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Home Ownership Still A Financial Appeal

By manybanking.com Staff
There are signs that the deep freeze in the housing market is starting to thaw.

Sales of existing homes posted an unexpected increase in February despite the fact that home prices continue to fall, according to data from the National Association of Realtors. Even if the market never returns to the heady days of double-digit annual gains, there are a number of reasons why buying a home makes financial sense.

Appreciation

One of the major reasons to buy a house is that it typically increases in value. Over time, home values tend to keep pace with inflation, an important consideration for long-term savings. Supply and demand can sometimes change this pattern.  Rising demand pushed home values up during the previous housing boom, just as low demand and lots of supply has caused prices to drop. But even with the recent decline, home values are still up 50% compared to eight years ago, according to data from the Case-Shiller 20-city Home Price Index. That's better than the average 3.1% annual increase for inflation.

Building equity

A mortgage is similar to a structured savings program. The part of your monthly payment that goes towards principal is essentially money you set aside for yourself -- money you will get back when you sell your house. Building equity is a slow process, and part of what drove the economy into a recession was homeowners treating their houses like stock investments instead of piggy banks. Home equity won't earn interest in same way that money deposited in a savings account gains interest, but it is still a disciplined way to save for your future.

Tax implications

There are many tax benefits to becoming a homeowner. Mortgage interest and property taxes are tax deductible if you itemize your deductions on your income tax return.  For more on this, check out manybanking.com's Mortgage Tax calculator.  Also, there's a new $8,000 tax credit for first-time homebuyers that may not have to be repaid. As with many financial decisions, however, the tax implications alone are not enough to warrant buying a home. Instead, you should consider whether your finances are in good enough condition to take on significant long-term debt.

Renting versus buying

The decision to stop renting in order to buy a home can be a difficult one. For help crunching the numbers, click here. Mortgage rates are currently at all time lows, so it might be worthwhile to give buying a second thought. Head to manybanking.com to compare rate offers from major banks such as Bank of America (Stock quote: BAC), U.S. Bank (Stock quote: USB) and HSBC (Stock quote: HBC), as well as other local credit unions.

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