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Homeownership: Still the American Dream?

Is Home Ownership Still the American Dream?

Home ownership is at the lowest level in decades in the United States[i], and many industry pundits lay the blame squarely on millennials.  But is that fair?  Or even true?  Let’s examine this.

How did home ownership become equated with the American Dream?

The term “American Dream” was first coined by James Truslow Adams, an American writer, in his book The Epic of America published in 1931.  At the time, America was caught in the grip of the Great Depression.  Millions of families had lost their homes and found themselves homeless and starving.  The American Dream describes an ethos that folks desperately wanted to believe at the time that hard, honest work would result in financial security, the ultimate symbol of which was owning one’s own home.

We have found, however, that not all folks who work hard ever achieve financial security, or for that matter own their own home.  As faith in the traditional ethos fades, fewer Americans own homes, and the trend toward not owning is still growing.

Will it come back?

Traditionally families bought their first homes in their late 20s or early 30s, so we are looking to millennials to begin buying homes; but they are not – at least not in the numbers necessary to stabilize homeownership rates.  While many pundits posit that the reason is that millennials only want to rent in urban areas, Uber to work and walk to a coffee shop, there is really something else at work here.

Millennials are getting married and starting families later in life than their parents did, so they have less reason to buy a home early.[ii]  Add to this a decline in the belief that real e state is always a good investment, since many millennials watched their parents struggle to keep their homes during the Great Recession, or lose them altogether.  Moreover, because of low starting salaries, massive student debt[iii] and the lack of dual incomes, they have less ability to pay for a home early in life.

If we recall Econ 101 in college, we remember that the demand curve in the supply-and-demand model is driven by two factors: the desire of consumers for the widget and the ability to pay for the widget.  Homes are no different than any other commodity that way.  With less desire than their parents to own a home for multiple reasons, and less financial ability to jump into the market, it isn’t surprising that millennials aren’t buying at the same rate as previous generations.

But is this a wise move on their part?  If you can’t buy a home, then of course the decision is made for you.  But if you can buy a home, should you?

While watching their parents lose everything in a severe recession understandably made folks question the traditional wisdom (that homeownership is always a good investment), new regulations and lending safeguards make the financial crisis very unlikely to happen again, at least to the same scale.

Some folks have noted that it is much more expensive to own a home than to rent, and that it true – at first.  But tax deductions make up some of that difference for most folks.

Further, rent goes up, while mortgage payments do not – at least if you have a fixed-rate mortgage.  Property taxes and insurance go up over time, but usually at a much slower pace than rent, and they are only a small part of your monthly housing cost.  And with homeownership, eventually your mortgage is paid off and your payment disappear. *

Finally, there is the principle of leverage.  When you home appreciates, you are not only making money on the money you have invested in your home, but on the money your lender invested as well.  This simple principle will double or triple your return on investment.  You cannot leverage your savings accounts, and most folks can’t leverage their investment accounts, either.

Mortgaged real estate is the only real leveraged investment available to the average Joe.  The sooner you buy the sooner your monthly payments begin paying down your mortgage rather than paying someone else’s, and the sooner you eventually pay off your mortgage.

Still, owning a home is really not for everyone.

  • If you have to stretch to the very limit to buy a home, it may not be wise, because the first emergency could bury you financially.
  • It costs about 10% of the purchase price of a home to get in and out, in real estate commissions, title fees, etc. If you don’t plan to stay at least three years (or more, depending on the appreciation rate in your area) it may not be wise.
  • If you are likely to move for any reason within the next three years you should probably not buy a home. (Although I have clients who buy a home in their destination area a few years before they move.)
  • If you love to travel and want to spend your money there, the responsibilities of home ownership may not be for you.

However, if you want the stability of knowing you can never be forced to move, want the satisfaction of creating your own home exactly the way you want it, and want to build wealth over time with the greatest certainty, consider re-thinking your negative thoughts about the American Dream.

Casey Fleming, Author The Loan Guide: How to Get the Best Possible Mortgage (On Amazon)

Mortgage Advisor, C2 FINANCIAL CORPORATION

My Blog: www.loanguide.com

Facebook: C2 Financial Corp.

