Americans Say: Why Bother Owning?
A Rasmussen Reports national telephone survey finds that a mere 55% of adults say buying a home is the best investment families can make. That's down from 59% last November, 67% last May and 79% in June 2008. A similar question on a Fannie Mae's National Housing survey found that in 1996, a whopping 89% of Americans believed one was better off owning a home rather than renting.
The new skeptics include folks like Dave Guilford, a former stockbroker and small business owner who, in November 2008, sold his Mandeville, La. home for $220,000 and put his stake in a 4-bedroom Paris rental. "If it's up to me, we'll never own another home again, unless it's investment property and not our own residence," he says. "I'm perfectly content to rent for the rest of my life."
Guilford, 40, managed to scrape some equity out of the home, which he bought for $180,000 in 2003. But he thinks he would've gotten a better return if he had put the money into stocks or a retirement savings account -- especially after watching the home's value fall from its peak of $350,000.
"Owning your principal residence is perhaps the worst investment an adult can make," he says. "A lot of marketing has gone into convincing Americans that this is a good investment, when it is in fact a horrible investment for 90% of the population."It seems Americans, many of whom might not have been ready for the long-term investment of home ownership, have been spooked into becoming permanent renters by a bubble that put many homes under water, at least in the short term.
In the National Association of Realtors 2009 Profile of Home Buyers and Sellers, 87 percent of buyers said their home was a good financial investment, 54 percent said it was better than stocks, and 26 percent about as good as stocks. Only 3% said their home purchase was not a good investment. But the NAR only surveyed those who bought homes between July 2008 and June 2009. It's interesting to contrast their opinions with those of people who bought somewhere in the middle of the bubble.
People like Greg Rollett, 27, and his wife, who own a home in the Orlando area that is worth much less than what they owe on it. "We are in the process of deciding if it's better to walk or find a way to refi," he says. If they walk, Rollett says they'd prefer to rent. "There are more expenses, pressures and obstacles in our way with owning a home. We are looking at the possibilities of being able to move around, travel and enjoy life for a while without the burden of a mortgage."
Historically low interest rates and the government's Making Homes Affordable Plan aren't quite enough to overcome this new pessimism. This is because other factors in addition to the big, fat burst bubble are fueling it.
A generation of buyers who expected to double their money in a couple of years is less patient with ongoing maintenance like lawn care and plumbing issues than those who bought with a long time horizon in mind. They're less indulgent about putting money into repairs like a new roof or a repaved driveway or upgrades like central air or a replacement windows because they see those things eating away their instant returns. Property taxes and mortgage insurance take another bite. And if they do try to for a quick flip, they have to give up 5% to 8% of the sale price in a commission to their real estate agent.
In contrast, renters can leave the vast majority of home maintenance costs and hassles to their landlords.They can invest the cash they aren't spending at Home Depot in the stock market, max out their annual retirement plan contributions or, more likely, take that Caribbean cruise and resume their Friday nights out on the town.
That's right. A few diligent would-be home owners might find an inexpensive rental and divert the left over money to some other kind of investment, but in general we're a nation of spenders who can't save worth a dime.
For years, the average American has held around $10,000 in credit card debt and less than three months worth of living expenses in a savings account. He's neglected to max out retirement contributions while happily driving off the car dealer's lot with a loan for something that loses value every day. Home ownership is still is a form of forced savings for Americans who don't know how to keep their money in the bank.
According to recent data from the Federal Reserve Board, a home owner's net worth is 46 times that of a renter's! ($234,200 for owners versus $5,100 for renters.) For most people, a good portion of their net worth is comprised of the equity in their homes. But it's more than just the equity, it's a mindset. If you own a home, you are more likely to set aside a larger percentage of your earnings in savings and retirement accounts than a renter, who seems to be spending that difference on more expensive cars, travel and eating out.
"Home ownership is how many American families begin to accumulate wealth," Walt Molony, a spokesperson for the National Association of Realtors, told HousingWatch. "Over 10 years, a $10,000 investment in the stock market at a normal 10% market rate of return would yield $23,600. The same investment as a down payment on a $200,000 home at a normal appreciation rate of 5% would return nearly 5 times the stock market return, at $110,300," he says.
For Americans who are ready to put down some roots and not bolt after a year or two in one place, home ownership is still the key to long-term prosperity, Don't let a little housing bubble fool you.