Home ownership used to be to the American Dream. In this dream, friends gather around a grill in the manicured and fenced backyard, a dog romps around the grass, laughing teens toss a Frisbee. Neighbors at the barbecue swap unsolicited advice on how to grill properly, while others relax on lawn chairs, drinks in hand.
This portrayal of home ownership looks idyllic, but is it a good idea today? Is it even feasible?
Home ownership used to be about more than aesthetics, more than a dream. It was a concrete way to establish and grow wealth, to progress. In fact, homeownership is closely correlated with the wealth gap.
But the economy has changed. The Global Financial Crisis showed dramatically that home values could go down as well as up — about 17 million homes have gone into foreclosure since 2008, wiping out a huge chunk of family wealth. And while those who bought homes early on in markets that later turned hot may have done well, the average home appreciates at roughly the same pace as inflation. And gains are mostly theoretical until an owner sells.
Further, the tax advantages of homeownership have changed under the Tax Cuts and Jobs Act (TCJA), which took effect in 2018. Money Magazine details the impact for homeowners and homebuyers and summarizes: for millions of Americans owning a home will no longer carry the financial advantages it did before.
This economy has vastly changed. Employment is less secure, as more individuals turn to “gig” work or “side hustles” to replace or supplement hourly or salaried work. The same Global Financial Crisis that wiped out a huge chunk of family wealth also wreaked havoc on the few pensions that remained. And then retail banks retreated from meeting the financial needs of huge swaths of Americans. The effect? Volatility. People have less consistent income, limited access to tools like credit that may make assets more elastic, and more responsibility to pay for health care, emergencies, education, and retirement.
As technology disrupts more industries, job security will become even less predictable. Workers will need to re-tool their skills or move to where the opportunities are. When they do need to move, home-ownership can actually become a barrier to upward mobility – it can take a long time to recover the commission and closing costs of buying a home. In Detroit, it takes 2.6 years to recover the costs of buying a home and 18 years in New York City.
Indeed, a recent study by two economists suggests “that areas with high and rising levels of homeownership are more likely to be inhospitable to innovation and job creation and to have less labor mobility and longer commutes to work.”
Despite the “dream” nomer, the American Dream used to be attainable. Now, it seems more a nightmare, the kind where you try to reach the end of a hallway that just keeps growing. Homeownership may not be the dream it once was. Perhaps the new American Dream is simply financial stability.