Home Ownership: The American Dream or Nightmare?

Home Ownership: The American Dream or Nightmare?

Home Ownership: The American Dream

Starting with President Hoover’s “Own Your Home” campaign in 1918 and climaxing with Bush’s “ownership society” in 2004, home ownership has become as American as baseball and apple pie. During this time it’s also been touted as a one-way ticket to a middle class lifestyle and as a safe post-retirement savings account. Sweetening the deal along the way has been an ongoing development of tax breaks, subsidies, and government-backed, long-term, fixed-rate mortgages (an anomaly outside the U.S.), all designed to make home ownership both easy and more affordable. Which all worked, as house ownership moved from 40% of the population in 1940 to 69.4% in 2004. Worked, that is, until it didn’t.

Home Ownership: The Nightmare

With both business and government interests pushing home ownership toward, well, anyone, a housing bubble soon overtook the market, and when it popped, everything went down, especially for those at the bottom. Squeezed between falling house prices and a job-shedding economy, we’ve found ourselves in a position of unprecedented debt, default and foreclosure. Even as the economy has begun its slow trudge toward renewed growth, home owners are still stuck with little relief, or options. For home owners in Detroit, for example, they’ve found themselves stuck with a house they can’t sell and in a market with no jobs.

Rethinking the American Dream

So is the American Dream now dead? Well, no, not completely. Not for all, at least. Those who can afford a home, still can, and will likely continue purchasing their homes, I’d imagine. But there is a growing subsection of the population that might find relief in another option: renting. Yes, long known as the “throwing away your money” option, renting actually isn’t all that bad. In fact, in a lot of cases, it’s the smarter financial option. If you’re surprised, it’s probably because the value of home ownership has been way, way overinflated, and the value of renting has been way, way underinflated. But let’s look at the math.

The Math

To start, sure you’re “throwing away” your rent check every month (for which you receive shelter), but in the same sense you’re also “throwing away” quite a bit of money in buying and owning a home — insurance, property tax, maintenance and interest on the mortgage, as well as for the closing costs and real estate agent commissions. All in all, you don’t get a better deal on a home until you’ve owned it for six or more years, on average.

Second, if you were to take all the extra money you’d be spending on your mortgage, interest rates, and so on, and invest it into a real savings account (think: 8% interest), you’d come out way ahead. Then, of course, there are the added benefits of mobility and flexibility — the job market moves? You can move with it!

In the end, whether you’re buying or renting, it’s a personal choice you (and your partner) will have to make on your own. And you’ll have to calculate the different variables (where you live, what you want, how much money you have) for your specific situation. Nonetheless, if you find yourself thinking that owning a home is your only shot at the American Dream and/or financial success — think again. There are other options.