With property values plummeting, there have been lots ofÂ articles like thisÂ in the news lately:
Is it wise for coming generations to continue to view ownership as the cornerstone of personal finance? Young people planning for retirement increasingly face a choice between house payments and contributions to retirement accounts. They simply can't afford both. With the specter of looming cuts in Social Security and other entitlement programs, or even possible systemic insolvency, the challenge for tomorrow's retirees is income self-sufficiency.
A nation of house buyers becomes captive to the economic cyclicality caused by bursts of construction activity, and it is not lifted or sustained by the limited levels of service employment related to existing housing. By contrast, a nation of business startups and investors supports our capital markets and creates long-term employment, income, exports and the myriad technological advancements desperately needed by an expanding American society.
The idea that a home is an investment is rather a recent one. Â In my old neighborhood in Durham, my elderly neighbors Â moved into those homes when they were young, paid off the mortgage, and stayed their rent-free at the end of their lives. Â They considered THAT to be an investment. Â Over the past ten years or so we have become accustomed to seeing our house as an ATM from which we could withdraw ever increasing amounts of cash. Â People I knew took out equity loans for adoptions, for lake houses, for kids' college educations, and for vacations.
I think the days of homes as ATMs is over, and I would argue that this is a good thing. Â But the idea of a home as an investment requires an attitude adjustment.
The idea of a home being one's castle is as old as time itself. Â Goethe wrote,Â â€œHe is the happiest, be he king or peasant, who finds peace in his home." Â Poet Robert Southey wrote,Â â€œThere is a magic in that little world, home; it is a mystic circle that surrounds comforts and virtues never known beyond its hallowed limits."
When we purchase a home with a 30-year mortgage, in 30 years (or less if we pay extra) we no longer make monthly payments towards housing as opposed to renting, in which only your landlord gets to celebrate in 30 years. Â Unless Congress decides to do away with the mortgage interest deduction, which is looking more likely every day, there currently are tax benefits as well. Â If we're planning to stay in our home for the long term, a short-term drop in prices doesn't affect us. Â We're in it for the long haul.
But even more important are the less tangible benefits of homeownership over renting. Â You don't have to ask permission to get a pet. Â You don't have to worry about the landlord selling the home and kicking you out. Â There is a sense of security and stability that is unachievable in any other way.
There are also benefits to the greater society. Â Homeowners tend to be more active in local politics and more engaged in their communities.
Americans tend to go overboard in virtually everything we do, so it's not surprising that there is this strong reaction against homeownership now. Â It wasn't homeownership that got us into this mess; it was too many people buying homes which they could not afford. Â The new normal is turning out to be the old normal: save for a down payment, don't spend more than 28% of your income on your housing payment and keep your total debts under 36% of your income. Â Don't buy a home unless you're planning to stay put for five years.
If you follow these rules, and love your home, it will take care of you in the long run.
the Triangle area of North Carolina, including Chapel Hill, Carrboro, Pittsboro,
Hillsborough, Chatham County, Raleigh and Cary