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Ruthless, Other/Just Looking in 60558

Philosophical question: Is the American Dream advantageous or detrimental?

Asked by Ruthless, 60558 Thu Jan 17, 2008

We've been getting more and more "How do I buy foreclosures?" and "Can I really buy with no money down?" questions caused partly by late night infomercials. The entire financial and housing crisis we are facing is based on the American Dream of buying your own home. Have scams over taken opportunities? Discuss...

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I am going to chime in and say that I too feel that the get-rich-quick schemes are taking over the traditional values and morals in this country. Slowly, product and value creation is moving to countries like China, India, Brazil. US is becoming a speculators best dream. I mean, look at it: scandal after scandal, bubble after bubble. The quick dissemination of information (internet, press, phone, e-mail, etc) is making the spread of the schemes even faster, lower transaction costs are helping too.

As for the house as the cornerstone of American dream, I am skeptical about that. I came to the US almost 15 years ago and was impressed when I found out from some friends that their house purchased, say, 22 years ago, has appreciated, say 3 times in price. Wow, imagine that.

Thinking about that lately, I have arrived at the conclusion that a house is a necessity, and not an investment. In fact, it is a poor investment, appreciating far slower than other assets you can find (e.g., the stock market, or a good small business). At the same time, this so called investment, the house, is financed by a liability, a mortgage, which costs 5-6% today, and in the past has cost as much as 10-12%. So why acquire an asset+liability combo where the asset appreciates at 4-5% while the liability costs 5-6% (I know there are deductions and such, but still)? This is probably the biggest thing puzzling me about America (a bit sarcastic, of course). I am c'mon, just how much is that "Dream" embedded in the people's psyches for them to make such a poor investment decision year after year, generation after generation.

Which brings us to the issue of foreclosures. Because owning of the house is embedded in the American fibre as such an important milestone, and bigger is considered better", we are seeing the problems in housing today.

IMHO it is smart for the US government to offer the mortgage interest deduction and the various other assistance programs (downpayment assistance, this assitance, that assistance) to help people buy a place they call home. That's fine. But when that fuels a speculative bubble, I think something has gone wrong. Tax code, incentives, etc - all of these have contributed to that. I don't even have a solution to how this can be fixed.

Another value that owning a house adds to the society is that an average American household is a poor saver. So paying a fixed rate mortgage down and slowly realizing the equity of the house is one way that people are able to save. Compare that to Asians, especially the Japanese, who are awesome savers. Now - which is better? I don't know. Look at the depressed Japanese stock markets over 15-20 years, where the savings rate has created too much capital, not enough opportunity. I think the Japanese could learn a lesson or two from the American's to spend a little money. C'mon, get a few credit cards, go on a shopping spree, add to Japanese consumption, and by that, to the world consumption. Help the American consumer carry the load a bit. American's could learn some from the Japanese to save well.

I come from a society where people buy a house and probably 2 or 3 generations end up living there. Typically, the house is purchased w/ cash, and that makes the purchase difficult. So the prices are much-much lower. That is all changing. I think people in my home country and the neighboring countries are slowly learning the "American way". Asset bubbles coming all over the world.

Here in US, buying a house is a different story. Despite what the realtors here might say: it is an emotional decision, it is the biggest financial decision in your life, etc, I believe the buy-sell rate is pretty high (if you want to know what the biggest decision in one's life is - I would say, marriage). I would think that on average, a house is probably owned around 7 years. Big, emotional decision? Sure. But 7 years, c'mon, that's hardly anything. Got a better job? Move up. Got a kid or two? Move up. Job in another city? Move on. Divorce? Sell the house, start renting again. And now, with the the recent asset bubble, you have the drive-by-night flippers and what-nots, so the transaction count went through the roof.

I think the US is headed for a couple (maybe 3, 4 5) years of very tough economic situation. I easily see the housing prices down 40, 50% from the highs, if not in the entire country, perhaps in some harder-hit regions. The problem is, the other big asset class, the equities, are also going to be fairly hard-hit. So it is going to be very, very tough for the speculatively-minded, quick-rich schemers to find the next asset class to bubble up.

