What are the economic benefits of owning a home in the United States?
"Is all interest on a first time home deductible on taxes? What does   that even mean? If I pay $14,000 in taxes will My taxes be $14,000   less. Will my taxable income by that much less? If you use the standard deduction in the US (assuming United States), you will have 0 benefit from a mortgage.   If you itemize deductions, then your interest paid (not principal) and your property tax paid is deductible and reduces your income for tax purposes.  If your marginal tax rate is 25% and you pay $10000 in interest and property tax, then when you file your taxes, you'll owe (or get a refund) of $2500 (marginal tax rate * (amount of interest + property tax)). I have heard the term ""The equity on your home is like a bank"". What   does that mean? I suppose I could borrow using the equity in my home   as collateral? If you pay an extra $500 to your mortgage, then your equity in your house goes up by $500 as well.   When you pay down the principal by $500 on a car loan (depreciating asset) you end up with less than $500 in value in the car because the car's value is going down.   When you do the same in an appreciating asset, you still have that money available to you though you either need to sell or get a loan to use that money. Are there any other general benefits that would drive me from paying   $800 in rent, to owning a house? There are several other benefits. These are a few of the positives, but know that there are many negatives to home ownership and the cost of real estate transactions usually dictate that buying doesn't make sense until you want to stay put for 5-7 years.   A shorter duration than that usually are better served by renting.  The amount of maintenance on a house you own is almost always under estimated by new home owners." Altough this may vary a lot depending on where you live and your actual finance, here what convinced me buying a home instead of renting : Other benefits : "To add to what other have stated, I recently just decided to purchase a home over renting some more, and I'll throw in some of my thoughts about my decision to buy. I closed a couple of weeks ago. Note that I live in Texas, and that I'm not knowledgeable in real estate other than what I learned from my experiences in the area when I am located. It depends on the market and location. You have to compare what renting will get you for the money vs what buying will get you. For me, buying seemed like a better deal overall when just comparing monthly payments. This is including insurance and taxes. You will need to stay at a house that you buy for at least 5-7 years. You first couple years of payments will go almost entirely towards interest. It takes a while to build up equity. If you can pay more towards a mortgage, do it. You need to have money in the bank already to close. The minimum down payment (at least in my area) is 3.5% for an FHA loan. If you put 20% down, you don't need to pay mortgage insurance, which is essentially throwing money away. You will also have add in closing costs. I ended up purchasing a new construction. My monthly payment went up from $1200 to $1600 (after taxes, insurance, etc.), but the house is bigger, newer, more energy efficient, much closer to my work, in a more expensive area, and in a market that is expected to go up in value. I had all of my closing costs (except for the deposit) taken care of by the lender and builder, so all of my closing costs I paid out of pocket went to the deposit (equity, or the ""bank""). If I decide to move and need to sell, then I will get a lot (losing some to selling costs and interest) of the money I have put in to the house back out of it when I do sell, and I have the option to put that money towards another house. To sum it all up, I'm not paying a difference in monthly costs because I bought a house. I had my closing costs taking care of and just had to pay the deposit, which goes to equity. I will have to do maintenance myself, but I don't mind fixing what I can fix, and I have a builder's warranties on most things in the house.  To really get a good idea of whether you should rent or buy, you need to talk to a Realtor and compare actual costs. It will be more expensive in the short term, but should save you money in the long term." "@Alex B already answered the first question. I want to respond to the second and third: I have heard the term ""The equity on your home is like a bank"". What does that mean? I suppose I could borrow using the equity in my home as collateral? Yes, you can borrow against the equity in your home. What you should keep in mind is that you can only borrow against the amount that you've paid on your house. For example, if you've paid $100,000 against your house, you can then borrow $100,000 (assuming the value hasn't changed). The argument that this is a good deal misses the obvious alternative: If you didn't spend that $100,000 on a house, then you'd still have it and wouldn't need to take out a loan at all. Of course, equity still has value, and you should consider it when doing the cost/benefit analysis, but make sure to compare your equity to savings you could have from renting. Are there any other general benefits that would drive me from paying $800 in rent, to owning a house? Economically: As you'll notice from my parenthetical remarks, this is extremely situational. It might be good to come up with a spreadsheet for your situation, taking all of the costs into account, and see if you end up better or worse. Also, there's nothing wrong with buying a house for non-economic reasons if that's what you want. Just make sure you're aware of the real cost before you do it." It is almost a sure thing that the housing market will crash again hugely.For this reason I prefer to own several houses that way when it does no one can ask for their money back and leave me homeless. Current economics suggest a fall of between 40-60% from 2011 prices meaning that if you have bought a house in the last 12 years you can wave bye bye to any and all equity, and this will happen very soon. I recommend saving your money and buying a house outright (like I did 3 times) from someone who has spent 12 years or so paying a mortgage.
