Is Home Ownership Just Fancy Propaganda?

I’ve mulled this over for a while now – yes, I’m in the personal finance realm and am supposed to tout the benefits of owning a home, but if you really step back and look holistically at the entire process, is it in your best interest?

I’m going to play the Devil’s Advocate on this one and say that it is quite possible that we’ve been brainwashed into thinking that owning a house with a white picket fence is the “American Dream”. I will argue that it isn’t; that it is the dream of the government and corporate America for all of us to propagate that dream.

No, I’m not out to get America and its systems. They work. I’m speaking from a business perspective though. Government whether you like it or not, is a business. It needs money in (taxes,etc), and money out ($700BIL bailouts, etc). They have run it pretty well for the past 220 years (well, 219 anyway).

Break It Down To The Simplest Form

Somewhere near the beginning of EVERY country’s establishment, banks are introduced. They worked and made perfect sense. You let them house your money in their big safe, feeling comfortable that you won’t get robbed of everything in a train robbery.  True, putting it in the bank is much better than the “coffee can in the backyard” and “under the mattress” ideas people are returning to these days.homeowner.jpg

Banks were good at that. They’d charge you a small fee to house it there and everyone was happy. Well, like any good business, you then need to have new ways of making money. They’ve got all that money just sitting there in their banks, there’s got to be a better way to put that money to use – in comes the loan and mortgage structure.

TheHistoryOf says that the beginnings of a mortgage system have been found, as mentioned, as early as 1190. English common law included a law that would protect a creditor by giving him an interest in his debtor’s property. According to this law, the mortgage was a conditional sale. Although the creditor held title to the property, the debtor could, in the event the debt wasn’t paid, sell the property to recover his money.

As pioneers moved from Europe to settle in America, they brought their systems with them. As land ownership increased, so did the need for mortgages; so much so that by the early 1900s, they were already widespread and readily attainable.

However, not everybody could get a mortgage. In those days, those seeking to buy property were often required to pay a 50% down payment on a 5-year mortgage.

So, to buy a $10,000 house (wouldn’t that be nice today), the borrower had to have a $5,000 down payment and pay interest for 5 years.

At the end of that 5 years, the unpaid (and unchanged) balance of $5,000 would have to be either paid or refinanced. This system continued through to the Great Depression, when lenders had no money to lend, and borrowers had no money to pay. The whole system collapsed with thousands of foreclosures. Mortgages were just not available.

As It Relates To The Subprime Crisis

So yes, the statement really does have some weight when our current government says the markets, mortgages, and government are tied to the subprime crisis; how can this obvious apparent contradiction be reconciled?  Get more money in the banks by the people that are taking it out.

500px-homeownership_rate_since_1960.jpg

How do you do that when people are just getting over the Great Depression and convince them that banks are safe investments again?  Maybe a little reverse-psychology?  Plaster throughout the media outlets that owning your own home is the ‘American Dream’.  Don’t tell them that in reality it is the bank owners ‘American Dream’.  Let the people think that because of the Depression people were homeless and what better way to have a failsafe against that and OWN your home!

That was the first step, and I’m sure there were several people that could afford to get into houses for cheap, but for many, mortgages were their way into buying that ‘Dream’.  Now where in the world would we get a mortgage?  You guessed it.

After All, It Is “Just Business”

As Killing Sacred Cows author Garrett Gunderson puts it:

1.  Financial institutions want our money.
2.  They want it on a regular, systematic basis (preferably through automatic withdrawl).
3.  Once they have our money, they wan tot hold on to it as long as possible (hence early withdrawl penalties).
4.  If they have to give it back, they want to give back as little as possible.
homeowner2sm.jpg

There’s nothing wrong with that method.  It’s just a business model, and it works.  They’ve got money, you want money, easy case.  Offer you a little carrot that will increase your money by letting them have it, and then they shop your money out to the next highest bidder.  Can’t lose if they strap 75MILLION people into 30 year mortgages.

Tack on an ARM loan, and get as much out of them as you would in 30 years in a much shorter time!  When they can’t pay, make a few more bucks off it.  From a business standpoint, they’ve certainly figured out the “art of the upsell”, and has worked well for many years.

Is The Government Involved?

The Government has an interest in it as well as you’ve seen this past year.  They don’t want the economy to fall either and having the ultimate choke hold of taxes in their back pocket, they can spend 700 billion fairly easily and squeeze the little guy for a few more drops during tax season.  I’m not against taxation, I think it’s a necessary evil and I am very thankful to live in these United States, but I’ve got to hand it to the government for helping in the propagation of the American Dream mindset.

