Reuters

(Reuters)

Home-Buying Incentives Gone Wrong

By Home Mortgage Zillow

When the economy was a shambles and the housing market was in disarray back in 2009 and 2010, the U.S. government offered a special tax credit for first-time home buyers.

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Turns out that from a purely financial standpoint, people who bought then would’ve been better off renting and putting their down payment and transaction costs into the stock market, according to a new analysis by Zillow Research. In many areas, even renting and leaving money in low-paying savings accounts would have fared better.

Assuming a 5-percent down payment — which is common for first-time home buyers — plus other home-buying expenses, people who bought homes in 2009 would have fared $19,632 better on average by renting and playing the stock market instead.

Even the $8,000 tax credit couldn’t overcome that difference. In some markets, such as Philadelphia, you’d have $18,257 more if you’d just kept that money in the bank — which is still $10,257 more after accounting for the tax credit.

However, that cold look at the data assumes homeowners are in it strictly for financial gain. In fact, many other factors go into owning a home — some financial, some emotional, many timed to the needs of a particular buyer and family.

Many people who took the government up on its special home-buying incentives six years ago remain in those homes and may end up making a financial killing in years to come.

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Others won’t, but the calculus of their lives — commutes, children’s needs, a longing for a hot tub with a view — makes buying when they did the right choice.

The only sure lesson to take from this research is that no single element — low interest rates, low prices, government incentives — should compel you to buy. That kind of myopia can backfire, as it would have with these incentives.

The home-buying decision isn’t made in a vacuum, but includes a host of factors that make the timing right. For example, how long you plan to live there should be a major consideration, according to the book “Zillow Talk: The New Rules of Real Estate” by Zillow CEO Spencer Rascoff and Chief Economist Stan Humphries.

If many factors are included, then any hard luck with market timing and pricing should be easier to take. Particularly if you’re sitting in a hot tub.

Read more about this analysis and other cool real-estate data at Zillow Research.

Melissa Allison writes about real estate transactions and trends for Zillow Blog.

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