The Value of Homeownership

By Sherri Butterfield

Is measured in equity, predictability, flexibility, community, and fulfillment of the American Dream.

It’s relatively easy to look up the price of a home and calculate the cost of buying it, but how do you measure the value of owning? Value is more than either price or cost. Value is the relative worth or importance of something. It includes not only what was paid or given in exchange, but also what one receives over time in return.

Equity. Rent payments are money spent and gone, but mortgage payments are investments. With each one, you build equity in your home. As the interest portion of your mortgage payment declines, the principal portion goes up and your equity ownership increases. Fadel Lawandy, director for Chapman University’s Hoag Center for Real Estate and Finance, says, “It’s more profitable to own a home than it is to rent and put your money in the stock market.” And an article in the New York Times asserts that homeownership is the best way for people who have not inherited wealth to build it.

Return on Investment. Despite temporary housing market ups and downs, real estate has long-term, stable growth. Data from the California Association of REALTORS® suggest that the average appreciation rate for median-priced homes in the Golden State has been around 4 percent each year for the past fifteen years. What other investment pays 4 percent annually and puts a roof over your head? And in good times, the return may be even higher. Lawandy says that, “Over time, you could receive as much as an 8 percent higher return on your investment if you buy rather than rent.”

Predictability. Writing for Money magazine, Brad Tuttle observes that rent has been outpacing inflation for decades and that the median rent has doubled in the past twenty years. Jonathan Lansner reported in the Real Estate section of Orange County Register on April 8, 2018, that a recent survey of 706 Orange County renters and homeowners by researchers at Chapman University revealed that 24 percent of renters had trouble paying for housing in the past year. Homeownership makes housing costs more predictable. With a fixedrate mortgage, you know what your monthly payments will be and can budget accordingly. There are no unexpected increases and far fewer unpleasant surprises.

Flexibility. The home you buy is yours. You are free to decorate it to suit your tastes and remodel it to meet your needs. Once you have accumulated some equity, you can establish a line of credit and use the money you borrow for repairs or improvements. If you improve the home against which you borrowed, you can deduct the interest on the loan. And when you decide to upsize or downsize, you can sell the home you own and use the proceeds as a down payment on the home you want.

Community. Homeownership results in more cohesive communities, improved health and safety, and greater civic participation. “Homeowners create communities,” writes Tammy Newland-Shishido in her President’s Message. They share interests and help one another. They understand the importance of public safety, insist on good schools, and beautify their homes and yards. They are more likely than renters to become involved in a neighborhood group, to join a civic association, and to vote in local and national elections, reports Brian J. McCabe of Georgetown University.

Participation in a Shared Dream. As described by both historians and statesmen, the American Dream includes freedom from oppression, opportunity to work and succeed, hope that the future will be brighter than the past, and the goal of owning one’s own home. In 2017, CNBC reported that there were more renters than at any time since at least 1965, and that the top regret among them was not having purchased. In 2015, the Housing Opportunities and Market Experiences (HOME) survey conducted by the National Association of REALTORS® revealed that 94 percent of young renters wanted to buy. The more recent Chapman University survey mentioned above found that about 80 percent of renters would prefer a single-family, detached home, and only 5 percent want to live in a more densely packed neighborhood filled with high-rises. According to the HOME survey, 83 percent of renters wanted to own, and 77 percent viewed homeownership part of their American Dream.

The value of homeownership is that it builds wealth, yields a solid return on investment, makes housing costs more predictable, provides flexibility, fosters a spirit of community, and fulfills the American Dream.