In the last blog, we talked about whether or not we are currently in a bubble and I promised my next blog would be about the cost of waiting to purchase. In the time between my last blog and this one, waiting to purchase costs you, because historically, the longer you wait, the more costly buying becomes. There are several factors that play into that cost, some of them being:
- Home appreciation-Simply, the longer you wait, the less appreciation you will gain.
- Principal payments-Over time the accumulation of principal payments and appreciation adds up to a form of forced savings which widens the gap between what you owe and the appreciated value of your home. That could lead you to a much better position when retirement rolls around.
- Tax benefits-The tax benefits you gain when owning your own home ultimately reduce your monthly amount of housing costs.
- Capital gains exclusion-Currently, when you purchase a primary home and stay in it for at least 2 years (consult your tax adviser for specifics) you can take advantage of this exclusion and if you qualify, could save you quite a bit in capital gains when you sell.
- Interest rates-If interest rates are to rise this would impact your affordability and monthly payments and could price you out of the market, preventing you from taking advantage of owning your own home.
- Buying vs. renting-In most situations, owning your own home can cost less than if you rent, taking into consideration all of the above. Your housing costs in real dollars could be several hundred more per month with NO long-term benefits.