When discussing buying a home I often hear people say they like having   a mortgage because they get the benefit of writing off the interest. I assume this is the United States.  You need to also consider that many people can take the standard deduction of about $12k for married couples filing jointly, so even if they itemize the interest, it would only make sense to 'write it off' if you are able to itemize deductions greater than the standard deduction:  Source: http://www.forbes.com/sites/kellyphillipserb/2013/10/31/irs-announces-2014-tax-brackets-standard-deduction-amounts-and-more/ So some people will input the mortgage interest and other related deductions into the computer only to find out that their itemized deductions don't add up. Where it benefits people sometimes is if they have medical bills which are greater than 10% of their income in addition to the mortgage interest. So it benefits them to itemize. There are other major sources of itemization but medical bills are very common. Other common items are auto registration taxes or interest from student loans. It is going to be situation dependent, but if you are within a few years of paying off the mortgage it would make sense to make micropayments to accelerate the payoff date. If you have 30 years to go, it would make more sense to generate an emergency fund, pay off a car, or save up for other things in life than worry about paying off a mortgage. Take the benefit of deducting the mortgage interest if you can, but I imagine that many people would be surprised to hear that it's not always black and white. Your home (the one you live in) is not an investment. Its an expense/liability/asset, but its something you pay for to use, not invest to grow. Yeah those are similar numbers to the largest cities in the US.  You can buy a house in or near a mid-sized US city for 100K but it would be a very basic house in good not great neighborhood.  After the downturn, I bought 2 houses as investments.  One I bought for 31,000 USD and after renovations I had 85,000 in it.  Sold it for 115,000.  The other I bought for  $91,000.  I still have that one.  It rents for $1200/mo and is currently worth maybe $140,000 (3 Bedrooms, 1 full bath, 1 half bath, 1400 sq ft).  It is a very safe area but Cincinnati city schools.  FYI Cincinnati has a STEM academy that is one of the top public schools in the country but you have to test into that specific school.    Those prices just blow me away.  I make a very good living plus the investment income and I don't think I could even sort of make the payment on 1.4 million for a shack.  Everyone can't be a trust fund baby or a Google millionaire.  FYI(2) I joined a Bay Area internet startup back in the day and in the end it got bought up by an ERP company.  My stock that I hoped to make millions on got me a $45,000 payday (so a lot better than nothing but in no way buying me a house in the Bay Area) "Prop 13's benefit to ""the rich"" is incidental and, frankly, minimal.   Check out these maps that I grabbed from a title records.  I searched for data on single family homes that were purchased (ergo assessed value is based on) between 1900 and 1980.  Arbitrary, but it'll do for our purposes.  I'd speculate that if I were to have picked 1970 or earlier the number of homes that are assessed at far below market value is negligible relative to the tax base as a whole.    Here's Coronado Island: http://imgur.com/572yTZI  The peninsula in Newport Beach: http://imgur.com/dFMcrZ1  The San Francisco Bay Area: http://imgur.com/a/NMZz0  And a zoomed in area of the Bay: http://imgur.com/a/NMZz0  If a parcel is outlined in green, it's assessed based on a purchase date prior to 1980.  Outlined in white means after 1980.  In my eyes, the big takeaway is that the number of homes which were purchased prior to 1980 is minimal.  Even in the Bay Area, where the zoomed out view suggests that there's a lot of those homes, when you zoom in and realize how densely populated the area is, not very many homes are assessed on outdated values.  (For example, on the Coronado map, the number of homes purchased pre-1980 was 47.  Pre-1990 was 179.  The search shows a total of 2,859 single family residences in the map area.)    You can argue that it's a dumb tax policy, but as social policy, I don't have an issue with it and I'd still contend it's largely negligible.  It's a battle that doesn't matter.  A skirmish when compared to 1031 Exchanges, basis step ups, the massive decline in personal income taxes for the upper brackets, etc.    Our tax policy as a whole is skewed and becoming more regressive (or, to the GOP, fair) all the time.    Not entirely unrelated, but I did some research and played with some numbers about income taxes because it's something that interests me.    Using this link: https://taxfoundation.org/us-federal-individual-income-tax-rates-history-1913-2013-nominal-and-inflation-adjusted-brackets/ you can see that $10,000 income in 1950 (which is about $100,000 in 2016 dollars) was taxed (I'm using married filing separately throughout):   20% on the first $2,000 22% from $2,000 to $4,000 26% from $4,000 to $6,000 30% from $6,000 to $8,000 34% from $8,000 to $10,000  The highest marginal tax rate was 91%, which applied to all income over $200,000 (just over $2,000,000 in 2016 dollars).   Median household income in 1950 was $3,216.  