When the housing market crashed in the height of the Great Recession, a whole generation of prospective homebuyers was scared away from the idea of personal real estate. For most of the twentieth century, and up through the early 2000’s, buying a house to live in was considered just about the best investment a middle or working class individual could make.
Today, this prevailing wisdom still holds true. According to financial experts like billionaire money manager John Paulson, buying a home to live in is still the best investment.
Financing Costs Are At Historic Lows
Largely due to the recent housing market crash and the reluctance to make real estate investments following the “bubble’s burst,” lenders are competing to offer home financing packages to qualified borrowers.
The resulting competition means that home financing costs are at historic lows. If you have saved for a down payment, qualified borrowers can get a 30 year fixed mortgage with around a 4% APR. Compared to historic financing costs, it’s a very good time to buy personal real estate from a mortgage rate perspective.
Fixed-Rate Mortgages Create Big Long-Term Returns
With historically low interest rates, personal real estate is an unmatched investment in the long term.
Here is how John Paulson explains it in a MSNBC interview:
Today financing costs are extraordinarily low. You can get a 30-year mortgage somewhere around 4.5 percent. And if you put down, let’s say, 10 percent and the house is up 5 percent, which is the latest data, then you would be up 50 percent on your investment. And you’ve locked in the cost over the next 30 years. And today the cost of owning is somewhat less than the cost of renting. And if you rent, the rent goes up every year. But if you buy a 30-year mortgage, the cost is fixed.
Crowded Rental Markets Make Buying a Home a Good Choice
As rental markets around the country are struggling to keep up with demand, and more cities see housing shortages among renting populations, buying a home becomes a more enticing investment.
In most U.S. cities, rent prices are projected to rise. In sharp contrast, the monthly payment for a fixed-rate mortgage never rises (except for the insurance and tax portions of the payment), making buying a home an appealing alternative to renting. And as a homeowner, every dollar spent to pay down the principal portion of your mortgage is investing in a tangible asset.
The Housing Market is Rebounding
The big crash, which has discouraged so many buyers over the past half decade, is really a blessing in disguise for new homeowners hoping to invest in personal real estate. Not only are financing costs low, property costs are surprisingly low compared to the overall U.S. economy.
The housing market has bottomed and housing prices are on the rebound, which again indicates that investing in a personal residence with a fixed-rate mortgage is a smart investment.
Who Should Consider Investing in a Personal Residence?
Just like any other investment, personal real estate isn’t the right choice for everyone. If you don’t have any savings to put down as an initial down payment, the pay off equation looks a lot different. And if you aren’t earning enough to keep up with mortgage payments, buying a home can lead to the nightmare of foreclosure.
But if you are a middle class professional or a working class earner with a stable income, and you need a new place to live, investing in personal real estate is one of the smartest choices you can make. Mortgage rates can scare some people, but you have to consider the fact that a mortgage only helps you pay for an investment, and personal real estate is one of the most stable and rewarding investments you can make.
If you intend to live in the house you are financing, and can afford mortgage payments, personal real estate is a smart investment.