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The Psychology of Real Estate & Home OwnershipMark Argentino will help you find your dream home!


John and Julie have rented an apartment in Toronto for more than twenty years.   Mark, a residential real estate agent and Julie's friend, asked her why she still rents, when in the past twenty years she could have bought a house or condo and probably paid off the mortgage.  Instead, twenty years later, all John and Julie have to show for their $240,000 in rent (twenty years x $1,000 average per month x 12 months per year) are rent receipts.   But Julie said she and John never could agree on where to live.  He wanted to be downtown near his work and she thought they'd eventually move to the suburbs.  They liked their apartment building and thought if it went condo, they'd buy then.  There was always some excuse not to buy.

Are you psychologically ready for the responsibilities that come with buying and owning a home?

Below are some of the pros and cons and the items you should consider before buying your first or next home.

Buying a home means more than simply making a monthly mortgage payment.  It also means paying taxes, maintenance costs, and insurance premiums.  If you buy a highrise condominium or condominium town-house, you're also taking on the added responsibility of monthly assessments for maintenance of the commonly held property.  If you're a home owner, you shoulder the burden of home maintenance yourself.  If the roof leaks, you have to fix it. If the furnace breaks, you must replace it.  There is no landlord to call.  You may read more about the typical cost of home ownership.

As a home owner, you also shoulder the burden of real estate taxes.  You become one of those home owners who support the local school system, fire and police departments, and city government.  Buying a home means you're also buying into your local community.  And if someone wants to put a trash dump next door to your house, you'd better be out there fighting against it to protect your property's value.

And you may be there for a long time.  Although today, the first-time-buyer market is considered the "hottest'' market - meaning there is the greatest amount of demand for homes generally priced $200,000 and up.  That could change over time.  If it does, that two-bedroom condo you bought in a bidding war three years ago could sit for 60 to 120 days before you receive a single offer.   Becoming a home owner means you are somewhat subject to the whims and tides of the market.  Renters can leave at the end of their lease, or they can sublet their unit.  Home owners must either rent out their homes or sell.  Neither is an attractive option when you may be under pressure.



But there are lots of benefits to home ownership that compensate nicely for any hardships. 

If you work out of your home, there are a number of tax benefits, including a deduction for the costs associated with owning and maintaining the portion of the home you use exclusively for business.  When you sell the home, you can roll over any profit you may have into your next purchase, provided it costs as much or more than the home you just sold.

'More' Emotional Issues Of Home Ownership, another perspective

The pride of home ownership, and the equity homeowners will build up over a period of time give the home owner a strong emotional outlook.  Owning a home is considered part of the Canadian dream.  Canadians are brought up to believe in the value of home ownership and its advantages.  I too believe this dream and own my own home.

Once, homeowners have taken possession of their home they realize they have an investment in their family as well as in their home.  Homebuyers can invite family, relatives, and friends to show how proud they are of their home.  You should consider it a great achievement to buy a home.  Homebuyers love the feeling that owning a home gives them.  They feel a pride of ownership and a sense of security.  Homeowners can do things around the home that they would not be able to do in a rental home.  They have the freedom to paint walls any color they choose, or not to paint at all. They may make changes that suit their lifestyle and interests.

An additional emotional advantage to home ownership is that it gives homeowners the chance to get to know the neighbourhood.  When they purchase a home, they are buying into a neighbourhood.  Part of being a nice neighbour is taking care of their home so that the neighbourhood keeps it distinct flavor.   This not only enhances their life, but helps keep the pride of a well looked after neighbourhood.

Owning a home also gives homebuyer's privacy.  This is very important for people today, in our busy world. Depending on the lot size, home placement, this can be a major buying point for buyers.  More and more people are looking for privacy, nice setting, and great curb appeal.  Then of course the pride that goes with the home selection they have made that encompasses all their needs.

The Positive benefits to home ownership

  1. The "Best" Investment
    As a fairly general rule, homes appreciate about five percent a year.  Some years will be more, some less.  The figure will vary from neighbourhood to neighbourhood, and region to region.  In the past couple of decades, home prices have increased, on average, more than the rate of inflation.
    Five percent may not seem like that much at first. Stocks (at times) appreciate much more
    But take a second look...
    Presumably, if you bought a $200,000 house, you did not pay cash for the home.  You got a mortgage, too.  Suppose you put as much as twenty percent down - that would be an investment of $40,000.

