Homeownership & The American Dream
"The American Dream” is a concept that has been around since the founding of our nation, and at the center of it has always been the idea of homeownership. Basically, The American Dream represents a set of ideals or aspirations for success and a prosperous life that is thought to be an ethos shared by all Americans.
Here in the United States homeownership has come to represent the achievement of a certain level of success or prosperity. Those who are homeowners are thought to be at least in the middle class. They’ve arrived!
But these days the ideas toward homeownership have started to shift a little bit. Where once it was a given that one would aspire to one day own a home, not everyone’s onboard with that part of the dream.
According to a Pew Research Center Study, more U.S. households “are headed by renters than at any point since at least 1965.” And that change is across all age groups under 65 years old; and not just Millennials, who are thought prefer to rent to avoid paying property tax, association fees, and being tied down.
Is The American Dream Gone?
So has the American Dream changed, or at least the homeownership part of it? Though the numbers have been shifting toward more home rental recently, another study from Pew indicates that’s not necessarily due to a declining interest in homeownership:
"In a 2016 Pew Research Center survey, 72% of renters said they would like to buy a house at some point. About two-thirds of renters in the same survey (65%) said they currently rent as a result of circumstances, compared with 32% who said they rent as a matter of choice. When asked about the specific reasons why they rent, a majority of renters…cited financial reasons."
So it looks like the idea of homeownership being the aspiration of Americans isn’t going away – and that’s a good thing. For more than just status reasons owning a home often makes good financial sense for people.
Homeownership Makes Good Sense
Whether to rent or own is an individual decision with many different factors that affect the financial impact either decision will have on you. A good first step in deciding may be to use a Rent vs Buy Calculator to understand how the financial impact of this choice will effect you.
Generally the results from the rent vs buy calculation will be favorable for buying unless you live in a prohibitively expensive area to own. So assuming that’s not the case, what are some other reasons to pursue the American Dream of homeownership?
Unlike the monthly payments you make as a renter that go to the landlord, as a homeowner your monthly mortgage payments go toward your eventual ownership of that home. And each month you get a larger share of the ownership, or equity. It is an asset that you are building that will over time become an important part of your personal financial portfolio.
This varies a little bit by individual and where they live, and can change over time, but generally there can be tax breaks for being a homeowner. Property tax and mortgage interest paid can be deductible, which would lower the overall tax paid. Of course it’s best to consult with a tax professional to see what deductions would apply for you, but as a general rule homeownership is beneficial when it comes to taxes.
Strengthen Credit History
Having a mortgage and effectively servicing that debt – making your payments on-time – is seen as a very positive factor when evaluating your credit history. And having a credit history that shows you own your own home and have a good payment record for its mortgage will help when you need to seek additional credit in the future.
Make Your Place Your Home
A problem with renting are the restrictions that come in living in a place someone else owns. You can almost never make real structural changes to a home you’re renting, and even relatively minor changes like adding wallpaper can be prohibited. And on top of that, do you really want to incur those kinds of costs for enhancements that go to someone else when you move?
But when it’s your place that’s all different. The only limit on changes you can make on your place are those the building inspector might have when issuing your building permit. And if you do eventually move from the home, those upgrades will come back to you with the resale of your home – you’ve increased the value of your asset!
But maybe more important than all of these financial considerations is that you’ll be able to create a place that truly feels like home.
Same Monthly Payment
When you rent the owner of that place has the right to increase the rent with each renewal of the lease. And you can pretty much count on that happening! On the other hand, when you have a mortgage the monthly amount is set for the term of the mortgage. This gives you an expense you can count on each month and over time, which really helps with personal budgeting.
Home appreciation is the increase in the value, or price, for your home over time. And in the United States average annual home appreciate has increase each year by 3% - 5%. Now the level of appreciate will vary by region and can change over time. Like with the recent financial crisis that centered on real estate actual home prices in most cases did not increase but depreciated.
But generally speaking home prices appreciate, or go up, over time. And as a homeowner that means your home would be worth more when you sold it years later than what you initially bought it for. This is not the case for a renter. The appreciation in the case of a renter goes to person who actually owns that property.
Your American Dream
So, even though home buying patterns have shifted a little over the years, owning a home is still a major aspiration for most Americans. And as we can see, it still makes good sense to have your own home.