Should Homeownership Still Be The American Dream?

victorian-sf-houseThere 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.

States

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 Hypothesis

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.

Conclusion 1

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.

Conclusion 2

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.

Conclusion 3

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:

* 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.

* Refinance Your Mortgage. LendingTree Mortgage Refinance offers some of the lowest refinance rates because they have a huge network of lenders to provide mortgage loans, home equity loans, and home equity lines of credit. If you’re looking to buy a new home, consider using LendingTree to get multiple offer comparisons in a matter of minutes. When banks compete, you win.

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, 2014

 

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. cashflowmantra says

    I don’t think that a correlation nor cause and effect be assumed from this data. I would think that crime rates, climate, cost of living, tax rates, cultural and entertainment activities, etc are other factors that might enter into a happiness scale. Ownership does not equate to happiness and I would dare say cost of living and cost of housing plays a bigger role in homeownership stats than credit scores.

    The dream for some may be to own a home while others may prefer the freedom of renting near the ocean. I just don’t think a direct correlation can be made. But if you aren’t ready, you shouldn’t be buying anyway.

    • Funancials says

      The Gallup-Healthways Well-Being Index Survey (which I used as the “Happy” factor) included questions about job satisfaction, healthy behaviors, physical health, emotional health, and other aspects of everyday life.

      There was an obvious correlation between % of homeownership and what Gallup referred to as a “happy” state. Whether one affects the other, I don’t know – but there seemed to be an inverse relationship. (I threw in credit scores as that was what sparked my original interest)

      Right now, I’m enjoying the freedom that comes with renting (unfortunately not near the ocean). Financially – I believe I’m “ready” to buy a home – but mentally – I’m not sold.

  2. krantcents says

    Owning a home will always be an American dream! Frankly, I do not see any connection between happiness and home ownership. Happiness comes from within and it is up to each of us to make ourselves happy. For some, home ownership may make them happy others may feel it is just a right and still others derieve nothing from it.

  3. The Genius says

    It is the dream, that has been dashed for many, especially those who are under 35 years old.

    Homeownership is a place for memories. It is a home first and an investment a far distant 2nd.

    I’d rent until you have 30% down and know you’ll be there for at least 5 years.

    • Funancials says

      As stated, I’m 25 yrs old and have saved for a sizable down payment. I COULD buy a house (as many of my elders advise me to do) but I’m still electing to wait. As I’m unmarried now, I think it makes sense to take this plunge together (with the lady) when the time comes. For now, I like the flexibility that renting brings.

  4. RetiredBy40 says

    I am not sure that owning a home makes you unhappy, but owning a home comes with a lot more responsibilities. You have to mow the yard, fix appliances when they break, keep the pests out, etc. Also, the places I rented had dumpsters so I could take my trash out whenever instead of planning for the trash pickup.

    With renting, if you have a problem, you just call your landlord. If you don’t like your neighbors you just move at the end of your contract. If your landlord sucks, you can move to a new place when you r contract is up. When you buy a home, you have to deal with the problems, which can be a pain and make you unhappy.

    • funancials says

      What’s funny is that I actually take care of the lawn. I asked if we could get a lower rent pmt if I took on these chores myself. So really…I have the nuisances of owning but not the benefits.

    • The Genius says

      Why does it matter if a home is a home and you don’t plan to sell, love the living, and can afford the payments?

      • funancials says

        I agree. It would only cause unhappiness if you recently purchased and are soon looking to move – a “tweener” home if you will. If this is the case, why was the home purchased in the first place?

  5. Funancials says

    @The Genius
    As stated, I’m 25 yrs old and have saved for a sizable down payment. I COULD buy a house (as many of my elders advise me to do) but I’m still electing to wait. As I’m unmarried now, I think it makes sense to take this plunge together (with the lady) when the time comes. For now, I like the flexibility that renting brings.

    • The Genius says

      Share with us how you managed to save 30% of $180,000 after just 3 years after school. Or is $54,000 your total savings and if you put a downpayment, you’d be wiped out? If that’s the case, maybe you need to save more like $100,000 before you feel comfortable buying a home to give you that cushion.

      • funancials says

        I won’t get into my specific budget but if you visit my blog daily – you may find some simple saving techniques that have allowed me to do so. Would I need 30% for the purchase or would 20% suffice? I always thought 80/20 was the rule to avoid unnecessary insurance payments.
        The purpose of my article was to show that I may be more prepared than others to buy, but they are the ones taking the plunge. Why is that? Is it because of programs such as FHA allowing as little as 3% down? Should we discontinue programs like these? Should we eliminate any further 8k tax credits? Should we crush the idea of homeownership being a dream for all?

