How to Reposition the Value of Homeownership in a Tough Market

Agents find homeownership still reigns while renting holds court

By Mary Beth Klatt

While it’s often been said the American Dream is to own a home, recent headlines offer mixed news. While the U.S. Census Bureau reports that homeownership is up from last year, increasing prices and a tight supply of listings sideline many Americans. It’s easy to begin to wonder whether Americans still see value in homeownership. Does the math still make sense?

Most agents say it does. In many parts of the country, current homeowners are earning record-setting equity appreciation, according to CoreLogic. Rent increases are also breaking records, according to Yardi Matrix Monthly’s 2017 real estate market report.

However, the benefits that agents normally share with their clients, such as tax deductions, are less appealing because of new limits imposed by the Tax Cuts and Jobs Act. These limits make it more challenging to sell clients on the advantages of homeownership over renting, especially in addition to the usual homeownership considerations, including property taxes, the costs of improvements, maintenance and monthly assessments for condos and townhouses.

Retirement liquidity

Historically, owning a home has been a practical long-term investment. When the cost of renting is compared to the equivalent dollars being used to purchase and maintain a home, Greg Roberts, CRS, managing broker RE/MAX Premier Group, Frisco, Texas, feels the homeowner receives more benefits.

What’s more, homeowners are contributing to Americans’ favorite retirement “nest egg”—equity in a home has been the primary retirement liquidity for the typical retiree for generations, while tenants receive no such benefit, he notes.

“Owners have autonomy over their residence versus renters,” Roberts says. “This translates into greater freedom and privacy. Want to change the exterior landscape? Tenants typically cannot. Considering a new pet? The type and number of pets is usually severely limited for tenants. Privacy? Tenants must allow the landlord or property manager to make short notice inspections inside and outside the residence, while a homeowner is in charge of who can come into their home.”

Cynthia Nash-Frye, CRS, broker with @properties in Libertyville, Illinois, says that the value of homeownership remains priceless. “That’s what I tell clients: When you rent, you’re paying the landlord’s mortgage, you’re just not reaping the tax benefits,” she says. When renters tell Nash-Frye that they don’t want to pay for maintenance or repairs that come with owning a property, “I surprise them by telling them that they’re already paying for those, too! Of course, landlords project those costs and add them into the monthly rent: on top of that, they add in a profit margin for themselves, too,” she says.

“Finally, the cost of renting is rising faster than the cost of homeownership in our area—simply because it can,” she says. “There’s a lack of rental inventory in our area, so tenants are paying top dollar and not gaining equity, either.”

Pride of ownership

It is important for buyers to budget their cash flow, contends Marilyn Dopler, CRS, broker with RE/MAX Suburban, Arlington Heights, Illinois. It needs to include all income, expenses and emergency funds.

“In my market, property taxes are one of the highest in the country. For condos and townhomes, association fees need to be included,” she says. “It is important to advise buyers that these costs can go up.”

However, Charlotte Chang, CRS, Coldwell Banker Pacific Properties–Kahala, Honolulu, Hawaii, says fees are not always as bad as they might first appear.

“I have noticed that with CPR Planned Unit Developments that are governed by an association, the maintenance fee is not as bad as you think,” Chang says. General group insurance policies by an association covers structural, hurricane and flood insurance. Insurance for a single-family property can run up to $2,500/per year individually versus about $200 for condo insurance for interior/contents on detached CPR Units.

“Now that the housing recession is behind us,“ Nash-Frye says, “I hope that more first-time buyers are educated to the reality of investing in their future. Homeownership promotes a sense of community, security and the intangible benefit—pride of ownership!”

Real estate is an investment and can fluctuate in value with the market. While reformed tax laws could impact the write-offs for today’s owners, Dopler says, “Our clients need us to be their trusted advisors. We also need the expertise of CPAs and other professionals to work on our team.”

At the end of the day, Dopler says: “I believe it is still the American dream to own a home and have a special place for your memories. It is both a financial and emotional commitment that provides security.” 

Mary Beth Klatt is a freelance writer based in the Chicago area.