May122014

Is home ownership still the American Dream?

The housing bust tarnished the American Dream dream of home ownership, and a new generation chooses to rent instead. Is this a permanent change?

American_dream_the_money_pitThe system of banking we have both equally and ever reprobated. I contemplate it as a blot left in all our Constitutions, which, if not covered, will end in their destruction, which is already hit by the gamblers in corruption, and is sweeping away in its progress the fortunes and morals of our citizens. Funding I consider as limited, rightfully, to a redemption of the debt within the lives of a majority of the generation contracting it; every generation coming equally, by the laws of the Creator of the world, to the free possession of the earth he made for their subsistence, unincumbered by their predecessors, who, like them, were but tenants for life.

Thomas Jefferson

California borrowers have created a culture of maximizing and servicing debt that makes them tenants for life. Thomas Jefferson would not recognize the concept we routinely accept as “ownership,” but he would have recognized the corruption of our lending gamblers sweeping away the fortunes and morals of our citizens.

Lenders and borrowers perverted the American Dream during the housing bubble as Americans began to define themselves by the size of their house. Wealth became confused with debt; appreciation became confused with income; credit became confused with savings. Rather than viewing the road to prosperity as one that required hard work and delayed gratification, Americans came to believe they could acheive success by simply purchasing the right house and living off the increase in its value. The new American dream required no work, no sacrifice, no experience, no expertise, and no risk, yet yielded unlimited rewards.

These perverted views of what it means to be American are so ingrained in the collective consciousness of Californians, that few remember the real American Dream.

Work hard, save money, pay off a mortgage, and live in your debt-free house on the investment income from your savings in your golden years.

In a sad way, I understand why people bought the fantasy. If offered to chose between working hard and sacrificing to obtain a goal or doing nothing and instantly gratifying all desires, most people will chose the latter. Unfortunately, reality has a way of exposing myths that are too good to be true, and the housing bust destroyed the illusions and perversions of the American Dream created by the housing bubble; unfortunately, no new mythos has yet emerged to take its place.

Why millennials rent: What do you think?

Diana Olick | @diana_olick, Wednesday, 7 May 2014 | 1:50 PM ET

The nation’s homeownership rate may be falling, but the dream of homeownership isn’t exactly dead. It is just being postponed, especially among the younger millennial generation. A far stricter credit environment is keeping them outside of homeownership for now, and as investors move out of the market, that is actually stalling the housing recovery. …

The American Dream of home ownership isn’t dead. It’s certainly more difficult to get on title these days, but the desire will always be there.

death-of-home-ownership

More renters now say they rent because it is a more affordable option …

Lenders today are requiring larger down payments, and mortgage insurance premiums have gone up.

“Younger renters have told us by a vast majority that they eventually want to own a home, but the road to get the mortgage financing is going to be pretty difficult,” added Fannie Mae’s Deggendorf.

I’ve documented in many posts the issues holding back demand (See: Most Millennials won’t qualify for a mortgage until 2019, Imprudent student debt debilitates Millennial home shoppers, and Typical sources of housing demand largely absent)Circle_Of_Life_housing

The days of fog-a-mirror and get-a-loan are gone for good. The bigger question is whether or not the structural problems and adjustments are merely delaying the inevitable, or if there is a grass-roots shift in attitudes toward home ownership. I do believe the current generation won’t have the unbridled enthusiasm of the previous generation — thankfully — and they will be more cautious about buying, which is a natural reaction to the carnage they witnessed, but ownership is primal, and no matter how bad lenders and government officials screw everything up, people will still want to own if it’s advantageous for them to do so. With high prices and little prospect for the above-average appreciation the Baby Boomers experienced, owning a home isn’t a “must” like it was 30 years ago, so Millennials don’t feel much urgency. Also, with realtor credibility at less than zero, Millennials aren’t as easily duped by fantasies of boundless appreciation as previous generations either.

Attitudes have also shifted along with credit availability. There is no longer a stigma to renting versus owning, among millennials at least. While previous generations preferred gated communities, young people today want to live closer to each other in urban cores. They also want amenities and work to be nearby or at least easily accessible by public transit. That is why rental development is surging now and rental demand continues to climb.