    At an appreciation rate of 5% annually, a $200,000 home would increase in value $10,000 during the first year.  That means you earned $10,000 with an investment of $40,000.  Your annual "return on investment" would be a whopping twenty-five percent.  Of course, you are making mortgage payments and paying property taxes, along with a couple of other costs.

  2. Paying down a mortgage offers home owners a forced savings plan.  Every payment into the bank is part mortgage interest and part mortgage principal.  That little bit of principal is called home equity and it adds up over time.  When you sell the home it becomes a huge amount of cash in your pocket that you can use on your next purchase, or you may decide to cash out.

  3. Eventually you will pay off your home and the payments stop - rent never stops.

  4. Payment stays fairly constant and you can budget many years in advance with a long term mortgage - rent goes up, sometimes every year.

  5. Owning your home gives you 'borrowing leverage' that allows you to borrow and put up the house as collateral at least it shows you have the ability to save and pay monthly payments

  6. Pride of ownership occurs when you own your own home.
    the psychology of home ownership
  7. Security that no one can evict you or sell out from under you.

  8. More pride in neighbourhood.

  9. Children usually fair better and feel more safe and secure.

  10. Owning your home can mean more living space, more freedom, more privacy, and a sense a pride.

  11. Freedom and individualism   When you own a home, however, you can do pretty much whatever you want.

  12. You get the benefits of any improvements you make, plus you get to live in an environment you have created, not some faceless landlord.

 

Possible Drawbacks of Home Ownership

  1. In spite of all the reasons to own a home, there are negatives you should consider before making the commitment.

  2. Maintenance and Upkeep - Owning a home requires a significant investment in time, energy, and money. You don't want to commit yourself to expenses beyond your financial means.

  3. Higher Costs - Usually you can expect to pay more for housing as a homeowner than you did as a renter, especially for the first few years. Even if your mortgage payments are less than your previous rent payments, as a homeowner you will pay for property taxes and homeowner's insurance as part of your mortgage payment, as well as all utilities and upkeep expenses.

  4. Decreased Mobility - As a homeowner you sacrifice a degree of mobility. There are costs associated with selling a home that may not be covered by your accumulated equity - especially if you sell your home soon after purchase. If you anticipate moving to a new location within the next year or two, this might not be the ideal time to buy a house.

The Business Cycle and Buying a Home - should I buy now or later?

Recession and Expansion

There are times when the economy is brisk and everyone feels confident about his or her prospects for the future. As a result, they spend money.  People eat out more, they buy new appliances, TV's and new electronic equipment, they buy new cars, and....

...they buy homes.The business cycle of buying a home in Mississauga

Then, for one reason or another, eventually the economy slows down.  Companies lay off employees and consumers are more careful about where they spend money, perhaps saving more than usual.  As a result, the economy decelerates even further.  If it slows enough, we have a recession.

During such a time, fewer people are buying homes.  Even so, some homeowners find themselves in a situation where they must sell.  Families grow beyond the capacity of the home, employees get relocated, and some may even find themselves unable to make their mortgage payment - perhaps because of a layoff in the family.  If you can you want to try and buy at or near the bottom or on the upswing of times like these - not always obvious when the time is right.  See how prices fluctuate

See the market emotions cycle, this is a very interesting graph!

Market Emotions Cycle

Supply and Demand

When the supply of available houses is greater than the supply of buyers, real estate appreciation may slow and prices may even fall, as happened in the early eighties and the early to mid-nineties.  See average price graph

See Price Trend Graphs   If you are lucky enough to purchase a home during a slow period, you can be reasonably certain the economy will begin to show strength again.  At times, real estate values may even surge drastically and you have to buy at a high time.  In many regions of the country, this is precisely what occurred in the late eighties and the late nineties.  Don't worry, house prices have always surpassed previous highs, it's just a matter of time.  You can review seasonal price fluctuations.  Or you may  see annual trends.

The Bottom Line

Home ownership (read the whole story here) is not for everyone, but the majority of people want to purchase a home as soon as they can.  Some wait, but often it's just a matter of saving for the down payment.  After you do all the analyzing and number crunching, you will probably arrive at the same conclusion as most people before you ... "the best time to buy a home was yesterday"

Other issues to thing about when you are considering buying a home

Only you can make the right decision for you and this is another reason why my goal is... to provide you with all the information so you can make the best decision for yourself and your family.    Shall we begin?

As Always...  Mark is At Your Service T ©® (TM)

 

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Send Mark Argentino an E-mail Questions? Or need more information?  Send Mark an E-mail  or phone him at 905-828-3434

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