Owning a Home – Investment or Expense?
Owning a home has long been the American Dream. A recent survey by the National Association of Homebuilders (NAHB) uncovered that 75% of Americans still believe that owning a home is the best long-term investment they can make. According to a recent report by CoreLogic, negative equity peaked in 2009 with 26% of all mortgaged properties being “underwater”. Despite the gains in residential property values over the last several years, nearly 5% of homeowners still owe more on their mortgage than their homes are worth.
Many homeowners include home equity as an important component of funds that will be used in retirement. According to AARP, 32% of adults over the age of 50 report that the value of their home has declined substantially over the last 3 years. Since many people plan to sell their home and buy a smaller home when they retire, the decline in home values has forced many to postpone retirement. Future retirees planning on smaller mortgage payments from downsizing have little options available to make up for that added expense.
Costs of Owning a Home
HOA Fees and Assessments – HOA fees are collected to cover insurance, maintenance, landscaping, water, sewer, garbage costs, an community recreation centers for condominiums and planned communities. Special Assessments are sometimes necessary when there are inadequate funds to cover major expenses such as building repairs, fence and wall repair, and repairs to other HOA owned property.
Private Mortgage Insurance – If you put less than 20% down you will be required to carry Private Mortgage Insurance (PMI). According to the Homeowner's Protection Act of 1998 (HPA), lenders must now automatically cancel PMI on most loans once the outstanding loan balance reaches 78% of original value or 77% for high-risk loans provided you are current on your payments.
Property Taxes – Property taxes vary widely depending on region and obviously the value of your home. NHAB estimates the National Average for property taxes at $2105 per year.
Hazard Insurance – Hazard insurance is required by your lender and covers certain types of damage to your home. NAHB estimates the National Average for hazard insurance at $654 per year.
Utilities – Water and garbage are some expenses that are often included in a rental that are an additional cost of owning a home. In addition, many rental apartments and condominiums provide amenities such as internet and cable free of charge.
Landscaping – Having a nicely landscaped yard is one of the joys of owning a home but it comes at a cost. Average starting cost for landscaping is around $4000 and can run into the tens of thousands and up. Costs of landscaping includes irrigation, maintaining and replacing trees and plantings, and tools and equipment.
Maintenance – NAHB estimates the National Average for maintenance at $558 per year.
Other Costs of owning a home you may not have thought about:
- HVAC (12-18 years) $3000-$15000
- Hot Water Heater (10-12 years) $250-$1500
- Water Softener (10-15 years) $500-$3000
- Reverse Osmosis (7-10 years) $400-$2500
- Dishwasher (10 year life) $300-$700
- Refrigerator (15 years) $600-$2500
- Range (8-12 years) $500-$4500
- Washer/Dryer (13 years) $400-$1200
- Garbage Disposal (10 years) $100-$400
- Microwave (11 years) $300-$650
- Garage Door Opener (10 years) $135-$250
- Swimming Pool Pump (3-5 years) $500-$1500
- Lawnmower (7-10 years) $250-$800
Taking the replacement costs of the above items you would spend roughly $7200-$34000 over a 10-15 year period. Spreading this cost over 15 years would cost approximately $480-$2300 per year. Clearly owning a home has many benefits but those benefits come at a substantial cost.
Do you feel owning a home should be considered an investment?