The fallacy of the American Dream

Everyone wants to own a home when they grow up. Whether it’s a city condo, a country cottage, a humble suburban house or a 4,000 square-foot McMansion, we’ve been told all our lives that this is the goal. Renting is for college kids, not adult professionals. Real estate agents and bankers tell you that renting is like pouring your money down the drain. “It will never be yours,” they say. “Invest in something you can actually own! You’ll gain equity! And get tax benefits!”

But I’ve come to understand that most people never own their homes unless they buy them outright. Thirty years is an incredibly long term to carry a debt. I don’t know the percentage of people who actually pay it off that way, but I’d guess that most homeowners sell and buy another home long before the 30-year term ends. And then they start over with another mortgage. So in essence, borrowing money to buy a house is simply paying your “rent” to a bank instead of a landlord.

You may have more freedoms as a homeowner (or maybe not, depending on your HOA), but you also have more responsibilities. While lenders are up-front about interest rates and insurance costs, many people don’t realistically consider the cost of repairs and maintenance when they decide to buy a home, nor how unpredictable those expenses are. Last summer our A/C compressor got hit by lightning and had to be replaced. Then it got zapped again, a month later. What are the chances of that happening? Those random acts of god cost us $2,000 when we could least afford it. Had we been renting, that cost would have come out of someone else’s pocket.

I’m not the only person who’s disillusioned about home ownership. In the NY Times article entitled Men Who Jump The Picket Fence, we hear from some people who are finding out that home ownership is not all dinner parties and backyard barbecues:

“Whatever the case, a number of men seem to be newly aware of what economists describe as a peculiarity of homeownership: it has an asset value (as an abstract investment) and a consumption value (as a place to watch VH1 and wash underwear). For the first time in a generation, homeowners can look at their dwellings without hearing the distracting jingle of the real estate jackpot. And a number of them, having stepped onto the property ladder just as it was becoming shaky, would very much like to get off.”

So why do people keep buying, if it makes more sense to rent? I believe it’s because, for at least two generations, we’ve been told to aspire to home ownership by those who stand to make a profit on it. I normally don’t wear a tinfoil tiara (it clashes with my shoes), but I’m beginning to believe that big banks, credit reporting agencies, real estate professionals, home builders, the media, and the government are all engaged in a giant misinformation campaign to saddle everyone with fiscally irresponsible debt. The government intervened in the housing market during the Great Depression, and has now helped created a country in which 65% of people are “homeowners”. But buying a home is not a ticket to financial security, it’s a fairy tale spun by corporations who want us to be sheep. They want legal rights to our paychecks (debt), they want to keep us in one place, and they want us to have lots of storage space so we can buy more consumer goods. How’s that for conspiracy theory?

There’s a quietly growing minority of experts who say that many people are financially better off renting. In his article When Owning Your Home Doesn’t Pay, Troy Adkins paints a picture few consider when considering home ownership:

“For example, a loan rate of 5.3040399% on a 30-year fixed rate loan will require you to pay back exactly twice the amount of the purchase price you agreed to pay when you bought the home… the cost of interest expense alone may be greater than what you will have to pay in order to rent a comparable place to live.”

So even at a reasonable interest rate, having a 30-year mortgage means your home actually costs twice what you think it does. When you add in insurance, property taxes, PMI, remodeling costs, pest control, legal fees, appraisal and inspection fees, and closing costs, it makes even less sense to buy. And that’s not considering the time, headache, and expense involved in selling your home if you want or need to move.

While real estate prices are currently low, the US is now a renter’s market too, and there are some great deals out there. As this excellent WSJ article suggests, renting may indeed be the New American Dream:

“A February Pew survey reported that nine out of 10 homeowners viewed their homes as a “comfort” in their lives. But for millions of Americans at risk of foreclosure, the home has become something else altogether: the source of panic and despair.”

Yep…that’s us. Tony and I are in the process of walking away from our home and renting a house. Within a few days of making the decision to move, we found a newish 2,200 square-foot home on two acres for less than half what our mortgage cost. There are some things we’ll be giving up, but no matter how we did the math, keeping our beloved home was a losing proposition.

Whether we end up selling or going through foreclosure, I may never buy another home at all unless I can pay cash — or at least make a 50% down payment. I’m over the concept of “owning” a home as a sign of maturity. We haven’t moved into our rental house yet, but last week the pipes broke inside a wall during a hard freeze. I thought, “Oh no!” …and then realized it wasn’t my problem and called the landlord. Who happens to be a former plumber. Nice.


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