20 million U.S. families could buy homes, but don’t 

May 5, 2014, 6:49 a.m. EDT, By Daniel Goldsteinsexist_housing_discussion

Only 13% view home ownership as their “ultimate financial goal”

For Rebecca Diamond, a marketing manager in Randallstown, Md. who’s getting married this month, buying a home with her new husband would seem like the logical next step.

But she’s not even considering it.

No interest whatsoever. I don’t want the cost and responsibility of one right now,” she says. “Let [the landlord] have all the headaches,” adds Diamond, who rents a three-bedroom condo outside of Baltimore. …

Kudos to her for being rational about home ownership. At some point, their life circumstances may change, and they may buy a house, but for now, she isn’t gripped by the irrational need to own the place her family calls home.

the National Endowment for Financial Education released a poll this week that showed only 13% of Americans considered home ownership as their “top long term financial goal,” down from 17% in 2011.

“The American dream has long been associated with the gratification and security of a comfortable home within the picturesque borders of a white-picket fence,” said Ted Beck, president and CEO of the NEFE, which is based in Denver. “However, today the perceived importance of home ownership appears to be waning.”

Instead, according to the poll, a whopping 50% said that their sole long term financial goal was to save enough for retirement, up from 43% three years earlier

If Americans accept that buying a home is not the sole means for providing for their retirement, that is a huge step forward. Owning a house without a mortgage is a fantastic way to reduce expenses in retirement, making it a worthy part of any retirement plan. Some people during the housing bubble came to believe they could simply buy a home and live off the appreciation in their retirement. That is not a retirement plan; it’s a Ponzi scheme, and executing that plan will lead to financial anxiety in what should be your golden years.

Ponzi_retirement

McBride says he sees the smaller number of Americans making a home their ultimate financial goal as a good thing. “People compromise their financial goals in pursuit of home ownership and they aren’t putting enough into their retirement or their 401(k) and they end up house rich but cash poor,” he said.

Once more Americans feel financially secure about their retirement, they’ll return to the housing market, he said. “They’ve rightly felt burned by the housing bust, but five to fifteen years from now, they’ll be back.”

They will be back. Since home ownership is currently not in vogue, is fashion about to change?house_poor

Hating Homeownership

87 May 6, 2014 8:21 AM EDT, By Barry Ritholtz

U.S. homeownership falls to the lowest levels in almost 20 years, blared the headlines. Lots of articles explained “Why Your Home is Not a Good Investment” and why Americans think owning a home is better for them than it is. It seems that America’s former love affair with real estate is over.

Blame the recency effect. People have a disconcerting tendency to give more weight to what just happened than long-term trends. This is why the monthly jobs report, a very rough estimate, has such an outsize impact on the markets. This same effect is what is driving people toward renting over buying.

The public’s bad attitude toward owning right now is a contrarian sign that the home ownership rate is probably going to bottom out very soon. When every article is about the perils of home ownership, it’s probably a sign people will start buying again.

There are several issues with the current group of housing bears. Some of the assumptions in the investment aspect of this are questionable (more on this shortly). But the main issue is that too many people are looking at housing as if it is purely mathematical, which it isn’t.

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I have written many posts about renting versus owning, and I put most of that writing into my rent-versus-own guide. The decision is not purely mechanical, but one of the main purposes of my work on this blog is to make sure people understand the math and know what they are getting into. I believe that is still important information for making a good homebuying decision.

There are many conclusions we can reach about homeownership: It represents control, accomplishment, a homestead. Maybe it even means Americans really love leverage. But the focus on the mathematics of homeownership misses the bigger picture.

Eventually, the memory of the recent crisis will fade. The economy will one day improve, and the millenials will move out of their parents’ basements. When that happens, expect to see homeownership rates move back higher.

The American Dream is not dead. The idea of owning a home will rise from the ashes, and the American Dream will once again include owning the roof over your head and the floor beneath your feet. Personally, I would like to see a return to the traditional view of the American Dream: truly owning a home free of any debt. That’s where peace-of-mind reunites with the American Dream.

peace of mind in real estate

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