Buying a home has always been an intimidating financial investment. We see home prices dip during economic downturns due to the uncertainty of a steady income, leading to an unlikely commitment to home buying. While many buyers are hesitant, purchasing a home is still a smart financial decision for most. Housing is still a good investment even while housing sales slow. While there is a risk of prices falling in the short term, a severe decline like 2008, is not expected.
Appreciation in real estate tends to pass inflation rates, years like 2022 are exceptions, where inflation beats real estate appreciation. Looking at trends over an extended period of time, the return earned from real estate tends to be higher. Benefits can be seen through the mortgage rates. Interest rates expected to remain high for the short term are beneficial because the interest paid is less than the inflation rate. When inflation rates fall, interest rates also fall. At this time, people can decide if they want to refinance to a lower interest rate, and still save money. Another benefit to purchasing a home now is equity. When making a monthly mortgage payment, a portion of the bill allocates the loan's principal, building equity. After selling the home the money will come back. Other benefits to purchasing a home now are the tax breaks. Two of the top tax breaks that benefit homeowners are mortgage interest deductions and the capital gains exemption. Mortgage interest deduction, allows people to write off the interest paid depending on one’s tax bracket. With capital gains exemption, single filers can qualify for up to $250,000 to be excluded from the gain from the sale of a primary residence from their taxable income while for joint returns with spouses, up to $500,000 can be excluded. Also, a benefit is gaining price appreciation. Historically, housing prices trend upwards, with few exceptions like in 2008 and 2019.
Although the majority of people are hoping for a crash resulting in more affordable home buying, there are no signs leading to this. Most experts agree that a crash similar to 2008 is not likely because today consumers have stronger balance sheets, and more restrictions on who qualifies for a mortgage, and a crash happens when there are more sellers than buyers, and there are plenty willing to buy.