Buying a home is indeed a great investment.
Most people invest for a more comfortable future, and while there are various investment options, owning a home can be a solid choice. You can see this from three main aspects:
1.) Principal Repayment of the Mortgage: Paying off the principal on your mortgage is like saving money. Renting a home means you're just
spending money with no return, but when you make mortgage payments, a portion goes towards building your equity. Over time, the proportion of your payments allocated to the principal increases.
2.) Appreciation of Home Value: For those familiar with stock investments, buying a home can be likened to using leverage – taking out a loan to buy an asset that can appreciate in value. The difference between the increased home value and your original purchase cost is your net asset gain. As property values rise, additional pure assets are created.
Will home values really appreciate? You can look at the historical graph of home price fluctuations over the past 60 years. As you can see, except for a few years during the subprime mortgage crisis, home prices have steadily increased. Particularly, in areas with good school districts that many Koreans prefer, there's a limited supply of new land for construction. Older individuals are staying in their homes longer, and the lack of new construction is another reason (besides land scarcity) for limited supply. On the other hand, the number of buyers continues to grow. Hence, home values in such areas are likely to rise.
3.) Increasing Rental Costs: As shown in the graph, rental prices tend to rise in proportion to home prices. This means that household fixed expenses increase every year. In contrast, mortgage payments, especially with a fixed interest rate, remain the same for 15 or 30 years. This means that the asset-building mortgage payments are not affected by inflation, while rent, a 100% expenditure, keeps rising. Therefore, it's essential to consider the long-term implications when you find your current mortgage payment manageable but think about keeping rent instead.
If you have any additional questions about today's article, feel free to reach out anytime. I'll be here with more informative content in the future.