They preach it from on high just like bankers; the White House even has some good bits of information to share, “President Bush has declared June as “National Homeownership Month,” and HUD will be celebrating by visiting communities across America. At homeownership fairs and other events, we’ll meet with families and provide them with information that will help them decide if homeownership is right for them.

Homeownership is called “the American Dream,” and we want more families to realize the transforming power of homeownership. Homeownership leads to financial independence and the accumulation of wealth, and has a positive impact on a child’s development. That’s why I’m so pleased that more American families own their homes today than at any time in our nation’s history. Nearly 75 million Americans are homeowners, and minority homeownership is at an all-time high.”

American Dream Downpayment Initiative

homeowner_habitat_rice_small.jpgThe American Dream Downpayment Initiative (ADDI) was signed into law on December 16, 2003. The American Dream Downpayment Assistance Act authorizes up to $200 million annually for fiscal years 2004 – 2007. ADDI will provide funds to all fifty states and to local participating jurisdictions that have a population of at least 150,000 or will receive an allocation of at least $50,000 under the ADDI formula. ADDI will be administered as a part of the HOME Investment Partnerships Program, a formula grant program.

ADDI aims to increase the homeownership rate, especially among lower income and minority households, and to revitalize and stabilize communities. ADDI will help first-time homebuyers with the biggest hurdle to homeownership: downpayment and closing costs. The program was created to assist low-income first-time homebuyers in purchasing single-family homes by providing funds for downpayment, closing costs, and rehabilitation carried out in conjunction with the assisted home purchase.

Conclusion

SatireWire provides a similar thought of how it has become dispersed through our mindsets over time, with a bit from their humorous post:

“Ever since I was a little girl, I’ve wanted to (deceive myself into believing I could) be a homeowner,” said Doogan, 35. “Well, look at me now! Me, little Stephanie Doogan, I actually have a place I can call 100 percent (minus 80 percent) my own!”

Nobody wants the economy to homeowner_habitat_small.jpgfail (well, mostly nobody) so it is in our best interests to keep “The Dream” alive in everyone’s mind.  I don’t want everyone to start hiding their money again and keeping it out of our government.  It greases the wheels and keeps trade and business moving.  I just wish there was a better way to disseminate the information than to tell everyone that we NEED to own a house, when in actuality, we don’t OWN the house until well into our retirements when the final loan paperwork is sent.

The bank loves your money, business loves the bank’s money, and the government loves the business’s money.  Just like a well oiled machine that has been churning since 1776.

I like the first version (before it was slung to include home ownership) of “The Dream” coined by historian and writer James Truslow Adams  in his 1931 book Epic of America:

“The American Dream is that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement. It is a difficult dream for the European upper classes to interpret adequately, and too many of us ourselves have grown weary and mistrustful of it. It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.”

Filed Under: 401KadviceBusinessfinancial educationHouseReal Estate

  • http://sensetosave.com Kacie

    I think too many people are caught up with wanting to “own” a home. I’m a renter, and I have no intention of getting a mortgage any time soon. How come? Well, I don’t have any money for a down payment, no desire to deal with home maintenance issues for the time being, and oh — I don’t want to live in this city for much longer.

    I know that my monthly expenses will be much higher once I move into a mortgaged house. I’m just not prepared for that yet.

    To me, a house is simply a place to live. You can customize it and make it your own, but until it’s paid off, you’re not really a home owner. And until you sell it, you’re not going to make any money off of it. HELOCs don’t count. Your house isn’t an ATM.

    One final beef: So many people say they’re “home owners.” Oh really? You don’t have a mortgage? Cuz most people do. I don’t own my car. My bank still does. I don’t say I’m a car owner (but hopefully I can say that soon!)

  • http://toughmoneylove.com Mr. ToughMoneyLove

    The increase in historic homeownership rates is telling and something that I have talked about as well. For lots of people, home ownership just doesn’t work and the government needs to stop acting like it will. There is nothing wrong with renting if you do the right things with the rest of your money.

    Mr. ToughMoneyLove’s last blog post..Your Candidate Cannot Solve Your Financial Problems

  • http://20smoney.com Kevin

    I’ve thought a good bit about this as well Hank and I think you make some great points. Renting is extremely underrated. People call renting “throwing money away”, but the reality is millions of people would be in better situations if they had been renting in recent years vs “owning” their home (that is if you call owing $400k on a $300k home OWNING a home).

