Homeownership -- Milestone or Millstone?

Jon Maddux, the CEO of strategic default consultant YouWalkAway.com, had this to say about the disadvantages of homeownership:

It seems that to many, their home has become a millstone that is pulling them deeper and deeper underwater. With no end in site.  What once was felt to be a milestone, the luster of homeownership is eroding and causing many to re-think that goal in life. In fact, if you type in the word homeownership into google, the fourth suggestion is “homeownership is overrated”.   On June 7th, the Wall Street Journal had an article with that title and sub title of “Today’s economy requires a more mobile workforce.  “ Here is an excerpt from the article:

Owning a home may actually be a drawback given the economic flexibility required to power long-lasting recovery.   My colleagues and I tracked homeownership levels across U.S. cities and regions to see how they correlate to other measurable demographic and economic factors. As we expected, the rates of homeownership are greatest where housing prices are lowest. But cities with high levels of homeownership—in the range of 75%, like Detroit, St. Louis and Pittsburgh—had on average considerably lower levels of economic activity and much lower wages and incomes.   Far too many people in economically distressed communities are trapped in homes they can’t sell, unable to move on to new centers of opportunity.

Another article from the same google search on Portfolio.com shouts “Homeownership Makes You Fat and Unhappy” there was a pretty interesting study they did of 809 women in Columbus, Ohio, in 2005 — before the property bubble burst:

An interesting portrait of homeowners emerges from my analysis. I find little evidence that homeowners are happier by any of the following definitions: life satisfaction, overall mood, overall feeling, general moment-to-moment emotions (i.e., affect) and affect at home. Several factors might be at work: homeowners derive more pain (but no more joy) from both their home and their neighborhood. They are also more likely to be 12 pounds heavier, report lower health status and poorer sleep quality. They tend to spend less time on active leisure or with friends. The average homeowner reports less joy from love and relationships. She is also less likely to consider herself to enjoy being with people.  The results are robust after controlling for reported financial stress.

Now, I have experienced happiness from homeownership so I know it’s not all true, but you have to wonder, is that american dream really the dream we should all have? Should it be the dream of our future children and something we feel is a milestone?

This Boston Globe article last year that said

But a growing chorus of economists and housing experts say that this mind-set needs fundamental reform. Owning a home is not right for everyone, they say:   In some ways it’s overrated, and it can even have harmful effects for individuals and society.   It is now glaringly clear that buying a home is a financial risk, not the surefire investment it is often perceived to be.

Patrick.net has a great section on why you may not want to buy a home and it states among many other
reasons:

Because it’s still much cheaper to rent than to own the same size and quality house, in the same school district. On the coasts, annual rents are 3% of purchase price while mortgage rates are 6%, so it costs twice
as much to borrow the money as it does to borrow the house. Renters win and owners lose! Worse, total owner costs including taxes, maintenance, and insurance come to about 9% of purchase price, which is three times the cost of renting and wipes out any income tax benefit. Buying a house is still a very bad deal in the richer neighborhoods, but it does make sense to buy in some relatively poor neighborhoods where prices have already fallen into line with salaries and rents.

Bottom Line

Homeownership shouldn’t necessarily be a milestone. It’s ultimately different for each individual and depends on the type of life you want. Homeownership has also changed over the last several decades. Our parents generation used to keep the same job all the way till retirement and that was a good reason to buy a house and set down roots. Today with technology, things are changing so rapidly. People are changing jobs and career paths more often. Homeonership drastically changed when lenders loosened their credit guidelines and started to allow people to buy homes with no money down. ”Easy come, easy go.” The older generation considered homeownership a milestone because they had to put a good chunk of money down. 20% or more in many cases. With the birth of zero down zero income loans, homeownership became so easy to attain that it lost it’s prestige.

Jon Maddux, CEO

www.YouWalkAway.com