The Hidden Costs of Homeownership in America
Homeownership – it’s at the core of the American Dream. Some say our ancestors came here to flee the oppression of Europe’s feudal society. Even in the 15th century, the noble classes virtually owned all the land. Meanwhile, in America, anything was possible. The land was plentiful and cheap, putting ownership within reach of anyone willing to work for it.
Not much has changed over the centuries. Most of us dream, one day, of owning property we can call our own. According to Statista, 64.8% of American households own the home they live in. And of those who rent, 89% want to do the same.
However, homeownership statistics vary widely from one corner of the nation to the other. What’s behind these differences, and how can aspiring homeowners overcome higher costs? These are just a couple of questions we’ll answer in this post.
Which cities have the most homeowners? The least?
No part of America is representative of the entire country. People who live in the Northeast have different attitudes, occupations, and incomes than those who reside in the Heartland. As such, some cities embrace homeownership, while others are more comfortable renting.
If you want to live where owners occupy their homes, look to the Midwest and the South. Pennsylvania is particularly attractive, as Allentown and Pittsburgh are 1-2 in homeownership stats. In these cities, 73.1 and 72.7% of units are owner-occupied.
Let’s flip to the other extreme. Want a fabulous, action-packed life, without the constraints that come with owning? Make NYC or Los Angeles your home. You’ll be in good company – in these centers, only 49.1 and 49.9% of households own the property they live in.
What’s behind the differences in these numbers?
As we’ve stated, the Coasts and the Heartland differ in fundamental ways. However, a common thread between their homeownership rates does exist. Unsurprisingly, it has much to do with the cost of real estate.
Let’s nip back to Pennsylvania for a moment. In both Allentown and Pittsburgh, more than 70% of households own. That takes a lot of potential inventory off the market. Yet, in both these centers, the average selling price lies in the mid-100s.
Why is that? Much of Allentown and Pittsburgh (and by extension, the Rust Belt) was heavily dependent on manufacturing. Over the past couple of decades, automation and outsourcing decimated the local economy. In recent years, any job growth has been primarily in low-wage industries.
Markets only pay what they can bear. And throughout much of the Rust Belt and the South, that’s not much. However, if you have a decent-paying job, you can save up a down payment in a relatively short time. Thanks to the steady recovery of Pittsburgh/Allentown’s economy, and depressed home prices, 70%+ ownership rates are the result.
Meanwhile, on the Coasts, the economy has been humming over the past two decades. In NYC, finance, tech, and other high-paying industries have been thriving. At the same time, available land for new housing projects has gotten scarce.
It’s a similar story in Los Angeles. America’s second-largest city has a broad-based economy – entertainment, aerospace, manufacturing, and tech all figure. For decades, throngs of people have emigrated here, chasing not just jobs, but the good life. With an average January high of 68 degrees, it arguably has the best weather in the lower 48.
Despite the best efforts of developers, housing hasn’t been able to keep up. The fact that LA has hard geographical constraints (i.e., the Pacific Ocean, mountains) only makes things worse.
When you have more demand than available units, prices surge. In both NYC and LA, buyers with deep pockets have sent averages skyward, In Los Angeles, the average home sells for $705,000. In NYC, owners list their units at $799,000 ($1.5 million in Manhattan) – and many of those are condos.
Homeownership is far more expensive than new buyers realize
So, after reviewing your finances, you’ve determined you’ll be able to afford your first home – congrats! However, know that after you pick up the keys to the house, the bills won’t stop coming. Homeownership is far more expensive than most renters ever realize.
First and foremost, as a precondition of getting a mortgage, you’ll need to get insurance. Homeowners’ home insurance in the U.S. will run you about $1,000 per year. However, factors like location, plan type, and the condition of the house can raise that cost.
It’s not just the banks and the insurance companies you’ll pay – the government wants its cut, too. Every year, you’ll have to pay property tax to your municipality. In 2016, the average American paid $3,296 in levies to local authorities. Don’t mess around with this expense – if you end up in arrears, the state could seize your property.
So, you’ve finished paying off every entity that had their hand out – whew! Time to relax, right? Not so fast – with time, weather, and usage, your home’s systems and appliances will slowly wear down. Inevitably, they will break.
Every year, you’ll have to set aside enough money to carry out regular maintenance on your home. From cleaning the gutters to replacing old shingles, you’ll spend hundreds, perhaps thousands on preventative tasks.
Think you can ignore these responsibilities? Well, you can, but it’ll cost you a LOT more in the end. Failure to replace those peeling shingles may lead to a roof leak years later. The cost to completely rebuild a roof? Between $5,000 to $10,000 – or more.
How home warranties can lower household costs (or stabilize them)
Even if you stay on top of preventative maintenance, you’ll still have to pay for some pricey repairs. Only qualified HVAC technicians can only fix systems like furnaces and central A/C units. Repairs of these units can exceed $1,000. Replacements can leave a $6,000-$7,000 hole in your wallet.
Aside from cleaning filters, there’s little you can do to forestall their inevitable failure. Their day will come, and when it does, you’ll be on the hook for some seriously expensive repairs. This is a problem for the average American. 40% of us can’t afford to cover an unexpected $400 expense.
So, what can you do? As it turns out, there is a viable solution. More Americans are turning to home warranties to reduce (or at least stabilize) their repair expenses. Home warranties are similar to homeowner’s insurance – in return for paying a monthly premium, you can claim unforeseen repairs/replacements.
The average American spends about $2,000 per year on maintenance. Compare that to the cost of a home warranty – the median annual premium is $1,043 ($420-$720 with AHS, the leading provider). If you have a $75 deductible and make five service calls per year, you’ll spend about $1,350 on repairs.
We’ll be honest – home warranties aren’t for everyone. If your home is brand new, systems will be in top shape, making a home warranty contract a poor value. However, most Americans live in older homes. If your house was built decades ago, a home warranty will save you money.
Homeownership isn’t cheap, but it’s worth it
Having a home to call your own is a worthy dream. But, don’t delude yourself – homeownership is a HUGE financial responsibility. If your fiscal house isn’t in order, its expenses can hold you back from living your life.
If you’re up to the challenge, though, the rewards are many. You can shape your property in your image, lay down roots, and make memories. But, above all, you’ll have a place that’ll always be home.
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