Should Homeownership Still Be The American Dream?
There have been numerous studies performed over the years which clearly outline the social benefits of homeownership. In the mid-2000’s it was nearly impossible to argue against the advantages of owning a home. Research showed that homeownership led to increased education for children, lower teen-age pregnancy rates and a higher lifetime annual income for children – and these are just the advantages to family life. This doesn’t even account for the advantages versus the alternative (renting).
The government has seen this research and done their best to encourage new homebuyers to enter the marketplace. Are the statistics they are looking at still accurate? Should homeownership still be the American dream?
If you aren’t disciplined enough to save up 20% of a home’s purchase price, you shouldn’t be buying. Forever soaring home prices used to reward these risk-takers with an inflated net worth and a false sense of wealth; but having 0% equity in anything can hardly be classified as “ownership.”
What if I can come up with data that discourages people from purchasing a home? My goal is not to turn off everybody (my back-hair accomplishes this) but rather turn off those that aren’t ready.
The Discouraging Data
While I may not be very inclined when it comes to Microsoft Excel; my girlfriend can be referred to as The Sultan of Spreadsheets. Her job is to extract the data; my job is to manipulate it.
Together we looked at the following information.
Homeownership by State
(2010 rates – Source: infoplease)
The Happiest States
(2010 – The Gallup-Healthways Well-Being Index Survey included questions about job satisfaction, healthy behaviors, physical health, emotional health, and other aspects of everyday life)
Average Salary by State
(2010 Bureau of Labor Statistics)
Average Credit Score by State
(2011 Credit Karma)
The states with the highest percentage of homeownership should have the best credit, the highest salaries, and should be the happiest states.
Results & Notes 1
- West Virginia is the least happy state.
- West Virginia has the highest percentage of homeownership.
- West Virginia has the 3rd lowest income.
Results & Notes 2
- Hawaii is the happiest state.
- Hawaii has the 2nd lowest percentage of homeownership.
- Hawaii has the 3rd best credit score average.
Results & Notes 3
- Mississippi is the 3rd least happy state.
- Mississippi has the 3rd highest percentage of homeownership.
- Mississippi has the worst credit score average.
- Mississippi has the lowest income.
- Mississippi has the highest poverty rate.
My hypothesis (and what the government expects) was found to be inaccurate. It was actually the exact opposite. The state with the highest homeownership (WV) turned out to be the least happy state. The unhappiness could be because of the people purchasing the homes. The average salary of West Virginians in 2010 was $35,370. I tried to find a correlation between the low income and the high percentage of homeownership, but there is none. The average West Virginia home value (according to Zillow.com, a site to check sales and values) is $92,900.
Even if they financed the entire amount (including taxes, insurance, and PMI) – the monthly payment is an affordable $595. If budget were a problem, they would be higher on the poverty list, not the unhappy list.
Hawaii is considered to be the happiest state. They also have the 2nd lowest percentage of homeowners. You could say that this is a bad example because Hawaii is just different. The language, the lifestyle, the remoteness…Each of these attributes allow Hawaii to be a dream in itself. Who needs a home when you can sleep on the beach and not be bothered?
While it’s true that the island is different, the lack of homeownership cannot go unnoticed. I say this because Hawaii has the 3rd highest credit score average. It’s not like they are ignoring modern civilization and using seashells as a viable form of payment. They are swiping (and smiling), but not buying.
Mississippi proves my point. What happens when people who shouldn’t buy houses, buy houses? Sh*t hits the fan. Any underwriter (or human) can look at the above statistics and conclude that Mississippians should not be purchasing homes. Having the lowest income available and the worst credit score average hardly gives you the criteria to have the 3rd highest percentage of homeowners. It’s no wonder they have the highest poverty rate!
My only concern is that Mississippi is only the 3rd least happy state – that reeks of too much optimism.
Recommendations For Property Homeowners:
* Get the best home insurance possible. In order for your property to grow in value you must protect your property from damage. Fires, floods, leaks, theft, and other accidents happen all the time. If you have cut-rate insurance, you could very well pay way more than you should. I highly recommend checking with USInsurance.com online to find the best home insurance rates. They have a huge network of providers that will compete against each other to provide the most tailored home insurance coverage possible that is affordable. Mobile home insurance, renters insurance, condo insurance, and homeowners insurance are just a few of the options based on the type of home in which you reside. Leverage the internet to save money and protect your largest asset.
* Make sure you refinance your mortgage. If you haven’t refinanced your mortgage in the past 6-12 months, I strongly suggest you at least check the latest rates online with Quicken Loans, the largest online mortgage retailer. They were founded by Dan Gilbert, also owner of the Cleveland Cavaliers. Because they have the largest online network, they can provide the lowest rates. They also seem more streamlined in the refinancing process than traditional bricks and mortar banks as well. Interest rates are at all time lows and won’t stay this low forever. My latest refinance was for a 5/1 jumbo ARM at 2.625% from 3.125%. Rates are ticking up due to the end of quantitative easing. Might as well check because it’s free and there’s no obligation.
* Check Your Credit Score: Take a moment to check your free TransUnion credit score through GoFreeCredit.com, a company I trust. 30% of credit reports have errors, which could put a serious hamper on your refinancing or new loan borrowing abilities. I had a $8 late payment I didn’t even know I owed crush my score by 100 points come up during my last refinance! The average credit score for rejected mortgage borrowers has risen to 722 due to more stringent lending requirements. Do you know what your score is? If you don’t want the credit monitoring service, simply cancel before the grace period is up.
This is a guest post from Funancials – The Funny Money Blog. Funancials is 25 years old and unsure whether he wants to dive into the American dream of homeownership. Share some advice to him!
Photo: Not a rental, PD.