Home ownership is perhaps the most tangible symbol of the American Dream, but in recent years it has been oversold. Many people who later wished they had remained renters were sold enticing low-interest mortgages. Thanks to an economic downturn, insufficient regulation of the mortgage lending and mortgage investment industries, and good old fashion overconfidence in the security of real estate investments, many of those same people are now headed back to rented dwellings, but too often their path will run through foreclosure.
As the graph below suggests, the US experienced a rapid acceleration in home purchases beginning in 1992 and topping out at 69 percent in 2003. Since that time the rate has declined to the present 68 percent, and it may drop further. Recent history suggests the line may have been pushed up too high, and the current economy is making a correction.
There is no reason why the American Dream should be dependent upon home ownership. Internationally homeownership rates vary widely and are not particularly tied to standards of living. For example, Germany, a country that enjoys a standard of living (measured in GDP per capita) of $23,819, has a homeownership rate of 42 percent, whereas in Slovenia (GDP per capita of $19,200) 82 percent of people own their homes. Several of the countries of old Europe (e.g., France, Denmark, Austria) have homeownership rates that are over 10 percent below those of the United States.
Owning your own home is a greater financial risk than many thought, and too much risk can make the dream—when defined as owning your own home—a bad bet. But happiness and security can come in different shapes, and life in a rented home can be just as happy as life in a mortgaged home.
Tuesday, September 9, 2008
Homeownership & the American Dream
Subscribe to:
Post Comments (Atom)
2 comments:
I wonder if the home-ownership levels are really measuring 'the dream'. After all, people do not dream of mortgages but of owning their own home. With a mortgage, in an important economic sense, it is the bank that owns the house and the resident is trying to buy the house from the bank over time. Thus, someone whose house is worth twice as much as their remaining mortgage balance ought to be said to own half their home. Given this method of calculating, the US level of home ownership would be far smaller I would guess. At the same time this way of calculating things would not have as big an effect on the numbers in Central Europe where there is much less movement and homes tend to be multigenerational projects with parents standardly passing them on to their children. Similarly, parents often play a major role in financing the purchase of new houses for their children. These stategies are used due to a mixture of traditional sedentariness and strong extended family connections as well as to the very low birth rates that mean families are more likely to fit inside existing houses. The thinking continues with new houses being built with multigenerational families in mind and often only being finished as existing funds allow. The effect is that mortgages play a much smaller role in the housing market, I would think.
Konrad, you bring up some interesting points. The different home financing methods in Europe and the US that you point to are indicative of real social differences. In the US there is greater mobility and less extended family continuity, which would lead to more mortgage debt than in Europe. So I agree. If the ownership numbers were adjusted for actual home equity they might be quite different. But l think that still supports the idea that Americans are willing to go much more deeply into debt to have a place they can say is their own--even if it really belongs to the bank. And as the current situation suggests, more deeply into debt than they should have.
In addition, over the last 30 years American's have become more and more comfortable living in the red. Rates of personal indebtedness have skyrocketed. When everyone is in hock, taking on a big mortgage seems normal. Add to this a sense of overconfidence about the strength of real estate as an investment and you have too many people overextended.
Post a Comment