Homeownership no longer the American dream?

Though housing prices have dropped to new lows, folks aren't sure a home is a solid investment anymore.

By Kim Peterson Apr 19, 2011 2:02PM
Image: House with coins (© Digital Vision/Getty Images)Houses are dirt cheap right now. In fact, homes are more affordable than at any time since the National Association of Realtors began measuring the data back in 1970, Bloomberg reports.

But people aren't buying. The economy and the tightened lending market have all but removed the possibility of homeownership for some. But there's another interesting sentiment developing: More and more people just don't want to buy anymore.

The percentage of people who think of a home as a safe investment has dropped to just 64%, Bloomberg reports. That's the lowest ever reported in the national housing survey from Fannie Mae, and down from 83% in 2003.

So many people have turned away from homebuying, in fact, that we may be seeing a culture shift. Maybe the house with a white picket fence is no longer part of the American dream.

Well-known investor James Altucher lists several reasons owning a home is a bad idea in a recent blog post. Housing prices historically haven't risen enough to merit that huge down payment, he said. Homeowners also must deal with closing costs, pricey maintenance, property taxes and the fact that most of their life savings is tied up in one investment.

"I'm never going to buy a home again," Altucher writes. "And sit there in the middle of the night thinking, 'Why the hell did I do this to myself again?'"

Other renters feel the same way. "The magnitude of the housing crash caused permanent changes in the way some people view homeownership," one finance professor told Bloomberg. "Even as the economy improves, there are some who will never buy a home, because their confidence in real estate is gone."

You can almost see this conflict playing out in the stock price of homebuilders such as Toll Brothers (TOL). Check out the one-year price chart to the left. Investors don't know what to think of this sector. The three-year chart is even more telling.

Economists tell Bloomberg that the economic crisis destroyed the notion of a house as a risk-free investment. It was just a standard assumption that whatever house you bought would increase in value. No one expected to be underwater on their mortgage or in foreclosure.

But at the end of last year, a shockingly high 11 million homes in the U.S. were worth less than what owners owed on their mortgages, Bloomberg reports.

And in March, the percentage of Americans who plan to buy a home in the next six months fell by 23%. Certainly that share will recover as the economy improves. But it will be very interesting to see the long-term chart of this sentiment. Are we becoming a nation of renters?

15Comments
Apr 19, 2011 5:30PM
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What really makes Real Estate investing a bad idea is the Real Estate Taxes...

 

Think of it as an investment whereby the government takes 2-4% EVERY YEAR, even though you didn't get any money.  

 

The problem started when they no longer required 20% down.  The government made it worse by encouraging speculation, by making the first $500,000 in profits tax free.  Never mind the mortgage interest deduction or other programs to encourage speculation.   Freddie and Fannie made the problem much worse by encouraging the bankers to make risky loans and sell them.

 

They drove the prices up to artificial government induced levels.  And of course the crash came...  Real Estate still has a way to go on the down side.

 

Real Estate actually makes for a poor investment considering all the costs...

Apr 19, 2011 7:00PM
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Well it is a good thing most people just want a place to live. I got sick of seeing investors in my area nab up decent priced homes, put 5,000 bucks into them and jack up the price to triple the amount for what it originally sold for. Or split up beautiful Victorian homes into 2/3 rental condos.

Homes are for people to become part of a neighborhood a community. For the pride that comes with owning your own place. To raise a family, to grow old in. They should not be used as pawns for the game of real estate investment.

The market will not stay this way forever. Right now it is very difficult to get a loan. How the heck can people save for that down payment when they are just lucky enough to keep their jobs. Eventually the economy will be back on top again. It is just the waiting game.

Apr 19, 2011 10:15PM
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So let me get this straight, when house prices were going through the roof  Americans took out mortgages they couldn't afford.  Now that prices are more affordable no one wants to buy a house.

 

And on the flip side when houses were expensive banks created the most ridiculous mortgages and gave them to any livng being without even checking if the borrower could pay back the loan and now that houses are affordable banks won't give loans.

