Is Homeownership Your American Dream?
The American Dream Series: Part 1 of 5
James Truslow Adams, the historian who coined the phrase “American Dream” defined it as a life that was “better and richer and fuller for every man, with opportunity for each according to ability or achievement.” He was clear that it was not a dream of accumulating material wealth and goods but a dream of a respectful social order and meritocracy; nowhere did he mention homeownership.
That was 1931.
Fast forward nearly 80 years and the phrase “American Dream” has become synonymous with homeownership. We grow up biding our time and saving our money for that day when we can achieve our dreams and beam with pride over the purchase of our very first home. But it’s the blind pursuit of this American Dream that’s resulted in such devastating consequences for so many American homeowners.
Over 8 million jobs have been lost since the start of the recession and foreclosures rates are at historical highs. Many Americans are out of work, have lost their homes or have mortgages that are under water. In the midst of such chaos, even those of us watching from the sidelines and quietly planning for our own futures are forced to wonder: Is homeownership my American Dream?
Over the last half century, homeownership in America has taken on more complexity. First, we’re a more mobile society. We move more frequently for opportunities than previous generations did which puts us at the mercy of housing market cycles when we need to sell. Second, some American homeowners have come to view their family homes as short-term investments, temporary places to settle until the opportunity to trade-up presents itself. Third, the huge stigma that used to be associated with owing debt in the first half of the 20th century no longer exists. As a result, we often take on much more debt than is prudent. Fourth, government regulation and tax policies that favor homeownership have pushed us into an “ownership society” mentality without consideration for our individual circumstances. Lastly, more sophisticated and confusing types of loans have been created and lenders have essentially encouraged ordinary people to bet their entire future on real estate.
Somehow, people came to believe that you could depend on home prices to appreciate and that your primary residence should be treated as an investment, like a stock or bond, rather than as a place to hang your hat and build memories. Even the “professionals” sold this notion; they lent more money on new homes and encouraged consumers to take equity out of their existing homes. All of this left many American homeowners house rich and cash poor.
It’s clear now that people are seriously reconsidering the assumption that homeownership is a natural part of life. With the collapse of the housing market, many Americans are left feeling cynical about home ownership. In a June 2009 survey commissioned by the National Foundation for Credit Counseling, one third of respondents admitted to the disbelief that they will ever be able to own a home. Furthermore, 42% of those who once purchased a home but no longer own it believe that they’ll never be able to afford to buy a home again.
Perhaps it’s time to rethink the American Dream. While there can be advantages to homeownership for many, it may not be for everyone and there are many important factors to consider in the often overlooked rent vs. buy decision.
To learn more about how to make an educated rent vs. buy decision, stay tuned for our next four articles in this five-part series. We’ll walk you through key financial considerations for both the short-term and long-term, and will discuss the impact that lifestyle choices should have on your thinking. Discover if homeownership is really a part of your American Dream, or if renting is more in line with your ideal way to live. Read Part 2.