Home Buyers: Purchase What You Need, No More

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This advice is probably a little late for owners of the 1.5 million homes in foreclosure, but a WSJ story succinctly tells the big reason anyone should become a homeowner—because it saves money compared to renting, not because it’s going to make anyone rich. Many speculators are learning that buying a property you cannot afford will do just the opposite.

Quite simply, the value of owning a home is mainly getting to live in the home without paying rent. The home very well may appreciate in value, but no one can expect the sort of eye-bulging returns that became fairly standard starting in the late 1990s. Considering the money a homeowner puts into his or her place, in the form of property taxes, upkeep, and other expenses, most homeowners can only expect moderate returns on their money, if one was looking at this as pure investment.

WSJ writer Neal Temlin’s advice on the relative size and extravagance of the home you should buy is right on the money:

You should buy as much home as you need—but no more. A bigger home than you need isn’t an investment—it’s an extravagance, the equivalent of renting a bigger apartment than you need. You may choose to do so, but that doesn’t make it a smart move financially.

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