Give up on buying a home, The American Dream or refocus how you think about the American Dream? Which is it? Recently, two articles appeared voicing opinions on the topic. One article, in “Time” magazine, thought home buying was something many people need to reconsider.
Whereas an article in The New York Times written by Karl Case, one half of the famous Case-Shiller index and a Wellesley college economics professor, had a different perspective. Professor Case says” The American Dream” should have a different focus. Buying a home is more like what it used to be, before homes began appreciating at dizzying rates. Mr. Case believes there are still benefits to buying a home, but we need to change our expectations. The “Times” questioned whether many should consider buying a home at all.
But for people with a more realistic version of the American dream, buying a house now can make a lot of sense. Think of it as an investment. The return or yield on that investment comes in two forms. First, it provides what is called “net imputed rent from owner-occupied housing.” You live in the house and so it provides you with a real flow of valuable services. This part of the yield is counted as part of national income by the Commerce Department. It is the equivalent of about a 6 percent return on your investment after maintenance and repair, and it is constant over time in real terms. Consider it this way: when Enron went belly up, shareholders ended up with nothing, but when the housing market drops, homeowners still have a house. And this benefit is tax-free.
The second part of the yield on investment in a house is the capital gain you receive if it appreciates and you sell the house. Gains are excluded from taxation if the property is a primary residence and the gain is less than $250,000 for a single filer or $500,000 for a married couple filing jointly.
You can deduct the interest you pay on the mortgage. Interest rates are about as low as they can get. And, don’t forget, home prices are down by 30 percent on average from the peak.
But housing has perhaps never been a better bargain, and sooner or later buyers will regain faith, inventories will shrink to reasonable levels, prices will rise and we’ll even start building again. The American dream is not dead — it’s just taking a well-deserved rest.
Many argue that home ownership should not be a goal pursued at all costs.
One major trade-off (with home ownership): mobility. Being free to move around the country easily means that people can go where the jobs are.
The inflexibility that pervasive home ownership brings to labor markets has a cost.
But if there ever were a time to start weaning America off the idea that home ownership cures all our ills, now-after the worst housing crash in 75 years–would be it.
Who do you think is right or do both perspectives have some merit? What do you think?