So the median american paid a maximum marginal tax of $22%.  If you do the math, our median household pays 20.8% of its income in taxes versus 26.4% for the $10,000 income household.    Fast forward to 1970, where our $10,000 CPI adjusts to $15,975 and median household income is now $6,186:   14% on first $500 15% from $500 to $1,000 16% from $1,000 to $1,500 17% from $1,500 to $2,000 19% from $2,000 to $4,000 22% from $4,000 to $6,000 25% from $6,000 to $8,000  The highest marginal tax rate has dropped 23% to 70% from 91% and our median American is paying a maximum marginal tax rate of 25%.    Skip forward to 2010, where our $10,000 CPI adjusts to $91,504 and median household income is now $49,445.    10% on the first $8,375 15% from $8,375 to $34,000 24% from $34,000 to $82,400 28% from $82,400 to $171,850 33% from $171,850 to $373,650 35% above that  The highest marginal tax rate has dropped another 50% from 70% to 35% and a total of 62% from the 1950 rate.    Of course, this is all skewed because the more income you make the better able you are to shelter income from taxes.  A family making median income is unlikely to be able to take significant advantage of tax shelters." "Welcome to Money.SE, and thank you for your service.  In general, buying a house is wise if (a) the overall cost of ownership is less than the ongoing cost to rent in the area, and (b) you plan to stay in that area for some time, usually 7+ years.  The VA loan is a unique opportunity and I'd recommend you make the most of it. In my area, I've seen bank owned properties that had an ""owner occupied"" restriction. 3 family homes that were beautiful, and when the numbers were scrubbed, the owner would see enough rent on two units to pay the mortgage, taxes, and still have money for maintenance. Each situation is unique, but some ""too good to be true"" deals are still out there." A possibility could be real estate brokerage firms such as Realogy or Prudential. Although a brokerage commission is linked to the sale prices it is more directly impacted by sales volume. If volume is maintained or goes up a real estate brokerage firm can actually profit rather handsomely in an up market or a down market.  If sales volume does go up another option would be other service markets for real estate such as real estate information and marketing websites and sources i.e. http://www.trulia.com. Furthermore one can go and make a broad generalization such as since real estate no longer requires the same quantity of construction material other industries sensitive to the price of those commodities should technically have a lower cost of doing business. But be careful in the US much of the wealth an average american has is in their home. In this case this means that the economy as a whole takes a dive due to consumer uncertainty. In which case safe havens could benefit, may be things like Proctor & Gamble, gold, or treasuries. Side Note: You can always short builders or someone who loses if the housing market declines, this will make your investment higher as a result of the security going lower. The financial reasons, beyond simply owning your home outright, are: You're no longer paying interest. Yes, the interest is tax-deductible in the U.S. (though not in Canada), but the tax savings is a percentage of a percentage; if you paid, say, $8000 in interest last year, at the 25% marginal rate you effectively save $2000 off your taxes. But, if you paid off your home and had that $8000 in your pocket, you'd pay the $2000 in taxes but you'd have $6000 left over. Which is the better deal? In Canada, the decision gets even easier; you pay taxes on the interest money either way, so you're either spending the $8000 in interest, lost forever as cost of capital, or on other things. Whatever you're earning is going into your own pocket, not the bank's. Similar to the interest, but also including principal, a home you own outright is a mortgage payment you don't have to make. You can now use that money, principal and interest, for other things. Whether these advantages outweigh those of anything else you could do with a few hundred grand depends primarily on the rate of return. If you got in at the bottom of the mortgage crisis (which is pretty much right now) and got a rate in the 3-4% range, with no MIP or other payment on top, then almost anything you can do with the amount you'd need to pay off a mortgage principal would get you a better rate of return. However, you'll need some market savvy to avoid risks.  In most cases when someone has pretty much any debt and a big wad of cash they're considering how to spend, I usually recommend paying off the debt, because that is, in effect, a risk-free way to increase the net rate of return on your total wealth and income. Balancing debt with investments always carries with it the risk that the investment will fail, leaving you stuck with the debt. Paying the debt on the other hand will guarantee that you don't have to pay interest on that outstanding amount anymore, so it's no longer offsetting whatever gains you are making in the market on your savings or future investments. According to the tax reform framework, changes to the current tax code would eliminate important provisions, such as the state and local tax deduction, while nearly doubling the standard deduction and eliminating personal and dependency exemptions. NAR believes the result would all but nullify the incentive to purchase a home for most, amounting to a de facto tax increase on homeowners, putting home values across the country at risk and ensuring that only the top 5 percent of Americans have the opportunity to benefit from the mortgage interest deduction.  This isn't good and serves no benefit. You would THINK someone with a background in real Estate would know this. It appears not.  