Hopefully, this serves as a good lesson for the country as a whole. Perhaps some speculators get burned, and some well-meaning people who decided to get into the speculation business learn (expensive) lessons. Was it worth it? I don't know. But I am a firm believer in Darwinism.
6 votes Thank Flag Link Thu Jan 17, 2008
What a timely question. It brought to mind a radio piece I heard last week dealing generally with the idea of "middle class" and specifically addressing the question of "Are we better off than our parents' generation?" One commentator raised the point that the cost of living has increased so much that attaining "middle class" status results in anxiety and stress thereby eliminating the sense of security that was standard with the class in the previous generations. Another panelist countered that the definition of "middle class" has been raised and therefore we are actually exceeding our parents' lifestyles.

While they were postured as opposing views, I think both panelists' ideas apply to contemporary American housing mindset and practice. Yes, it certainly takes a greater percentage of our monthly paychecks to cover mortgage and utilities than in years of yor but this is in part, because so many of us opt for 'more' when 'some' would do. The dream of "home ownership" seems to have given way to "5 Bdrm, 3.5 Bth, 3bay garage, stainless Miele appliances, 2nd floor laundry, rec room big enough to accomodate the 40" plasma screen and the pool table, oh and my in-laws visit for a week every year so throw in an au pair suite home ownership".

I think the problem is not in home buying but rather in buying too soon or too much.
4 votes Thank Flag Link Thu Jan 17, 2008
I hope the Dream is alive. Everybody should own a home. I think the dream got blown out of proportion and we are a "Bigger and Better" generation. The dream of course was partly based upon ownership of land and property.

The Puritans never had that right and so coming to this country was all about LAND and Free land at that. That drove the American people for about 300 years right? Now the problem is that the Dream has turned into a nightmare for many. It really has.

But I believe that even the people that have just lost homes are already Dreaming and thinking of their next home. From the standpoint that we all want a place to call home and to someday own that home and not have to pay money to the bank....I say yes. It is alive and advantageous.

From a tax perspective the American Dream is alive. From the standpoint of loving your property and going to Home Depot and feeling good about painting a new little girls room Pink....the dream is alive and I consider that a big advantage. From an investment standpoint it is still alive. Real Estate historically has been the most stable and sound investment anyone could have made in this country.

Looking at this market you might say it was all for not. We were bound to have a down market and correction at some point. But if you do not have to sell you do not have to worry. For the vast majority of Americans the Dream is alive and still offer all of the advantages that it has always offered.

The disadvantage if any is the fact that a few are getting hurt now. That is a sad thing. I think that we all want and tend to buy more than we need right?

I am reading Thoreau's "Walden" and he speaks out against this very idea ....that we have to Own things. He lives in a small shack, lives off the land, works only for his food and barters and trades for everything else. Whatever he can not carry on his back he does not have or want. And he rails against the New England framers who trade their lives for their homes.... and he points out that it is all pointless and rooted in mis-guided goals and principles.

You know in many ways he was right. and maybe in his view the dream is dead and misguided. But for most of us we want to own. We refuse to be serfs and indentured servants living on the Lords fiefdom. No. We want our own castle and our own Kingdom and it exists within a 50 x 100 lot, 4 walls, 200 yards of carpet and a Cherry Stair Railing.

This market will never kill the dream. Americans are fighters and I am betting they all will keep the dream alive. There are too many good things to be gained.

Good question...Thanks!

Dirk T Knudsen
Re\Max Hall of Fame
#1 Rated Re\Max team in Oregon
"The Real Estate Doctor"
Web Reference: http://www.nwhomecenter.com
3 votes Thank Flag Link Fri Jan 18, 2008
Horatio Alger, the original American Dream rags-to-riches story...

I don't think the American Dream is detrimental, nor do I think it's dead or dying. The American Dream (as in anyone can be a home-owner, a chicken-in-every-pot) is still alive, and attainable, and it's part of what caused so many immigrants to flock to this country, because they perceived and still perceive that it can be accomplished here more than anywhere else in the world.