Facebook: The Loan Guide Book

Follow me on Twitter for interest rate updates: @TheLoanGuide

[email protected] NMLS 344375 / BRE 00889527

[i] Tuttle, B (2015 July 28) U.S. Homeownership Level Drops to its Lowest Level Since 1967, retrieved from http://time.com/money/3975212/homeownership-rate-record-low/

[ii] Davidson, J. (2014, November 12) What Everyone Gets Wrong About Millennials and Home Buying, retrieved from http://time.com/money/3551773/millennials-home-buying-marriage/

[iii] Notte, J. (2014 December 11) Why Millennials Aren’t Rushing to Buy Homes, retrieved from http://www.cbsnews.com/news/how-will-millennials-buy-homes-if-they-dont-know-their-credit-scores/

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Guest Writer: The Envelope Budget And Running Away

From guest writer: Flia

Running away taught me a lot. It taught me a lot about trust. It taught me a lot about making my own decisions. It taught me a lot about budgeting my money. It taught me that what might seem like a terrible decision could be the best thing that I’ve ever done for myself.

WAIT! WHAT?

Back up a little bit!

It taught me about budgeting? Believe it or not, yes it did.

And that’s just what I’m here to explain.

I realize that most of you reading this do not know me and so a little background is necessary. Shortly after my 19th birthday, I ran away from home. I am not going to go into details as to why, because that’s not what I’m writing about.

Three days beforehand, I bought a train ticket from Indiana to Utah. That same day, I started cashing out my bank account. My specific bank would only let me withdraw $300 a day. Although you could get around this rule by also using an ATM that was not associated with a bank (such as an ATM at a Wal-Mart).

By the time I got on the train and left Indiana, I had about $1,500 in cash, my backpack, and my duffel bag. And I had a 48 hour train ride to figure out what to do next.

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Forty-Eight hours on a train

About six hours into the trip I was really bored and hanging out in the snack cart where I knew I would be left alone. Because of how bored I was, I was starting to become delusional. That was the point that I decided to budget my money.

It’s not that I’d never done any budgeting before, but all of my previous budgeting had been done on electronic day planners and such. I didn’t have any of that with me so I had to do a little creative thinking.

The first thing I did was brainstorm and write down a list of everything that I would need money for. My list ended up something like this:

  • Travel & Gas (for whoever would be picking me up at the train station)
  • Food (on the train)
  • Food (elsewhere)
  • Lodging (hotel or staying with a friend)
  • Non-Food Necessities (toiletries/clothes/medication)
  • Emergency/Extra

After I had categorized everything, I began to determine about how much (or what percentage) of my money needed to go towards what. Things such as gas money for the friend that picked me up at the station was relatively easy. I looked up the number of miles between his place and the station and back. Then I determined the average miles per gallon on the specific type of truck that he had, and figured in the average price of gas in the area. After I knew how much gas the trip would have taken him, I could effectively reimburse him. All of that math was probably not necessary, but like I said, I was delusional.

Every other category followed similarly.  Food on the train is ridiculously expensive, even the prepackaged snacks. I found the cheapest food with the most nutrients (which was kind of a joke by the way-it is a snack cart-it’s all garbage) and rationed that extremely carefully. Also, because I had spent a majority of my time in the snack cart, I ended up befriending the guy that ran it. He’s a pretty neat guy. And I ended up getting some free snacks out of it too. That was a bonus!

After I had figured out each of the categories and how much money I would allot to each one, I had to figure out how to separate the money physically. It would be much easier to spend responsibly when I could actually have a visual.

NOTE CARDS!

budget20-20istock_000041295790_largeI had a package of note cards in my purse! I never leave home without them. Each budget got one note card. I folded it in half, lined side inward, and on the outside wrote which category it was. The lined inside would serve as a ledger. Every time I spent money from that card, I would subtract the amount that I spent and write in the new total.

And I am not quite sure why I just explained that because you really should already know how to use a ledger.

Any leftover money that did not get spent would go into my Emergency/Extra fund. This money was kept in an entirely separate compartment of my wallet.

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Out of Sight, Out of Mind

Out of sight, out of mind. It would be used in case of emergency, depleted funds, of on something necessary that I would inevitably forget about. For instance, I had no cell phone. I ended up shelling out a little less than $25 for a burn phone and some minutes.

Although I was not out in Utah very long before continuing on to my next place, I still use this method of budgeting. I get paid through a paycard (a bank less debit card) and cash out 85% of my earnings every payday. Savings go into a tin under my bed (out of sight, out of mind) and everything else is separated into neat little note cards in my wallet.

So yeah, I guess you could say that running away taught me about budgeting.

Thanks to Flia for the guest post! The envelope is a basic budget that really gets stuff done. What do you do to keep track of your money? What is your story?

I always love to hear your money ideas, so email me at [email protected]

Flia is a college student studying forensic biochemistry. She is an avid artist and is currently working on multiple commissioned pieces. Although she is now residing in Kansas, she has lived a little bit of everywhere and isn’t overly attached to one particular place. In her spare time, Flia likes to read, practice new art techniques, and baby-sit for family-friends.