    Home ownership is good for a community in the sense of pride of ownership and caring about a community, so it should be encouraged. Meddling with the lending process however and encouraging banks to lend to un-credit-worthy individuals is a disaster as you can see today.

    Good post

    Kevin’s last blog post..Career Questions During Your 20s: Is An MBA For Me?

  • http://investing.curiouscatblog.net/ Curious Cat Investing Blog

    Homeownership has truly been a huge boon to millions of people. That does not mean it is always the right financial move. In many situation (and real estate markets) renting is the better move.

    One part of the financial success of home ownership is getting people to save money (by building up equity in their house – even if the house price did not rise at all). This has nothing to do with the benefit of home ownership itself, instead just a common side effect. Someone could just keep borrowing against their home and not save any money but that is uncommon over the long term (though many people did this from 2000-2006).

    Curious Cat Investing Blog’s last blog post..Corrupt Officials Have Fled China With As Much As $100 billion

  • Pingback: QuickHits and the Best of Prime Time Money: October 2008 | Prime Time Money

  • http://www.thenighttrader.com/ Justin “The Night Trader”

    I personally think that home ownership is a very good thing. I’ve been renting for almost 3yrs now and can’t wait for the day I own a home! When you truly own a home I think the advantages are pretty clear.

    First of all let me say that renting has been good, and it has it’s place. Up until recently I could not afford a home. The bank said I could, but as outlined above they have a business plan. And unless you’re paying them, you’re not in that business plan. All that nice furniture in the lobby had to come from somewhere! But back on topic, renting is good for a period of time to get finances in order to be able to start owning a home. Too many people have it backwards. They pay the bank (mortgage interest) until they go broke, and then they rent as a last option.

    I think the keyword in this discussion is ownership. As was mentioned you don’t own a home while there’s a mortgage. The bank owns it. Which is why my plan is to kick the bank out ASAP! My idea has been to rent until I have the financial means for a decent down payment, and then get a house I can afford. Meaning that I get a house where I’ll have the financial means to easily pay more than the minimum payments. I’m not taking 30 freaking years to own my home! I’m thinking no more than 8-10yrs max, and the bank is out of my life forever (except checking and savings accounts of course). Then my home can be a blessing for many more years :-).

    Justin “The Night Trader”‘s last blog post..Election is over … now what?

  • http://www.thenighttrader.com/ Justin “The Night Trader”

    I personally think that home ownership is a very good thing. I’ve been renting for almost 3yrs now and can’t wait for the day I own a home! When you truly own a home I think the advantages are pretty clear.

    First of all let me say that renting has been good, and it has it’s place. Up until recently I could not afford a home. The bank said I could, but as outlined above they have a business plan. And unless you’re paying them, you’re not in that business plan. All that nice furniture in the lobby had to come from somewhere! But back on topic, renting is good for a period of time to get finances in order to be able to start owning a home. Too many people have it backwards. They pay the bank (mortgage interest) until they go broke, and then they rent as a last option.

    I think the keyword in this discussion is ownership. As was mentioned you don’t own a home while there’s a mortgage. The bank owns it. Which is why my plan is to kick the bank out ASAP! My idea has been to rent until I have the financial means for a decent down payment, and then get a house I can afford. Meaning that I get a house where I’ll have the financial means to easily pay more than the minimum payments. I’m not taking 30 freaking years to own my home! I’m thinking no more than 8-10yrs max, and the bank is out of my life forever (except checking and savings accounts of course). Then my home can be a blessing for many more years :-).

    Justin “The Night Trader”‘s last blog post..Election is over … now what?

  • http://www.moneyanswertree.com Paul

    First of all, you have to live somewhere right? So your options are to rent or “own.” When you say the Bank owns your house, they only own the majority of it,(80%) you do “own” part of it. That’s how I see it.

    A house is more than just a place to live its an investment. You do get tax benefits when owning a home vs renting. In MA you do get some of a break on the money you paid for rent, but the benefits to owning a home are greater. The key is buying a house to can afford. I think the banks got greedy and sold mortgages to people that were not in any kind of position to buy. There is too much of a rush to own a home and I think people need to slow down. Rent if you have to, to save up for the correct down payment, and a Fixed rate. The only time you would want to get a balloon mortgage is when the interest rates are super high, because most likely they will go down. When interest rates are low, lock it in.

    When you put your 20% down, and(in a good market) the houses value grows at 5%. Your 20% down payment grows at 5 to 1. Now when you are paying your mortgage that 5 to 1 starts to go down a little but you would still make a big gain. You only get that gain if you sold the house, right, that’s the same with any investment. You haven’t gained or lost anything until you sell.