There would also be a rise in rents as taxes go up. "Some pros and cons to renting vs buying: Some advantages of buying: When you rent, the money you pay is gone. When you buy, assuming you don't have the cash to buy outright but get a mortgage, some of the payment goes to interest, but you are building equity. Ultimately you pay off the mortgage and you can then live rent-free. When you buy, you can alter your home to your liking. You can paint in the colors you like, put in the carpet or flooring you like, heck, tear down walls and alter the floor plan (subject to building codes and safety consideration, of course). If you rent, you are usually sharply limited in what alterations you can make. In the U.S., mortgage interest is tax deductible. Rent is not. Property taxes are deductible from your federal income tax. So if you have, say, $1000 mortgage vs $1000 rent, the mortgage is actually cheaper. Advantages of renting: There are a lot of transaction costs involved in buying a house. You have to pay a realtor's commission, various legal fees, usually ""loan origination fees"" to the bank, etc. Plus the way mortgages are designed, your total payment is the same throughout the life of the loan. But for the first payment you owe interest on the total balance of the loan, while the last payment you only owe interest on a small amount. So early payments are mostly interest. This leads to the conventional advice that you should not buy unless you plan to live in the house for some reasonably long period of time, exact amount varying with whose giving the advice, but I think 3 to 5 years is common. One mitigating factor: Bear in mind that if you buy a house, and then after 2 years sell it, and you discover that the sale price minus purchase price minus closing costs ends up a net minus, say, $20,000, it's not entirely fair to say ""zounds! I lost $20,000 by buying"". If you had not bought this house, presumably you would have been renting. So the fair comparison is, mortgage payments plus losses on the resale compared to likely rental payments for the same period." "Goods that are exchanged for financial value, which you can use to increase your own standard of living at the expense of the people importing your goods. What good's a toaster if you spent part of your nest egg to get it?  I've been ""emphasizing"" a bottom line this entire time!" Which is generally the better option (financially)? Invest. If you can return 7-8% (less than the historical return of the S&P 500) on your money over the course of 25 years this will outperform purchasing personal property. If you WANT to own a house for other reason apart from the financial benefits then buy a house. Will you earn 7-8% on your money, there is a pretty good chance this is no because investors are prone to act emotionally. So obviously, realtors are not economists and have a strong bias here.  A lot of actual [economists](https://fivethirtyeight.com/features/the-tax-deductions-economists-hate/) think the mortgage deduction is nonsense and doesn't actually promote home ownership. Countries without the deduction have about the same ownership rates as the U.S.  Worth noting that this proposal doesn't actually scrap the mortgage deduction, it just makes the standard deduction bigger. Some people will end up better off with the new standard deduction, and those with more expensive homes can keep using the mortgage deduction.  This is one of the few proposals coming out of the Republican congress that actually helps poor people more than rich people. Government purchases of mortgages simply transfers the debt burden from households to the sovereign. Taxes pay sovereign debt (65% of whom are homeowners anyway). No debt has been restructured -- it's now paid via taxes instead of monthly mortgage payments -- and those paying include persons who responsibly avoided housing speculation. The U.S. has a debt-to-GDP ratio just shy of the critical point of 90%. Purchasing $10 trillion in mortgage debt (about a year of GDP) would put the U.S. on an inexorable path towards insolvency and inflation. There are all sorts of other risks (loss of a risk-free asset, moral hazard, nationalization of the housing industry, etc.) but this should make the point clear that it's not a good idea. There are only three ways to reduce debt: 1) default, 2) restructure, or 3) lower the real debt burden by de-valuing currency in which the debt is denominated. There is indeed a market for single stock futures, and they have been trading on the OneChicago exchange since 2002. Futures are available in 12,509 individual stocks, according to the exchange's current product listing. One advantage they offer over trading the underlying stock is the significantly higher leverage that is available, combined with the lack of pattern day trader rules that apply to stocks and similar securities. Single stock futures have proven to be something of a regulatory challenge as it has been unclear whether their oversight is the remit of the SEC/FINRA or the CFTC/NFA. The trades after that date were Ex-DIV, meaning after 5 pm Dec 12, new trades did not include the shares that were to be spun out.  The process is very orderly, no one pays $60 without getting the spinoff, and no one pays $30 but still gets it. The real question is why there's that long delay nearly three weeks to make the spinoff shares available. I don't know.  By the way, the stock options are adjusted as well. Someone owning a $50 put isn't suddenly in the money on 12/13. Edit - (I am not a hoarder. I started a fire last night and realized I had a few Barron's in the paper pile) This is how the ABT quote appeared in the 12/24 issue of Barron's. Both the original quote, and the WI (when issued) for the stock less the spin off company.