If you get to a point in your life where buying a house could be possible, you have a big decision to make. When you ask your parents, grandparents, or anyone in your life over the age of 50, should I buy a house? — they might not even think it’s a real question. To them, the answer is as obvious as rain being wet: of course you should buy a house. If you can afford it, it’s obviously the right thing to do.
But buying a home might not be the best way to invest in your future. It’s important to make sure it’s a good decision for you, personally.
Your finances, and whether or not you’re likely to make any money if and when you choose to sell, are top considerations. But there are loads more details to factor in when you’re trying to figure out if you’re ready to buy; from your aspirations to your relationships, and even your emotions. Maybe especially your emotions.
We’ll get into the emotional stuff a bit later. First, let’s get practical and look at the property market, the job market, and some of the best and worst reasons to put your money into bricks-and-mortar.
Property isn’t always a reliable investment
Millennials are buying their first homes in a very different market from their parents. Until the real estate crash of 2007 property prices in the US had increased by a steady average of 6.4% every year for 36 years — so someone who bought a house for $75,500 in 1985 could confidently predict a gain of around $35,000 by 1995.
Not so anymore: data shows that 2004 was the last year of healthy growth. House prices leveled out for a few years, and then crashed in 2007 and continued to fall in the few years that followed. The market has slowly and unsteadily climbed between 2012 and now, but some areas still haven’t reached pre-2004 values. Numbers published in 2019 suggest that the housing market in North America is on a downward slope again, while mortgage interest rates are on the up.
That’s not to say that you can’t make money from buying and selling a house. People do it all the time. But you’re not guaranteed to make a profit, especially if you sell within 3-5 years of buying — because you’re unlikely to even recoup your purchase costs during that time, which are about 2-5% of the price of the house.
So you’ve kind of got to really like the building you’re buying and the environment around it. Unless you’ve got a lot of money and can buy more than one house, or buy one and still afford to rent somewhere else to live. I’m sneaking in a touch of the emotional stuff here — we’ll come back to why it’s so important to like a place and feel really good about the commitment before you buy it.
It was ingrained in our parents’ generation that homeownership was one of those big life things to aim for. A marker of success, and a promise of future security. They’ve sort of ingrained it into us, too; but there’s less evidence around us to support it, and our working lives look different as well.
What does the job market have to do with it?
Previous generations were rewarded for sticking with the same job for a long time. They had pay rises and promotions that made it all worthwhile, and job security used to be something you could rely on. Today, when you’re employed by a company, you don’t really know how long that job will last. Millennials and the older members of Gen Z who are now entering their working lives don’t expect to stay with the same employer, or even in the same job, for decades.
Frequent job changes are a welcome part of modern employment culture for lots of us. A 2019 survey by employee experience firm Akumina found that 75% of millennials believe that changing jobs regularly helps to advance their careers. But less job stability affects our whole lives, not just the way we work. Just because you’re earning enough to pay your mortgage now doesn’t mean you’ll still be earning that in five years.
Equally, changes in what we expect from our careers mean we have different aspirations and visions for the future. Our work culture demands that we think in the short term and imagine lots of different possibilities for ourselves — so we’re less likely to be sure we really want to buy that house.
We’re not rewarded for “settling down” in the same way the baby boomers were. Our salaries are less certain, property prices and interest rates are higher, and we can’t rely on housing market gains to make our investments worthwhile. We’re aware that we need to be flexible and prepare ourselves to adapt to change, so buying a house is a bigger risk.
A really good reason to buy a house
It’s not that there aren’t good reasons to buy a property. It’s just that those reasons aren’t the same as they were 20 years ago. What if you know it’s not the only option, and you know it’s possible that putting your money into property won’t turn out to be a good investment, but you still really want to own your own home? Maybe now is the right time for you to buy a house.
Assuming you’ve got the money to put down a deposit, and you (or you and the other person/people you’re buying with) are confident that you’ll keep on earning enough to pay the mortgage for years to come, then the main reason I think it’s a good idea to go for it is:
Because you genuinely truly from the bottom of your heart want to own your own home.
I realize that might sound really simplistic, or just really indulgent. But when financial gains aren’t guaranteed and might take decades to land in your bank account, it’s got to be something you really want.
Some of the other benefits that might contribute to your overall, deep inside genuine desire to own a home include:
- It’s yours. You get to do what you want with it. You’ve dreamt of this — a blank canvas to express your creativity and build your peaceful, cozy, perfectly arranged or unashamedly chaotic home.
- Your monthly payments are going into a mortgage, and any increase in the property value will belong to you. It might be decades before you pay off that mortgage, but there is an end somewhere over there in the distance.
- Tax benefits — a certain amount of the interest you pay on your mortgage is tax-deductible. You also get an allowance of tax-free profits when you sell a home in the US, as long as you’ve lived there for at least two of the last five years; $250,000 in profit is tax-free for single homeowners, and $500,000 if you’re married.