  6. Financial Samurai says

    Hawaii is a very, very easy explanation. It’s the best place on earth. The weather, food, people, nature, pace of life is amazing. There is a huge demand for Hawaii, therefore prices are higher.

    I think people are really happy in SF too with the work life balance. But, the ownership here is only around 30% b/c the median price is $650,000.

    WV, Mississippi, and many horrendous temperature states with less job opportunities and progress definitely are less happy.

    I’m not sure how much cash you have, but I recommend knowing for sure what you want to do, where you want to live before buying. Not many people dream of living in North Carolina, and perhaps you’re feeling the same way. 20% down and 10% buffer should be the minimum.

    Sam

    • funancials says

      You hate the east coast. I will say SF is my favorite city (that I’ve visited).
      I’m not sure what role temperature plays…Alaska seemed to be a happy state. Can that be explained by the presence of Palin?

      • Financial Samurai says

        I don’t hate the East Coast. I just lived there for 10 years and objectively know the West Coast and Hawaii is way better.

        Alaska rocks bc you automatically get a tax credit for living due to their oil reserves, and the state is in a budget surplus. Nature is awesome up there. I love it too!

        Have you ever heard of people dreaming to retire or vacay in North Carolina, Miss, WVa? Very few. There’s a reason why!

  7. Maggie@SquarePennies says

    Until you know you want to stay living in an area for quite a long time it’s not a good idea to buy a house, in my humble opinion. Most people still change jobs quite often until they are about 30 years old. Even if you have the down payment, your life circumstances could change. Waiting to take the plunge when you marry sounds like a good idea to me. She will have some opinions on the matter.

    Since the economy is still shaky, I’d wait a few years before buying a house anyway.

    • Financial Samurai says

      Isn’t there some stat that people changes jobs on average 7 times in their careers? Yeah, I’d wait too. 25 is kinda young. I’d want to escape from North Carolina and shoot for somewhere better… not that NC is a bad place or anything… there are just much better places to live your one and only life!

  8. Untemplater says

    Wow those stats on West Virginia, Hawaii, and Mississippi are fascinating. Who would have thought. Owning a home takes a lot more work than many people realize before they take the step into home ownership. That’s why I always tell my friends don’t buy a fixer upper just because it’s cheap unless you really really love remodeling projects.

  9. Shaun @ Money Cactus says

    Interesting analysis. Owning your own home is a goal for a lot of people, but I don’t think is necessarily suits everyone. If you don’t earn much to begin with, the chances of mortgage stress are high.

    Even though we know we should save as much as we can or put our money to good use, people still need to have the ability to spend money and feel like they are being rewarded for the hard work they do. If it all ends up going towards a mortgage, then it’s likely they are going to be unhappy.

  10. Kris @ Everyday Tips says

    My house does not make me happy. However, having a family to fill up the house with and the ability to afford my house are part of what makes me a happy person.

    I live in one of the most depressing states in the country (Michigan). However, we are very happy. I think the financial ability to comfortably afford a house stems from having smart financial sense and self control when it comes to spending. Being able to own a home is the outcome from a million different decisions.

    I guess part of it is if you CHOOSE to not own a home, or cannot afford it. If at 44 I couldn’t afford a home and had to fit my family of 5 in an apartment, I would be pretty darn unhappy. Not because I don’t own a home, but because I obviously made a bunch of sucky financial decisions that forced me to rent instead of having the option to buy.

    Whether it is a home or a boat or a fancy car- if you take on debt and your finances take a turn for the worst, then that can bring a lot of unhappiness in general.

    I have done a lot of rambling but in synopsis, a home can signify stability and can just be a representation of where you are in life. It is just a small piece of the puzzle in my opinion, and if you aren’t sure you want to stay in the same area long term, then I would never buy at this point. A house is not an investment but a place to live, and you need to be committed to where you want to live if you plan on spending on a house.

  11. Michael says

    Growing up, my brother and I had to mow the lawn on weekends. While it only took us about an hour, it was a chore we absolutely hated. I remember running with the lawn mower so that I could finish faster. My father hated that.

    Many people underestimate the amount of maintenance that a house requires. There is always something to do – fix a leaky faucet, change a light bulb, take out the trash, clean the exterior windows, paint, mow the lawn, shovel the snow, etc. If this isn’t something you enjoy doing – or enjoy paying someone else to do it for you, it’s going to make you miserable.