I too, find it interesting that this question is being responded to by so many foreign-born citizens. I am first generation U.S. Citizen, both of my parents were foreign born and first experienced America under the watchful but welcoming eyes of the statue of Liberty, and through the gates of Ellis Island, so perhaps, just perhaps, I feel a bit like those foreign-born and cling to the concept of the American Dream a bit more strongly than some.

Yes, there are scams out there, just as we receive a dozen e-mails each day promising that you've won the Irish National Sweepstakes (although you did not enter), or that a gentleman who works for the Ethiopian National railway with the same surname as you, has died and we'd like to put his inheritance in your bank account, or Bill Gates would like to give you a dollar for each e-mail that you forward to a friend, and 50¢ for each of those e-mails that are then forwarded (don't worry... he'll keep count for you).

We have to be vigilant, but the American Dream is still alive and well and living in communities across the country. Can you buy with no money down? Sure, but it's unlikely. Can you buy a foreclosure at a phenomenal steal? Sure, but it's unlikely. Can you get a home by offering 50% less than list price? Sure, but not in the neighborhood you're looking to live in.

P.T. Barnum said it best "there's a sucker born every minute", and those are the folks that con artists, and scamsters prey upon. When it sounds too good to be true, it likely IS too good to be true. There's no such thing as a free lunch, so don't be that sucker.. But the American Dream is still alive and attainable, but you have to work for it. Nothing worth having is handed to you without work.
2 votes Thank Flag Link Fri Jan 18, 2008
Alan May, Real Estate Pro in Evanston, IL
MVP'08
Contact
Hi Ruth, what is frustrating to me is working with buyers who are unwilling to listen to my advise. I have had hard working, intelligent people who are very successful in other areas of their lives fall for a teaser ARM of 1.5%, and NOT want to understand when I try to explain about negative amortization and their rates resetting to a point where they will be forced into foreclosure. They really want to believe that they can buy a house that is 3 times as large as an apartment they are renting, for less than they are currently paying in rent. That "if it sounds too good to be true, it probably is" thing doesn't sink in .

There is nothing wrong with the dream, it is the dreamers who feel entitled to an easy life who are having a wake up call. There will always be scammers looking for the gullible and weak - they will be judged and dealt with on another level.

Kudos to Irena also, exactly how much junk does the attainment of the dream require?
2 votes Thank Flag Link Thu Jan 17, 2008
I think that scams are not country specific. I have lived in this country for nine years now and I can only tell you that scams in this country are by far the most creative and the best advertised ones.
People in Europe generally by a home to live in not to flip it or use it as retirement income. And you bet that you need a lot of cash to buy that place, often it is cash only. Credits are not as popular there and often people would buy land and build their home for years in some regions.
2 votes Thank Flag Link Thu Jan 17, 2008
It is a ridiculous question. Why don't you just say, "America does not work!" It’s like Zig says, "Before you become the answer to their prayers--know what they're praying for!" The American Dream is a belief system, encompassing all that is great about our Country. Don't make it a commodity to be traded on wall-street or discounted as a "short-sale". This market will be a crucible for many. But let’s keep in mind the words of Papa Hemingway “The world breaks everyone and afterward many are strong at the broken places." --‘A Farewell to Arms’
2 votes Thank Flag Link Thu Jan 17, 2008
That's a very, very specific definition of "American dream". When I first heard about that concept (I'm foreign-born), I thought it encompassed a whole slew of ideas, but mostly the ability to achieve success through hard work and dedication, as well as the guarantee that your rights and freedoms don't get trampled lightly. Owning a home is a tiny subset of the former.

That said, I don't want to get into a hair-splitting match, but I'll say that buying a home today at current asking prices is a self-inflicted scam in itself :)
2 votes Thank Flag Link Thu Jan 17, 2008
It's incredible to see that 3 of the 8 people responding to my question are foreign born. Maybe that IS where America is still great. If we continue to learn and adapt (Darwinism) through the consensus of many cultures and look beyond our own embedded beliefs we will continue to grow strong. If we embrace what works and discard what doesn't - because we have the freedom to do so - isn't that what the American Dream is?