Apr 19, 2011 6:04PM
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homes are a place to live, not an investment. during certain periods, they may have had investment characteristics, but those characteristics are transitory. prior to the 60's, homes tended to depreciate.
Apr 19, 2011 6:51PM
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A major reason, too, is the amount of deception and fraud in this industry, borne out by FBI crime reports that stated eighty percent of mortgage fraud is done by the insiders.  The industry created an a bubble and is largely responsible for the mess the country's in.  Real estate and lending professionals have sunk lower than the proverbial used car salesman, and I don't trust them one bit.  It's time we stopped vilifying renters; they may yet end up at the top precisely because they are not chained to real estate.  That's especially true when job security has evaporated.
Apr 19, 2011 9:51PM
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Things changed when speculators got into the game to make fast money by flipping houses, when lendors quit caring whether the people who borrowed money to buy a home were even remotely qualified, when appraisers set values too high just to satisfy their clients, and when realtors knowingly sold homes to people who couldn't afford them.  The bubble had to burst, and when it did, millions of innocent people were affected.

 

Housing will eventually come back, but it will be many years before people buy homes thinking they will make a quick buck.

Apr 20, 2011 2:57AM
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Two very interesting comments:

"Houses are dirt cheap right now. In fact, homes are more affordable than at any time since the National Association of Realtors began measuring the data back in 1970 ..."

I wonder what this is based?  If homes increased 200 - 300% during the boom and have fallen around 30-50%, and income has increased (if any) single digits, things don't add up.

"It was just a standard assumption that whatever house you bought would increase in value."

Perhaps the "assumed" increases have been sucked out and still caught in the numbers that don't match above.

All this sounds like hype ... how the bubble got created.  Until homes fall and match affordability of income, all the hype won't change anything.
Apr 19, 2011 10:25PM
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Cynic, I think there is a lack of confidence in having a job 5 or ten years down the road. So many people got burned in the "Real Estate Musical Chair Game". Now their credit is toast and they are on the sidelines for the near future.
Apr 19, 2011 10:13PM
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Wow Bull, Thats scary sad. Homes as an rental investment are Ok as long as you pay cash for them. If the renter leaves you high and dry, you won't lose it and you are paying the profit from the rent back to you. Not a bank. My dad had a renter in a house of his for 41 years. He figured they bought the house 4 times. And he still had the house when they left to turn around and sell. He didn't hold a gun to their head and he wasn't a slumlord. 
Apr 20, 2011 11:09AM
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You have to do the math and decide if it is a good idea for you based upon your own circumstances and the market in which you are looking.  I was recently divorced and needed a new place.  I want a townhouse or condo as I am sick of maintenance.  I started looking at decent places in the city (Denver) and everything that is 2B/2B is about $1500-$1700 a month rent.  If I buy, the monthly payment (PITI/HOA) is $1500-$1700.  The difference is that I can deduct the RE Taxes and iInterest from my Fed and State taxes.  So, of that $1700, approximately $300 I get back in tax savings each month (~$11,000 annual interest and $1900 in RE taxes times 28% tax bracket = $3612 per year = $310/mos.).  My net per month is then $1200-1400 per month.  For each year I live there I will save $3600.  That is no reason to make a stupid real estate decision.  But if I buy well and take care of it, I should still be better off than renting.  Your circumstances may be different, but do the math and see what you think.
Apr 20, 2011 5:32AM
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I took a job that transferred me all over the place 15 years ago.  Now I want to move back to my home town, House prices there are three times what they were when I left. Houses that sold for 50000 are now 150000 and most of them need updated. I don't see where the dirt cheap homes are. 80000 dollar homes are not worth buying because they are usually old boxes covered in cheap vinyl siding and should be torn down., not lived in.
Apr 20, 2011 6:10AM
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 For people that doesn't want to purchase real estate any more I think your making a big mistake, I recently purchased at approximately 80 to 85 dollars a square foot, forecloses, HUD, yes its a buyers market and its a renters market, I can now get renters to pay more for a home than a monthly mortgage payment giving me the opportunity for you to pay on my investment and at the end of the year the cash cow, its a huge tax rite off for me to rent my real estate.

Apr 20, 2011 11:35AM
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Oh, and I read Altucher's article about never buying again.  He forgets that he is still paying rent each month.  It is still a money that must be paid to have shelter.  And he talks about moving costs and closing costs, etc.  Well the only time in my life that I rented, i lost a $2000 deposit for "cleaning" when the place was far cleaner when I left it than when I received it.  They said they always pay a cleaning service when someone moves out.  I could have sued, but it would have been headache and lawyer fees, etc.  So, I figure the deposit is a write off each time.  And whether you rent or buy, you still have the same moving costs.  I do buy his argument that I like change and do not want to be locked into a place forever, though.
Apr 20, 2011 1:14PM
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BillyD it's based on sale price vs. average salary.
May 30, 2011 9:23PM
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Once our currency finally fails just existing will be the new American Dream. But I am sure the people in Washington will take care of all of us. Also read up on Sharia Law.
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