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WHEN I BOUGHT MY small rowhouse in Philly, I was swept up by the idea of homeownership. Like many of those I talked with at the time, owning meant no more wasting money on rent, plus it was a great no-risk investment.
Six years later, whenever I hear that friends are considering buying, I’m more cautious and often advise holding off—or at least peeling back the onion, so they’re aware that buying a home is rife with tradeoffs and not obviously “the right thing” to do. In 2010, when I purchased my home, I’m not sure I could have even listed the drawbacks of homeownership. Today, they’re painfully clear to me:
1. Loss of flexibility. Because of the closing costs on both ends, and all of the other move-in repairs and fixes that inevitably happen, most owners don’t break even for at least five or six years. For millennials early in their careers, this can limit job opportunities at a time when many want to be nimble and exploratory. The same applies to couples starting a family, who may suddenly find they need more space or better school districts.
2. Need for cash. Not only is buying a house expensive, but once you are settled and living in the place, you need access to significant cash at all times. Most contractors won’t take credit cards or payment plans, so you need money on hand to pay for a range of emergency repairs, such as a new furnace or new dishwasher, and potentially you could face more than one cost at a time.
3. Nothing’s guaranteed. Since 1980, inflation-adjusted housing prices have gone up just 18% in the U.S. Yes, prices in markets like New York and San Francisco have gone up more than 100%. But during the same stretch, MSCI’s USA stock index increased an inflation-adjusted 1,800%. That means that renting, and then investing what you would have spent on down payments, repairs and upkeep, would likely have netted you more in the long run. And this ignores major unforeseen issues, such as structural problems, problematic neighbors and vermin, which might force you to sell your home at a loss.
4. The buck stops with you. When you own a house, there’s no landlord to deal with contractors, local government and insurance companies. Instead, it’s all on your shoulders. You have to adjust your budget when taxes rise and you have to be home to meet the repairman.
I’m not arguing that buying a house is always a bad idea. Just saw your dream home? Before you take the leap, thoughtfully consider not just the pros, but also the cons.
Zach Blattner’s previous article was My Own Front Door. Zach is a former teacher and school leader who now teaches teachers across the Philly/Camden region as a faculty member at Relay GSE. He is a self-taught finance nerd who dispenses advice to his wife, friends, family and anyone else willing to listen.
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I wonder what your Philly Row house is worth now! hope you did well.
Mike
I think you have to consider the fair market rental value of your personal residence. When my wife and I purchased our first home in 1978 our monthly payment was just under $400. I think the rental value was slightly less. When we sold it after 25 years the monthly payment was still about $400, but the monthly rental value was about $1200. Weren’t we getting about $800 per month in rental value for free?
I have no doubt buying was a smart decision. But 25 years later, your monthly cost would have been not only the mortgage payment, but also maintenance, property taxes and homeowner’s insurance.
The $400 monthly payment included taxes and insurance, but not maintenance. I learned to do a lot of the maintenance on my own.