What is the American Dream to you?
I used to think of it as owning a home, having a good job, and raising a family. I don’t think I’m far off by thinking that’s what many of us think it is. Perhaps the conventional thought is the house has a white picket fence with a 2-car garage as well?
But is that what we are actually aiming at these days?
My big issue here is owning a home. We’re all hearing about financial institutions doing bad because of mortgages. So what is happening to the people who buy homes? Foreclosures!
Why foreclosures? Could be that people bought too much house than they could afford with too little down?
The way I see it, when you’re buying a house with say zero down or even 5% down when will you actually own your home? This has become a major problem for people.
In my opinion it’s no longer the American dream to own a home. That’s an illusion.
Today’s American dream is to appear like you own a home. It’s become more important to look like you have a great big home. Who really owns these homes? The banks!
If there’s anything to learn from all of the recent financial bruhaha it’s that most people have to re-think what owning a home really means!
- An interest only loan or an adjustable APR will not help you own a home. You’ll get to move into one but you won’t own it.
- A modest home is OK. You don’t need a McMansion!
- Put down as much as you can when you buy a home (remember when you really needed 20%, aim for that). This way you start off owning a good piece of it.
- Homes are to live in! Perhaps flipping a house is profitable for some. But for most people a home should be where you live not where you speculate.
- Just because you make enough to cover the cost of the mortgage it doesn’t mean you can actually afford the home! So many other things have to be considered from taxes to losing a job to how much savings you have to home repairs, and so much more.
I’m ranting a bit so I apologize.
It just seems that there’s so much talk about how banks and such are so greedy that we might be forgetting that it’s people who are living in these homes. They had a bit to do with all of this as well. Some people probably got genuinely swindled and some came on hard times. I understand this. But many people were just greedy and wanted as big a home as they could get without considering if they could afford it.
I’m going to go a bit further.
The American Dream has turned into consuming as much as you can. At least that’s what corporate America wants.
One of the biggest measures of the economy is GDP, Gross National Product. This is driven by us buying more stuff. When we buy less stuff then the economy stagnantes. But is it really a fair point to judge the economy by how much stuff we buy? What’s the end goal?
We can only buy so much stuff without going into debt and I dare say we’re in enough debt already. How much more debt can we handle without bursting?
We need a new measure. Maybe we need to look at quality of life instead of a dollar figure put on our economy. Think of it. How many times can we upgrade our personal technology? We can only get so many computers and flat-screen TVs. How quickly can we really upgrade or cell phones? But when we don’t do these things, even if we’re already saturated, then Chicken Little runs around saying the economy isn’t doing well.
But how happy are we? What is our life like? If we have to work 2 jobs or put in overtime in order to afford all this stuff and their upgrades then is that a good life? Is that a dream to aspire to?
I think it was The Millionaire Next Door that said if you’re not currently rich but want to be rich someday, never buy a house that requires a mortgage more than double your annual income.
While that might be a bit too strict, I don’t think it’s that far off. And yet I know people who think it’s perfectly fine to buy a house that costs ten times your annual income. If they end up losing it, it’s their fault.
However, I disagree with your definition of ownership. If your name’s on the title, you own the home. That’s why you have the right to remodel it or sell it, things that a renter can’t do since they don’t own it.
Even a home that’s fully paid for is still going to demand property taxes, so you can always lose it. Anything we own (home, car, body, mind) can be taken away, but we own it while it belongs to us.
@Hunter – I hear you about ownership but consider this, if a person has an interest only mortgage what part of the house do they really own? And for re-selling it, in this market when housing prices go down selling becomes quite difficult as an “owner” becomes upside down on their loan.
I’m not against ownership, I just think people have lost focus on what that really means.
Great post FFB.
I would hazzard to guess that to most people owning a home and living in one while paying a mortgage is the same thing. It’s not, but all too many people have bought the illusion instead of reality. You can extend your line of reasoning to just about any “thing” people can buy… cars, computers, clothing. If you pay for it with borrowed money or put it on a credit card (same difference) and carry the balance over to the next billing cycle – you don’t really own it. Of course, no one is going to come and take your shoes or suit away because you still carry that balance on the credit card. That’s where the difference in secured vs. unsecured debt comes into play. But if you do this enough over time and then can’t meet the payments – try and tell me someone doesn’t own at least a part of you!
Our entire economy is based on debt. It runs on debt. For a while it was running on everyone having homes with lots of the equity that they could draw on to support their lifestyles.
The thing that really worried me today about President Bush’s speech is that he seemed really concerned that ordinary Americans couldn’t get loans. He wanted to keep the debt coming. Because that would help the economy.
A home mortgage is just part and parcel with that. Even if you couldn’t truly afford the home, you were encouraged to believe that it was the American Dream and that you “deserve” it. And, unfortunately, it looks as though we’ll be back on that track again soon.
I think many Americans still consider owning a home part of the “American dream”. The problem seems to be that we also want a new Toyota Sienna, F350 pickup, bass boat, RV, and private school for our children. If we were content with a house, we probably would be fine. Trying to have it all, seems like the new “American Dream”.
I think people have overreacted to the mortgage meltdown. Sure, owning a home can backfire. But for decades, owning real estate was a good investment. So far, it only looks like those who bought while prices were rising far faster than usual are getting hurt. But we’re talking a time period of 2003 (maybe) to 2007 or so. That’s a 5-year window of bad real estate.
Turn the tables. Buy now and you might just get that house you want for a price you can afford.
The beauty of a free market economy is that prices rise and fall as demand and supply adjust to one another.
Now is precisely the time to think about buying if you haven’t already. It’s times like these where fortunes are made.
@ Joe – No one would take your shoes but you can have your car repo’d.
@ Miranda – I think this culture of debt and growth is a major problem. Debt can be used well but we’ve gotten to where we’re encouraged to buy what ever the next thing is and not to is to hurt the economy. What if we don’t need all this stuff and debt?
@ Scott – I agree. Problem is that it’s only a perception. Most of us don’t have it all and many want to look like they do.
@ Bill – There is some truth to what you say, now could be a good time to buy a house. But we can’t really think we’re a free market economy. The gov’t bailouts prove it. As well as the fact the Fed interest rates influence other rates. That’s gov’t control and not free market.
I don’t think you can blame people for chasing their dreams of home ownership. Ok a lot of people weren’t fully informed about their decisions – it was their responsibility to get all the information and make an informed decision. The thing is that they are paying the price now.
I also think that with the run up in house prices in the last 10 years that actually ‘owning a home’ was being pushed further and further away. Perhaps in the next few years as house prices fall, home ownership could become a real option for some.
@ Until Debt – I could never blame someone for wanting to own a home. It’s a dream of mine as well. But my dream means that I truly intend to “own” my home. I’ll have to take out a mortgage for sure but when I do there will also be enough down that I can say a good % of the home will really be mine.
I’m hoping homes return to reasonable price levels. We’re seeing the results of these inflated climbs and it’s not good.
Timely post. I have a friend who is considering buying a house. So these issues never go out of style, even during periods of “credit crunches.”
@ Aaron – Buying a house is always a big commitment regardless of the economy. It should be taken lightly.
a friend of mine’s father told him years ago….
“when you buy a house, just make sure it doesnt laugh at you when you pull in the driveway.”
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