Another reason I asked this question is because I just saw the movie, "Thank You for Smoking." I got it because I thought it was a comedy, it's not – it's sarcastic. So as the result of my expectations, I didn't really care for it – until the next day, and the day after that, and the day after that.

There is a great quote and you can hear it by mousing over Profiteer at:
http://www.foxsearchlight.com/thankyouforsmoking/
"99% of everything done in the world, good or bad, is done to pay a mortgage. Perhaps the world would be a better place if everyone rented."

Michael, I did not give you the TD.

Ruth
1 vote Thank Flag Link Fri Jan 18, 2008
Ruthless, Other/Just Looking in 60558
MVP'08
I love carlton sheets and have personally taken home hundreds of thousands of $$$ in Cash at close. However, i beleive the scam is in foreclosures..... See my normal answer below...

FORECLOSURE REALITY CHECK.... Seasoned investors who buy foreclosures know the REO manager at the bank and get "off market" deals. They never have to bid or find a place to learn what's available.

FOR ALL OTHERS: The only "sellers market" in america is the foreclosure market. Don't expect any deals from a foreclosure as the bidding process brings 20-30 people to bid on almost every deal. A deal that was already priced at market. For government foreclosed homes, by law, they have to be priced "at market".

The REO manager has a short list of "cash/close in 2 day buyers", they always get the first right to bid. Then they have to wait for the "public auction" Which drives up those prices. After a 30-60 day period. Then the REO picks the best bid. Sometimes, only sometimes does a REO manager take a property directly to a buyer he knows peronsally. Why should he, he has a bunch of people bidding and driving up the prices.

My REO manager friend likes to joke about all the "first timers" who continue to drive up the bid when they don't hear anything from the bank. Every time I see the "how come I haven't heard from the bank about accepting my foreclosure bid after 30+ days" on trulia, I have to let out a chuckle because he's so right. For those newbies, this is real. They know that when you don't hear from them that a large percentage of people drop a second or third offer higher than the previous one. **WARNING, YOU ARE BEING TAKEN ADVANTAGE OF HERE**

You want a deal on a property right, everyone wants that.... So the moral of this story is:
1. the 60 days you have to wait to hear from a REO, you could have made 2 or 3 better deals with a property that has been on the market for a long period of time. Any realtor can help you drop a crazy offer.
2. You are attempting to make a deal in a house covered in a cloud of bad energy, don't be surprised when it rubs off. Personally I stay away from these for this reason entirely.
3. One way to get a deal is dropping a hand written note on ANY house in a neighborhood you want to buy that says "my girlfriend and I want to buy a house in this neighborhood and yours looks cute from the outside. Do you know anyone that is looking to sell?" I always get responses, better prices and positive energy into the home.
1 vote Thank Flag Link Thu Jan 17, 2008
Thanks for the clarification. I think it's a semi-regular accident of history that get-rich-quick schemes involving real estate actually work for a while--between 2000 and 2005, you could buy a house, rent it out, and flip it a couple of years later for a bunch of money. No work necessary other than paperwork. There's no value added to the home, so that's pure speculation, and it's not particularly admirable.

Property rehabbers, on the other hand, do work pretty hard and add (or restore) value to a home. I'm a big historical home buff, and few things pain me more than seeing an old dilapidated Victorian go to pot; but if a dedicated investor buys the property and restores it properly, I feel they deserve whatever profit they skim off the top.

That doesn't really answer your question, though...
1 vote Thank Flag Link Thu Jan 17, 2008
That American dream has turned into competing with Joneses and filling up the garages with junk instead of cars dream. Personally I think that Americans are so brainwashed into consumerism that they have absolutely forgotten that you can not take it with you when you go down under. For goodness sake how many candle holders does a person need???

