The True Value of Homeownership: Understanding Payment vs. Cost

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The True Value of Homeownership: Understanding Payment vs. Cost

Apr 15

3:14

Category | General

A lot of would-be homeowners are waiting to buy due to higher interest rates. That can be wise, if the payments are simply out of reach, yet current rates alone should never keep you from making a move. After all, ownership can still have financial benefits.

Homeownership Has Financial Benefits

How? The real cost of owning is less than the payment and the long-term benefits typically remain regardless of where rates are when you buy. Just look at where rates have been in the past. Recent rates have simply been close to the long-term average.

Housing Market in 1990

To see how ownership at higher rates is still beneficial, let’s go back in time and image this scenario. In 1990, the media price of a home in the United States was $122,900, and interest rates were about 10%. Back then, buyers had the same concerns that you may now. Yet those who purchased have had many opportunities to lower their payment by refinancing to lower rates and have enjoyed significant appreciation in value.

Median home prices climbed to over $400,000 in 2023. Those who bought in 1990 saw their home’s value rise more than three times over the course of their 30-year loan. No one knows for sure what home prices will do in the future, but historically, values have risen an average of 5% per year. That means that a $400,000 home could appreciate by $20,000 in the first year alone.

You won’t get a check for this growth until you sell or refinance, but the equity can open the door to many financial opportunities in the meantime. Think of it like this: if you’re paying 8% in interest, but appreciation and value provides an average of 5% per year in equity, one could say that your real cost of financing is 3%.

Homeownership and Taxes

Homeownership brings other potential benefits too. For instance, when you own a home, the interest and real estate taxes you pay may be deductible. This can reduce the “real” cost of your payment even further. And of course, all the while, you enjoy what the government calls “owner’s equivalent rent”. This is the value of the housing itself, or what you would otherwise pay to rent a similar home. Add it all up, and you can see that weather rates are high, low, or somewhere in between, owning a home can still make a lot of dollars and sense.

Ready To Get Started?

Reach out with questions or to get started on your own journey home. The Greenway Team is happy to help.