The American Dream of Homeownership is Just That – A Dream

image from Gary Siplin

When you grow up you buy a home, they say. Work hard and save up; it’s a great investment, they say. By they, I mean our parents, but unfortunately for us, in this instance, this is not their generation. Our parents generation was: go to school, get a degree, get a job and move up that ladder, get married, buy a house, work for 35 years and retire. All it takes is a quick look around to realize that, today, this is not the case. There is no retirement, the end of a relationship is one swipe away, many new industry jobs are fleeting in nature or have high chances of relocation, and the housing market in the Bay Area feels like a horrible mix of Jumanji and Monopoly. We’ve arrived at the point where we’re forced to realize that many of the models we grew to look to, strive for, and believe in no longer exist.

What I’m referring to is not ownership in the literal sense of buying a home, but the ideal of homeownership as what you should be doing. As what you’re suppose to be doing and if not, then you’ve failed. A driving factor for this sentiment is the market. I’m speaking directly about the Bay Area housing market, but this applies to most city areas experiencing a huge boom and dealing with a quick moving gentrification. When tech gold was struck it changed everything. Evictions were a daily occurrence, the character of neighborhoods changed, what seemed like overnight, and the housing market hit record numbers every few months. This made the rental market exorbitant and volatile making the prospect of ownership in these and surrounding areas seem laughable. Aside from price being a deterrent, the market being so, um, up in the cloud no one can accurately foresee what’s to come. Right now, it’s a seller’s market, but every week there’s an article that prophesizes the impending bubble burst, which would leave new buyers at a great loss. Will the market keep rising? Maybe. Of course it’s possible, but how much and for how long and at what point will it inevitably cap, which definitely isn’t the natural and guaranteed solid investment that our parents told us it would be.

image from Laipanda

“You’re throwing your money away”

The prevalent proverb refers to the fact that when renting you’re not gaining equity; it isn’t “going towards anything”. While this holds truth in theory, it’s not the absolute word and gospel. Most people don’t know what goes into a home loan. Up to 25% of the monthly payment can be in “other” costs like mortgage insurance, taxes, and possible HOAs, which can be the profit margin on a recently purchased property, which means if your rent is the same or within a few hundred dollars of the average mortgage in the area, then you’re kinda paying the same, which can be good if you’re able to purchase with little to no cost (it’s possible) and oppositely good if you need the flexibility of renting. Then, you have the interest. We hear that interest is at an all time low, but even at a record low, what you pay at the end of the loan term is still almost the cost of the house. Yes, almost double. For example: A $400k loan at 3.9% interest will end up being $300k in interest and if you aren’t in a situation that promises that the appreciation rate matches that (which in California it’s gone from -12% to 2% in the last 10 years to the last quarter), then you may still end up “throwing your money away”.

This isn’t to speak against buying a home, but all things considered it’s not the sure-shot it once was. There are still great benefits. Pro: You have more security. You don’t have to worry about rent increases or evictions. You still have something you can pass down if that’s an aspiration, but one huge negative is that there’s no mobility. Much of the new housing boom is due to new industry and influx – movement. If this is the norm in your industry or the neighborhood changes,then owning may make moving difficult.

If investment is your goal: I saw a video where an investor said to rent where you want to live and buy elsewhere for an investment. This is true because many times where you may be able to afford to buy isn’t your dream area. The best investments may not be the home where you reside, but in lower cost investment properties, like smaller condos, duplexes, and flips and that possible down payment may be of better use elsewhere. Also, for the average income, ownership is still viable and beneficial, but you may need to consider different areas, smaller homes, and ones that require…a little more love and care, because just like our parents generation focused on ownership, they also built their homes to their liking for years sometimes.

Homeownership is great, has benefits, and does give you a great sense of pride, BUT it will require great diligence, homework, and reflection to find out if it’s best for you and an acceptance that, at the end of it all, you may find out it’s not.