The get rich fast scheme has been around forever and those foreclosure gurus are getting rich by cashing in gullible peoples checks. Sad that so many people fall for those things and get burned.
1 vote Thank Flag Link Thu Jan 17, 2008
The market is suffering, however it is NOT dead!! Houses are selling and there are buyers out there. It's a perfect time to buy. Rates are low, inventory is high. It truly is a buyers market. You, a buyer, can be in control. Let your realtor work FOR YOU.
Are you looking to buy a foreclosure home? Are you looking to buy with no money down? Hopefully you have great credit! If you are looking to buy a home, there is no scam about it. Contact a real estate professional in the area you are searching and let them do the work for you.
1 vote Thank Flag Link Thu Jan 17, 2008
Hi Ruth: I did not even realize that answer quality is tracked until I saw your comment here. Thank you for the "Best Answer" selection, I was not expecting it :). I am originally from fomer USSR, came to US to study computer science and I work in finance. I am helping some family members buy their first houses in the foreseeable future, so that's why I am learning as much about real estate as possible.
0 votes Thank Flag Link Thu Jan 24, 2008
Congrats Walstmnky on another Best Answer from me - who are you?!

Elvis: I was waiting for the PT Barnum quote. I just used it today myself.

Irena: You were a close second for the BA award for saying:

"That American dream has turned into competing with Joneses and filling up the garages with junk instead of cars dream. Personally I think that Americans are so brainwashed into consumerism that they have absolutely forgotten that you can not take it with you when you go down under. For goodness sake how many candle holders does a person need???

The get rich fast scheme has been around forever and those foreclosure gurus are getting rich by cashing in gullible peoples checks. Sad that so many people fall for those things and get burned."

Irena, I couldn't agree more.

Dirk and Michael: I lived the Walden life after "The world broke me" the first time. I was broke again by the simple life. I came back stronger and decided I wanted a house and money. As Thomas Edison said, "I have not failed. I've just found 10,000 ways that won't work."

In searching for a good web reference, I ended up bookmarking this one.
Ruth
0 votes Thank Flag Link Fri Jan 18, 2008
Ruthless, Other/Just Looking in 60558
MVP'08
I'm so bummed I lost what I wrote because I was looking for a good web reference. What I found is that in just a few hours, this post came up on the second page of Google when I searched Horacio Alger. Did I spell it wrong? Do people know who (or what concept-wise) Horacio Alger is? Who wrote the book?

I was finally debating Michael again after agreeing with too many of his posts (smile - moral fiber).

Michael:
I love your quotes but disagree with the concept that you are saying,
* * * "It is a ridiculous question. Why don't you just say, "America does not work!" * * *

That is exactly what I am possibly proposing. I loved Roger's comment, "semi-regular accident of history". How often throughout history do empires crumble? What IF the dreamers break and remain broke? (ha-ha broke - no money or not fixed - ha ha fixed loans vs adjustables causing the problem - Elvis you have got to be dying over these puns.)

Sorry, that's the best I can re-create to my formerly profound post.

Sincerely,
The Dreamer

P.S. Perry: my post was declined so I saw yours. Almost 500 posts and I still don't know know to take you. I learned so much from Carlton Sheets too. Yes, the current foreclosure market for the most part is a scam.
Web Reference: http://www.ruthprincess.com
0 votes Thank Flag Link Thu Jan 17, 2008
Ruthless, Other/Just Looking in 60558
MVP'08
WOW!!! Whoops, sorry, I left out some detail.

Trulia Roger:
I am SOOO VERY GLAD to hear you say that and that you are foreign born. I wanted to ask if scams are as prevalent in other countries as they are here in the GREAT USA. My grandfather and his 3 boys were Horacio Alger stories. I believe in the American Dream as you describe it. I also just spoke to a friend that was scammed by an internet business scheme.

Yes, Ann Marie, buying a home with no money down if you have good credit or government assistance is NOT a scam.

What I left out was the idea of "get rich quick" by buying homes with no money down, flipping and everything else these real estate seminars "sell" you in exchange for giving them $99.99 or whatever. If a person wants "to achieve success through hard work and dedication, as well as the guarantee that your rights and freedoms don't get trampled lightly." OR "Hopefully you have great credit! . . . Contact a real estate professional in the area you are searching and let them do the work for you." then NO it is not a scam. I'm talking about the vulnerable people that buy a home that they can't afford or the people spending money to learn how to "make money in real estate".

Sorry for not explaining better.
Ruth
0 votes Thank Flag Link Thu Jan 17, 2008
Ruthless, Other/Just Looking in 60558
MVP'08
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