5 Financial Reasons to Buy a Home: Insights from Eric Belsky’s Study

5 Financial Reasons to Buy a Home: Insights from Eric Belsky’s Study

Buying a home is often considered a significant milestone, not just for its social and familial benefits, but also for its financial advantages. Eric Belsky, Managing Director of the Joint Center of Housing Studies at Harvard University, highlights the top five financial reasons to consider homeownership in his 2024 paper, The Dream Lives On: The Future of Homeownership in America. Here’s an in-depth look at these reasons, supported by excerpts from his study:

 

1. Housing as a Leveraged Investment

One of the unique aspects of homeownership is the ability to leverage your investment. According to Belsky, “Few households are interested in borrowing money to buy stocks and bonds and few lenders are willing to lend them the money. As a result, 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.”
Source: Harvard Joint Center for Housing Studies

This leverage factor means that even small increases in property values can result in significant returns on investment. For example, a 5% increase in a home’s value could translate to a 25% return on a 20% down payment. This potential for amplified returns is unique to real estate compared to other investment vehicles like stocks or bonds, where leveraging is either not an option or comes with higher risks and complexities.

2. You're Paying for Housing Whether You Own or Rent

Belsky points out the inevitable cost of housing, whether through ownership or renting: “Homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord.” This distinction emphasizes how homeownership contributes to personal equity building, while renting benefits the landlord.
Source: Harvard Joint Center for Housing Studies

This principle resonates strongly in the current housing market, where rental rates are rising. In places like Scottsdale, renting can sometimes cost as much, if not more, than a mortgage payment. By choosing to own, you not only secure a stable housing cost but also ensure that your monthly payments contribute to your personal wealth rather than someone else’s.

3. Owning as a Form of “Forced Savings”

For many, saving can be a challenge. Homeownership serves as a form of “forced savings,” helping individuals accumulate wealth over time. Belsky explains, “Since many people have trouble saving and have to make a housing payment one way or the other, owning a home can overcome people’s tendency to defer savings to another day.”
Source: Harvard Joint Center for Housing Studies

This forced savings mechanism is crucial in building long-term financial security. Each mortgage payment reduces the loan balance and increases your home equity. Over time, this equity can become a substantial financial resource, serving as a nest egg for future investments or retirement.

4. Substantial Tax Benefits

Homeownership comes with significant tax advantages. Belsky states, “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.” These tax benefits can result in substantial savings, making homeownership financially attractive.
Source: Harvard Joint Center for Housing Studies

These tax benefits can significantly reduce the overall cost of homeownership, making it more affordable than renting in the long term. For instance, the mortgage interest deduction can lower your taxable income, potentially resulting in thousands of dollars in tax savings annually.

5. Owning as a Hedge Against Inflation

Lastly, homeownership serves as a hedge against inflation. Belsky notes, “Housing costs and rents have tended over most time periods to go up at or higher than the rate of inflation, making owning an attractive proposition.” This characteristic helps stabilize housing costs over time, protecting homeowners from the rising costs of rent.
Source: Harvard Joint Center for Housing Studies

In times of economic uncertainty, owning a home provides stability. Fixed-rate mortgages lock in your housing costs, shielding you from market fluctuations and inflationary pressures that often drive up rental prices. This predictability is invaluable for long-term financial planning.

Scottsdale Real Estate Market Insight

In the context of the Scottsdale real estate market, these financial benefits are especially relevant. Scottsdale's market has shown consistent appreciation in home values, providing local homeowners with strong leverage and equity growth opportunities. Additionally, Scottsdale's desirable location and lifestyle make it an attractive option for homebuyers, enhancing the potential for long-term financial gain. As rental prices in Scottsdale continue to rise, owning a home becomes a strategic financial decision that offers stability and a hedge against inflation. Furthermore, the influx of new businesses and amenities in Scottsdale continues to boost demand, ensuring that property values remain robust. This ongoing growth positions homeowners to benefit not only from equity gains but also from the overall economic vitality of the region, making Scottsdale an even more compelling place to invest in real estate.

The Long-Term Financial Impact of Homeownership

The financial benefits of owning a home extend beyond immediate cost savings and tax advantages. Homeownership can be a key driver of long-term wealth accumulation. The equity built over time not only serves as a safety net for financial emergencies but also provides opportunities for future investments, such as funding a child’s education, starting a business, or planning for retirement.

Real-Life Scenarios: How Homeownership Pays Off

Consider a young family in Scottsdale who bought a home five years ago. Thanks to the area's rising property values, their home equity has increased significantly. This equity growth has enabled them to refinance their mortgage, securing a lower interest rate and freeing up funds for other financial goals, such as home improvements or college savings for their children. Additionally, the family has leveraged their equity to invest in energy-efficient upgrades, further reducing their monthly expenses and increasing the home's overall value.

Another example is a retiree who sold their long-time home, taking advantage of the substantial equity built up over decades. The proceeds from the sale allowed them to downsize to a more manageable property while also investing in a diversified portfolio, ensuring a comfortable retirement. This strategic move not only provided them with financial security but also the freedom to enjoy their golden years without the burden of a large mortgage or high maintenance costs.

The Role of Real Estate Agents in Maximizing Financial Benefits

Navigating the complexities of the real estate market can be challenging, which is why working with a knowledgeable real estate agent is crucial. A skilled agent can help you understand the financial implications of buying a home, from leveraging investment opportunities to maximizing tax benefits. They can also provide valuable insights into local market trends, ensuring you make informed decisions that align with your financial goals.

Key Financial Benefits Real Estate Agents Provide:

  • Market Expertise:

    • Agents are well-versed in current market conditions, helping you identify properties with the best financial potential.

    • They provide insights into local trends, ensuring your investment aligns with market fluctuations.

  • Negotiation Skills:

    • Real estate agents are adept at negotiating the best purchase price, potentially saving you thousands of dollars.

    • They can navigate multiple offer situations and help you stand out as a buyer.

  • Access to Professional Networks:

    • Agents connect you with trusted mortgage brokers, home inspectors, and attorneys.

    • These connections streamline the home buying process and ensure thorough financial consideration.

  • Personalized Financial Advice:

    • Tailored recommendations help you understand tax benefits, equity building, and property appreciation.

    • Agents help you assess your financial situation to maximize homeownership advantages.

  • Investment Potential:

    • Agents guide you in evaluating property conditions, locations, and future market trends.

    • They help identify properties that offer strong long-term financial returns.

Why a Local Real Estate Agent Is Your Best Asset

Choosing a local real estate agent can significantly impact your home buying experience and financial outcomes. Local agents bring in-depth knowledge of the community, including neighborhood amenities, school districts, and future development plans. This localized expertise allows them to identify properties that best fit your lifestyle and financial goals.

Moreover, local agents often have established relationships with other industry professionals, making the buying process smoother and more efficient. They are also familiar with local market trends and can provide accurate pricing guidance, ensuring you make a competitive yet financially sound offer. Ultimately, working with a local real estate agent can lead to a more successful and financially beneficial home buying experience.

Bottom Line

Eric Belsky's research underscores the financial sense of homeownership. From leveraging investments and forced savings to tax benefits and inflation protection, buying a home offers numerous financial advantages. Whether you’re considering your first home or looking to invest in Scottsdale's thriving real estate market, these insights provide a compelling case for homeownership.

Ready to explore homeownership opportunities in Scottsdale? Contact Denise  today to connect with a knowledgeable real estate agent and start your journey toward financial growth through homeownership.

 

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