If owning a home may not be as good as an investment as it was over the last 25 years, should seniors and Baby Boomers skip purchasing a smaller home and start renting sooner? That may be a good option to consider as the popularity of homeownership is waning according to a new survey by Fannie Mae. While many people believe that the housing market has reached bottom, survey respondents are decidedly more cautious about owning a home. Seventy percent of Americans think it is a good time to buy a house but 33 percent of all respondents said they would be more likely to rent their next home if they were to move. The expectations are that home prices and rents will hold steady or slightly increase during the next 12 months but the expect a sharper rise in rental prices when compared to the rise in home prices.
If downsizing is in the future for Baby Boomers, the rate of return on their investment in their new real estate purchase will probably not provide the return it has in the past thus bringing into question whether housing is a good investment for a senior’s portfolio. Diversification? Inflation hedge? Depending on their investment portfolio, returns in fixed income and possibly the stock market may yield greater returns than purchasing a smaller home highlighting the difficulty of their decision to invest further in housing.
“Our survey shows that consumers see a mixed outlook for housing and homeownership,” said Doug Duncan, Vice President and Chief Economist, Fannie Mae. “These findings indicate a return to a more balanced and realistic approach toward housing. While this will likely weigh on the housing recovery in the near-term, it should, over time, help to build a stronger and healthier market focused on sustainable homeownership.”
Even though the returns from investing in real estate may be in question for the next few years, the benefits of purchasing a home now remain important as pricing may be at or near a bottom, there is a substantial amount of available homes for sale, interest rates on financing are the lowest they have been in a generation and the interest paid on a home mortgage is deductible.
However it is important to reflect like a good investment advisor once said, past results are no indication of future performance.