
depreciating assets like automobiles and recreational equipment.”

Retirees who have paid off their mortgage have a huge advantage over lifelong renters. Although
they still have costs of homeownership (property taxes and maintenance), they also have major
benefits such as equity and the ability to leverage this asset in several ways, such as renting out
space, getting a home equity loan and downsizing into a less expensive house and pocketing the
profit.

“Financing a home purchase with a mortgage offers an opportunity to continuously save for the
future by paying down the mortgage each month,” says Brad Lookabaugh, vice president of
portfolio management at Unison Home Ownership Investors in San Francisco. “Owning your
home also offers the potential for earning a return on the money you put into it.”

When Buying Real Estate Can Be A Bad Move

Although owning a home can have many benefits, if you’re not financially ready it can have
devastating effects. For example, if you stretch your budget or drain your savings to buy a home
and then lose it because of job loss or other circumstances, this can impact your credit—and
budget—for many years to come.

Experts advise that borrowers buy a home well within their budget. Dual-income couples might
consider getting a mortgage that would still be affordable under one income. This gives you
room in your budget if someone loses their job.

“It doesn’t make financial sense to purchase a home if you are currently renting and you’re
having a problem paying your bills or you have very little extra in disposable income,” says
Joseph J. Zoppi, managing partner at Templar Real Estate Enterprises in New Jersey. “Owning a
home takes considerable money; you have to factor in your mortgage, property taxes, insurance,
utilities and maintenance of the house.”
Finally, if you tend to move around often, owning a home can equate to spending a lot of money
(on broker’s fees and closing costs) that you don’t have to.

Related: Compare Personalized Mortgage Rates From 6 Lenders

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Forbes Advisor adheres to strict editorial integrity standards. To the best of our knowledge, all
content is accurate as of the date posted, though offers contained herein may no longer be
available. The opinions expressed are the author’s alone and have not been provided, approved,
or otherwise endorsed by our partners.
Natalie Campisi
Forbes Advisor Staff

Natalie Campisi is a Los Angeles-based reporter who covers mortgages and housing news for
Forbes Advisor. Previously, she was the senior mortgage reporter and analyst for Bankrate. She’s
also covered unemployment on Capitol Hill and news stories for the Tampa Tribune. Her work
has appeared in publications such as CNBC, The Chicago Tribune, and MSN.

First Published: Nov 20, 2020, 9:19am

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