Owning a house provides people with shelter, comfort, and a sense of security, and over time, that house can become a warm and welcoming home.
According to a report released by the Federal Reserve in 2024, for most Americans, their homes are their most valuable asset. The net worth of a home provides them with a lasting source of wealth that can be passed on to their children.
On June 9th, the New York-based information services company, Bankrate, conducted a study titled “Study: Owning a home costs over $21,000 a year in hidden expenses,” revealing that homeownership might not be as profitable as commonly thought. Many people only consider the difference between the purchase and sale prices of a home as profit, without taking into account numerous other factors.
“Many things need to be considered that many homeowners overlook, namely the higher costs of homeownership, also known as hidden costs,” Linda Bell, a housing expert at Bankrate, said in an interview with The Epoch Times. “These hidden costs catch many homeowners off guard.”
According to Bell’s calculations, the average American homeowner spends over $21,000 annually, including property taxes, insurance, maintenance, repairs, and utility bills. Around $6,000 of these expenses are utilities like water, heating, electricity, and internet services that renters typically pay, while the remaining $15,000 is exclusive to homeowners each year.
The annual cost of owning a home includes approximately $8,800 in property taxes, $4,300 in maintenance costs, and $2,300 in homeowner insurance, but these figures vary significantly based on location. The most expensive states in terms of homeowner costs are Hawaii ($34,573), California ($32,262), New Jersey ($29,751), Massachusetts ($29,277), and Washington ($27,444). Conversely, states with the lowest homeowner costs include West Virginia ($12,579), Mississippi ($14,810), Indiana ($14,903), Missouri ($15,349), and Arkansas ($15,362).
Regardless of whether measured in dollars or as a percentage of income, these costs are on the rise.
Bell noted that costs like maintenance, repairs, materials, and labor inflation “will continue to exist and are increasing.”
A report by the Federal Reserve in January titled “First-Time Homeownership Became Less Affordable Across Most of the United States in Recent Years” found that over the past five years, homeownership affordability has decreased in most regions of the United States. This shift from affordable counties (white and gray) to unaffordable ones (blue and dark blue), as shown in the graph below, highlights the trend.
In the West, coastal markets, and parts of the Southeast, the affordability of new homes for average families has notably declined. Even counties in the Midwest, such as Missouri, Texas, and Minnesota, have seen a decrease in affordability.
The increasing costs of homeownership present a challenge to the long-held belief in the value of buying a home.
Data collected by Aswath Damodaran, an economist at New York University, shows that from 1928 to 2024, the average return rate for stocks in the S&P 500 Index was 9.94%, while real estate only yielded 4.23%. In the past decade, this gap has widened further, with stocks returning 12.98% compared to real estate’s 6.89%.
This disparity corresponds to the growing wealth gap between the bottom 90% of American families, whose primary asset is their home, and the top 10% who invest more of their savings in stocks.
However, this doesn’t necessarily mean that buying a home is a bad investment. There are numerous benefits to owning one.
“The rich are getting richer than the rest. According to a 2022 Census Bureau study on Wealth of Households, the median wealth of homeowner families is 44 times greater than that of renters,” Bell explained.
Even when the value of the home is excluded from total wealth, homeowner families have a median wealth that is about 17 times higher than renters.
Buying a home, especially through a mortgage, imposes financial discipline on buyers as they must manage their income and expenses to ensure they can afford monthly payments. It’s a form of forced savings and carries the risk of losing the property. However, part of each mortgage payment goes toward building home equity, and mortgage interest payments for a primary residence are tax-deductible, while profits from selling the home are also taxed favorably.
For those considering homeownership, analysts caution that potential buyers should be mindful of all costs, not just the purchase price and monthly mortgage payments.
“The first thing they need to do is crunch the numbers to make sure they can afford it because I’ve written many articles about people ultimately ‘buying themselves poor,'” Bell said. “There are a lot of older homes out there, homes over 40 years old that might need a new air conditioning system, a new roof, or more routine maintenance.”
Additionally, the cost of replacing appliances like fridges, washers, dryers, and stoves can add up significantly. Bell recommends setting aside an emergency fund to cover inevitable but often unforeseen maintenance and repair costs.
“You should be saving 1% to 4% of the property value for repairs,” Bell advised. “Put that money into a high-yield savings account, so your money can work harder for you than in a regular bank or savings account.”
The Federal Trade Commission notes that for new or renovated homes, many builders offer home warranties covering windows, heating, ventilation, air conditioning, plumbing, electrical systems, among others, typically for one to two years. For major structural defects, the warranty can extend up to 10 years.