- It makes you feel secure, and you don’t have to move all the time. There are loads of benefits to renting — but there’s always the chance that you’ll have to move. Living in a house that you own gives you a sense of stability and comfort (and you can freely fill it up with all your thrift store bargains, happy in the knowledge that you won’t have to pack up for years and years).
- You (and your partner, if you’re buying a place together) can plan ahead and build your life around a place that belongs to you.
Reasons not to buy a house
If you’re on the fence, you might convince yourself that buying a home makes sense because you can get a mortgage that’s way cheaper than your current rent. Which might be true. But comparing mortgage prices to rental prices isn’t an accurate way of figuring out the difference in your monthly outgoings. When you own a house you’re responsible for a range of other costs, as well as your mortgage, including:
- Monthly and/or annual taxes (depending on where you live)
- Householder’s insurance
- Maintenance and repair costs
Taxes and insurance are OK because you can plan for them. But when it comes to maintenance and repairs, unexpected costs can tumble into your life at any moment. You never know when you’ll have to buy a new boiler, call an electrician to deal with those shocks you keep getting or hire a bee specialist to conscientiously move those hives out of your attic.
Which leads neatly into another downside to owning your own home: you’ll probably have less free time. No longer will you call up your landlord to say “hey, could you come and fix the pipes?” (or whatever it is). You’ll have to do it or book a plumber and pay. All the maintenance will be down to you and it adds up — your weekends will be frittered away with decorating, fixing, trimming, replacing, administrating, and other verbs.
One of the most important drawbacks to think about is the fact that you (probably) won’t be able to sell for a while without losing money. You’ll be tied to this house. If you want to go away for a long time you’ll still have to make sure costs and maintenance are covered. And if your life changes in some way you won’t be able to simply hand in your notice to a landlord and move out.
So, a few really good reasons not to buy a house right now:
- Your household size might change in the next few years. Usually, this means kids — if you buy a two-bedroom apartment and then have ten children or even just two children, you’ll probably want to move. Equally, if you buy a compact place while you’re single and then start a relationship with someone you want to move in with, things could get complicated.
- You’re not up for the commitment. Not wanting to dig in and buy a house doesn’t mean you’re flakey, immature, or afraid of commitment. It’s fine if you’re not ready, or will never want, to commit to one house in one place; or if you don’t want to add all the responsibilities of owning a home to your already busy life.
- You want to go back to studying or take a big chunk of time off work. Your mortgage won’t like that.
- You can’t afford it.
- You can’t afford to buy in an area where you actually want to live.
And it’s that last point that takes us into the emotional stuff. I promised we’d get there.
This is your life — is being a homeowner going to make it better?
I mentioned earlier that maybe your emotions are an important factor in the decision to buy a house or not. When you own a building, you’re committed to that building and to the land it sits on — and by extension, the surrounding area.
A survey by Bankrate at the beginning of this year found that 63% of millennial homeowners have regrets about buying their house. Some of those regrets are related to financial issues, such as not being aware of the added costs of owning a home. But around 10% regretted their purchase because of location. They don’t want to live in the area where they bought a house.
These regrets make sense. A study by psychologist Cary L. Cooper and colleagues found that where we live, and how our surroundings support or challenge our personal needs, has an important impact on our mental wellbeing. Noise and light, access to nature, layout and how a place allows us to move around and experience it, sensory stimulation, and associations with past experiences all play a part in how we feel in a place.
On top of that, moving somewhere because you can afford to buy a house there, rather than because you really want to live there, means you’re already getting off on the wrong foot. It breeds resentment. And…if you can afford to rent in the place where you do want to live, then why not?
Where you live and how it makes you feel affects your whole life. If you don’t feel comfortable, don’t feel motivated, don’t feel at home, or if you feel trapped and spend all your time imagining how great life would be if only you could live there, or if only you were free to travel and explore the world more — well, why?
There’s no point in buying a house just because you think that’s what you should do. And buying property might not be a good investment, so first and foremost, it has to be a good home. You’ve got to like being there. It’s got to feel worth the money, effort, and commitment.
“But this place is a great investment! I’m going to make loads from it in ten years and then I’ll be able to afford the house of my dreams!”
Maybe. But what about those ten years? This is the only life you’ve got (I think), so do you really want to spend years feeling a bit crap because you have to live in this house that you hope will prove to be a good investment later on?
If becoming a first-time buyer works for your financial goals and for the lifestyle you want, perfect. But don’t buy because of pressure from other people. Financial gains are only theoretical until you actually sell, and you’ve got to live there in the meantime. Owning your own home has benefits, for sure. But so does renting, and so does living in a van, and so does living with your parents if you’re doing it for the right reasons.
Step away from the pressure and do your thing. Buying is a choice, not a requirement to be checked off the “how to make life mean something” list.