Rent vs. Buy: Is Homeownership Your American Dream?
Rent vs. Buy: 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 more than 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 goals and beam with pride over the purchase of our very first home, complete with white picket fence and loyal pet.
But it’s the blind pursuit of this American Dream that’s resulted in such devastating consequences for so many U.S. homeowners. With that in mind, we analyze the rent vs. buy debate, hoping to shed light on the more flexible definition of the American Dream.
The Downside of Dreaming Big
More than 8 million Americans have lost their jobs since the start of the recession, and foreclosure rates are at historical highs. Many Americans are out of work, have lost their homes or have mortgages that are under water.
While this situation has improved over the past few years, many are wary about homeownership as a result of the housing bubble. 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?
Not So Simple
Over the last half century, buying a home 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. Whether you have to move for work or simply want to try a new city, apartment rental may be more feasible than buying property.
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. With that in mind, what’s the point of buying? Because so many people want to continuously grow, they could waste money by reselling a home soon after purchasing it.
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, banks and lenders have devised more sophisticated and confusing types of loans, and they have essentially encouraged ordinary people to bet their entire future on real estate. That doesn’t seem like sound financial advice to us.
Somehow, people came to believe 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—and 42 percent 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.
Resetting Our Goals
Perhaps it’s time to rethink the American Dream. While homeownership may carry benefits for many, it might not be for everyone. Besides, you have 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, read the 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 we’ll 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. After all, Adams’ American Dream was all about bettering oneself, and renting an apartment could be the road you take to do so. Keep reading for additional insight.
Read Part Two: Short-Term Implications of Renting vs Buying
Pin this post: