Is it Smart to Buy a House Right Now? 

Wondering, “Is it smart to buy a house right now?” The good news is that real estate is often a stable and prudent investment. 

In fact, purchasing a home could even help you save money, in the short term and in the long run. 

Some of the top money-saving potential opportunities include: 

• Building home equity 
• Taking advantage of appreciation 
• Using equity as needed 
• Hedging against inflation 
• Cutting down on housing costs 
• Taking advantage of tax benefits 

So, let’s explore these prominent financial perks: 

Equity can be lucrative 

One of the most well-known and frequently cited benefits of homeownership is the fact that your housing costs go toward an asset as opposed to directly into your landlord’s pocket. The fact is, your rental won’t build any equity while an owned home often will. 

So you don’t have to Google it: 

Equity refers to the amount of money an owner would make after selling an asset and repaying any debt. In other words, if you gradually pay back $20,000 of a $100,000 loan, then sell the home for $100,000, you’ll pocket $20,000 after repaying the bank their $80,000. If you rented during the same time frame, you may have spent the same $20,000, but you won’t have an asset to sell.  

Keep in mind that home equity isn’t guaranteed, and this likely shouldn’t be the sole reason you choose to buy a home. It’s just one important, and potentially cost-effective, consideration. 

Real estate often appreciates 

What’s more, real estate tends to appreciate in value. In the example above, you would be selling your home for the same price you purchased it at. In reality, you can often sell a property for more than you bought it for, meaning more money in your pocket. 

Bankrate found that real estate appreciation rates had reached 19.1% in January 2022, the highest rate in almost 50 years. To put that figure into perspective, keep in mind that the stock market often sees returns of only about 10%. In other words, real estate is a popular investment choice for good reason. 

Don’t forget that real estate doesn’t always appreciate, though. Limited demand, significant wear and tear and local market conditions can have negative (or positive) impacts on home values. Like any investment, homeownership comes with some risk. 

Homeowners can choose to use equity in many ways 

It’s important to remember that home equity isn’t just beneficial when it comes time to sell. Homeowners may have a great degree of flexibility in how and when they choose to utilize that money. 

For example, as part of a cash out refinance or home equity line of credit loan, you could use funds for home improvements, to consolidate high-interest debt, or even to offset large-scale expenses, like college tuition, a wedding or in case of emergency. Home improvements may be a particularly prudent choice, as they often add value to the home and can fetch you even more money at resale. Not a bad deal! 

Real estate may help hedge against inflation 

It’s no secret that inflation is on the rise. Owners and renters alike are now clambering for creative ways to drive down household costs, from diversifying assets to investing in gold. 

The fact is, though, that real estate may be a safer bet than precious metals. After all, the demand for housing will never fully disappear, even if costs continue to rise. That’s because housing simply isn’t an expense most people can afford to cut. 

Plus, experts predict that the current market is fundamentally different from the Great Recession in 2008, which should ease some housing market-related anxieties. 

Homeowners can cut down on housing-related costs 

When you move into a rental, you typically don’t have a say in the appliances, materials or even allowed activities, like working or selling goods out of your home. Homeowners, on the other hand, tend to enjoy much more freedom. 

Investing in energy-efficient home appliances, installing solar systems or smart thermostats and launching a home-based business could all mean that much more money in your pocket. Plus, you just can’t put a price on agency! 

Homeowners may be able to take advantage of tax benefits 

Homeownership tends to look particularly appealing every time tax season rolls around! That’s because millions of homeowners have tapped into the powerful tax benefits that may come along with homeownership. These include: 

• Mortgage interest tax deductions. This is typically the largest deduction that homeowners enjoy and encompasses any interest paid toward mortgage interest (up to a point). For homes purchased post-2017, you may be able to deduct interest on up to $750,000 worth of mortgage debt, or $375,000 if married and filing separately. 
• Home equity loan interest tax deductions. If you choose to utilize your home equity by taking out a home equity loan, you may be able to deduct money spent on home upgrades. Keep in mind that this debt counts toward your overall mortgage debt limit, though. 
• Discount point deductions. Some homeowners choose to buy down their interest rate with so called ‘points’., Each “point” generally equals 1% of their mortgage loan, at the time of closing. If you qualify, you may also be able to deduct some or all of these points. 
• Property tax deductions. Homeowners may be able to get a tax break up to $10,000, or $5,000 if married and filing separately. Qualifying property taxes are in conjunction with state income, local income, and sales taxes.  

You may also be able to deduct costs related to a home office, medically-necessary home improvements, and mortgage insurance premiums. 

Is it smart to buy a house right now? 

It’s important to remember that a safe, comfortable home isn’t a waste in and of itself. Renting can be the right decision for many people, and housing is an unavoidable cost for most of us. In some cases, homeownership just opens financial doors that renting may not, but don’t worry if you can’t afford a home quite yet. You can still work on clarifying your goals and saving up in the meantime. 

That said, investing in homeownership may be a financially sound decision for many Americans. Your property could provide flexible equity, cut down on housing costs, and even deliver returns competitive with those of the S&P 500! If you’re wondering if it’s a good time to buy, it can’t hurt to start by familiarizing yourself with the many potential benefits.