    Fortunately, my wife and I currently own and live in a cooperative, where there is no lawn to mow or snow to shovel. We are still responsible for the little things, but our maintenance covers the rest. Thus far, this lifestyle has suited us well – we have a piece of the American Dream without some of the headaches that come with traditional home ownership.

    • Romeo says

      Wow. Is it as bad as you make it seem? I haven’t had these experiences…yet. Maybe because my homes are still less than 5 years old? I guess one should assume, just as in a new vs. old car purchase, that more maintainance will be required on an older home.

      • Michael says

        Perhaps the house I a grew up in was cursed. New homes shouldn’t need much maintenance, but older homes, 30+ years, tend to need a lot of work in my experience here in the North East. A five year old home sounds perfect – probably as good or better than a 1 year old car.

  12. Romeo says

    I don’t think that there is an absolute “must” to have 20% down. What if someone can purchase a home with a 15 year fixed mortgage at 0% down? In five years their balance will be about the same as the person who put 20% down on a 30 year mortgage, or even lower.

    Once again, my philosophy is that there are no absolutes in personal finance. Everyone has different objectives. Why drop 20% on a $200,000 house? Just to lock up $40,000 in the house? Or is it the way it should be “just because.” 20% is no more arbitrary than 0% or 5% down. Hell, there are people who dropped 20% pre-housing bubble and still got screwed. I bet they wish they wished to whatever God they served that they had $40,000 instead because either way they can’t sell their homes.

    20% may work for some, but not for others.

    As far as your stats, well, hell, I wouldn’t buy a home in Hawaii even if I didn’t have to put a penny down. Isn’t the average price $300,000 for something the size of a hut? hahaha

  13. Khaleef @ KNS Financial says

    I have never understood why home “ownership” became the American dream. For many people it makes no financial sense at all, and the resulting financial stress & pressure leads them to become unhappy!

    I definitely don’t think that borrowing hundreds of thousands of dollars to live somewhere leads to happiness, a higher income, lower teen pregnancy rates, or higher education. I think the correlation is due to those things causing someone to be in a better position to buy a house, rather than the other way around.

    I have always been in the minority with this view (even though the numbers back me up), and it’s good to see that even though you have a good amount saved up, you’re not caving into the societal pressure to go that deeply into debt right away.

  14. Dave says

    It might be a better comparison to look at this data over time. Some states have obvious problems that have popped up over recent years (e.g., auto mfg industry in Michigan, hurricanes in MS/LA, etc.) that might skew your data.

    Also, consider that buying a home is a form of social networking. Just like you don’t pick a college simply for the academics, you can’t choose to rent and think that you’ll have the same social network as if you would buy a home in a certain neighborhood. Even in this digital age, some people can’t or choose not to have certain social networks on the web.

    I bought my first house in 2000 at age 25. It was a ranch-style condo in an up and coming pat of town. Seven years later, I sold it for a 30% gain and had a roommate for the full 7 years I lived there. It worked out well because I didn’t want to be burdened with the responsibility of home ownership, but didn’t like the choice of neighborhoods available to me for renting. I’d like to think things worked out well financially and socially. Demographically the neighborhood was a retirement community. It was quiet and I made some friends and found a mentor there.

    Looking back, I would definitely do it again. On the flip side, I’m on my 3rd house now just 11 years later. I wish I would have gone from my 2BR condo to my 4BR house, skipping the 3BR renovated brick home in a historic neighborhood inbetween. The 2 BR would have worked fine for a while longer, and — even without using a realtor — the added transaction costs caused me to lose some equity along the way. (Don’t ever let anyone convince you that an old home is an “investment”!)

    Having said that, I did learn a lot and meet some great people (i.e., social networking) in my 2nd home . . .

  15. My University Money says

    It is interesting to note that Europe (a similar comparison to consumer-driven North America) thinks that our home ownership fetish is a little weird. Personally I love the feeling of owning my own home, and since I want to live rural the rest of my life, it just makes a lot of sense. I’m fairly sure I will own my current home outright by the time I’m 30. That being said, I definitely see the allure of renting, and might consider it later in life if I want to use my home equity to travel etc.

  16. 101 Centavos says

    People in Oklahoma are generally jovial and friendly. They’re also very fat. Okies live in one of the chunkiest states, right behind Mississippi. So it’s true, eating makes you happy.

    • Financial Samurai says

      I visited the south last November and was surprised how different the eating habits and physiques are between SF/CA. So long as they are happy, that’s all that matters. We will also have universal healthcare which helps folks down the line at a cheaper price for those who need Ye most healthcare services.

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