Why you should purchase a house in your 20s

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One of the realizations many Americans came to over the last 18 months is that it’s good to own a house. In 2020, the homeownership rate increased by the widest margin since the 90s. Young professionals realized it’s pretty nice to have a yard, a spare bedroom, or a home office that doesn’t double as a kitchen table. 

Re: having a yard, totally coincidentally, the pet ownership rate skyrocketed during 2020.

But a house is more than a great place to live. It can also be a powerful investment asset that strengthens a portfolio, builds net worth at favorable rates, and helps protect homeowners from adverse economic forces.

So today, we’re taking a dive into some reasons you should purchase a house in your 20s.

Financial Health

Let’s start with the elephant in the room: buying a house is expensive. 

The good news: because of economic forces and federal housing policy, homeownership is one of the most accessible ways for young people to get points on the “asset” side of the net worth equation, often while actually saving on living expenses.

First, owning a house factors into your net worth. As of January 2021, according to Zillow, the median home value in the United States was about $269,000 — up from $111,000 in 1999. A high-value asset that reliably appreciates over time is a comparative rarity, especially for non-accredited investors, as most 20-somethings are.

Fortunately, houses are easier to buy than you might think. 

The 30-year mortgage might not be ideal, but it is true that borrowing through the FHA can mean safe, low rates, on a down payment potentially under 4%. 

In 2020, the average rent for a one-bedroom apartment was just under $1,100. The most recent Census Bureau Survey, on the other hand, found that the average mortgage payment is $1,275

But, the statistics aren’t the whole story. In many U.S. cities, especially in the Heartland (and including Pittsburgh and Cleveland), renting is actually more expensive than buying.

Meanwhile, homeowners’ mortgage payments contribute to the loan principal, meaning they actually own something at the end of the day. Home-buyers can often expect to see their money again, as they build equity on an asset that’s likely to gain value over time.

Especially early in life, converting an inevitable expense (housing costs) into an equity-building investment is a priceless opportunity.

Homes are also investment assets

Homes tend to reliably increase in value. Even setting aside 2021, in which single-family valuations skyrocketed because of the work-from-home demand spike, home prices tend to appreciate reliably over time

While recessions can damage housing as an investment, houses remain the most accessible way for most young people to expose their portfolios to real estate, which can be a powerfully countercyclical investment that helps hedge against market risk.

In particular, most homeowners keep their houses for a long time — around 10.5 years in 2021 — which means most homebuyers don’t need to be especially concerned by temporary, short-term, or market-specific recessionary events. 

If you own the house for a while, you can leverage one of the best traits of real estate as an asset class. Real estate values benefit from universal demand rooted in the fact that everyone needs a place to live.

Diversification is an important way to navigate risk, and owning an asset that benefits from resilient demand and lower risk than exchange-traded securities can be an important step in the right direction.

Buying a house can also produce returns in its own right. Over the long run, the math favors homeowners because it’s the easiest way to go long on real estate. After all, what rents and home values have in common is that they both tend to go up.

The national price-to-rent ratio is 18.27, which means that while the typical home-owning American household spends around 22% of its income on mortgage payments, the typical rent-paying American household spends under 19% of its income on rent. 

As both property values and rents increase, most of us would rather be sellers than buyers, and homeowners build equity that enables two powerful wealth-building “house hacks.”

First, homeowners can use their property to earn passive income. Buying an asset with leverage and renting it out via AirBnB when you’re away for the weekend, or living with roommates to subsidize mortgage payments, can help 20-somethings offset the costs of owning a home, and eventually pocket some cash.

Second, homeowners with a little more time and dedication can buy a house, live in it for a year or two, rent it out, maybe make some capital-light improvements, buy another house, rinse and repeat.

Concluding thoughts

Buying a home isn’t for everyone. Homeownership makes more sense in some professions than others, and it usually isn’t advisable to buy a home unless you’re planning to stay in your city or geography for at least a few years. 

But, for 20-somethings with stable jobs, starting a family, or planning to live in the same area for a while, a house is more than just another appreciating asset.

A house is an important part of your net worth, a stronghold against financial risk, a source of passive income, and a financial milestone worth being proud of.

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