    For a simple example: a $100,000 dollar house. You put down $20,000 and the bank puts down $80,000. 1 year later(in a good market) house is worth $105,000. You sell the house, give back the $80,000, now you have $25,000. You gained 25% on your investment. Now that is a very simple example but you get the point. That is what could happen in the short term.

    Long term… You need to own. My grandparents bought their house for 15,000. They had a 30 year mortgage on it, and paid it off in ~30 years. The house sold for about 400k. That’s not the point but it was pretty good. The point is, if they were renting all that time, they would have been homeless. With cost of living, and inflation, there is no way their retirement would have supported a 1500-2000 dollar rent payment. As you get older you want your money to last, and your payments to go down, because your earning potential is much lower.

    I might have got off topic there, but buy a home if you can afford it, rent if you can’t. Pretty simple.

    Paul’s last blog post..Think its a good time to Dollar-Cost Average?

  • http://www.ourstockmarketjourney.blogspot.com/ Alisa

    I think homeownership is a good thing; but it may not be for everyone; and that’s o.k. Prospective homebuyers should get and understand as much information as they can about buying a home. It’s the most biggest purchase that most people make.

    It’s important to honestly assess your own financial condition and know how much home you can really afford currenty; and not 1,3,5, or 7 years down the line. And to play it safe, it is not a bad idea to buy a little less home (rather than more) than you can afford to allow yourself a margin of safety.

    It is important to understand the different mortgage types (VA, FHA, or Conventional) and the different loan types (Fixed Rate, Adjustable Rate, Buydown, Balloon, No Interest, and so many other loan types). It is also important to know and understand the changes that could happen with your loan and how it will affect your mortgage payment amount. It is also good to know where you can turn for help if you need it. Most Mortgage Companies have a Loss Mitigation Department with trained counselors to help you avoid foreclosure. Usually, if they can, they will try to modify your mortgage by adjusting the length of the loan and/or the interest rate, or some of aspect of the loan. It is costly for a company to keep vacant and foreclosed property on its books.

    Armed with this information prospective homeowners are in a better position to make the right home buying choice.

    Be well.

    Alisa’s last blog post..Will You Be Apart of the Change in America?

  • Tamara

    I find it interesting tat you have not one single answer. There are Christians with the ability to provide finance under divine economic laws, and yet they don’t.. Wow

  • Pingback: Down Under QuickHits | Prime Time Money

  • http://www.moneyandsuch.blogspot.com shadox

    The opening premise of your article disturbs me: why does the fact you are in the personal finance realm mean that you’re supposed to encourage home ownership? The problem with that premise is that you treat buying a home as if it is different than every other investment decision. It is not.

    shadox’s last blog post..Recommended Aricles & Commentary

  • http://mrsmicah.com Mrs. Micah

    As I see it, the only advantage to owning is if someday you’ve actually paid off the house and you’ve also saved enough to cover retirement expenses, including taxes and maintenance and other things you wouldn’t normally have to pay under rent.

    Like any “investment” you don’t really get the money back until you sell. So you don’t have that money, you just have that house. And if you’re selling it either means that you’re going to rent from now on, you’re downsizing, or you’re dead.

    It’s quite possible we’ll own someday, but we’ll wait until we’ve built up a sizable down payment and Micah actually has tenure or a good enough contract that we won’t be moving for a while. If we move from college to college for a while, the fees will make buying a bad move.

    Mrs. Micah’s last blog post..Get Better Customer Services by Leveraging Blogging and Twitter

  • http://myinvestingblog.com hank

    @Kacie – indeed people have the misconstrued opinion of want to own a home and it is mostly based around economic perception – if you own a home somehow you’re in a better financial state. I’ve noticed it specifically with my parents generation and prior.

    @MrToughMoneyLove – bingo!

    @Kevin – that’s the part I don’t get. You only ‘own’ the papers that say the bank owns your house if you’re still paying on it. It’s a clever marketing ploy to state that we ‘own’ the house once we sign the papers.

    @CuriousCat – I hear you. It really has been beneficial to some people to own their own homes as the prices DOES rise and they DO make a profit from the house, but even as the price rises, you still aren’t “owning” your home, unless it has doubled in value.

    @Justin – you’ve got the right idea if you’re looking to own. Get in, get it paid, and get out. Keep the bank from taking as much as possible!

    @Paul – I hear that a lot with grandparents buying for so low. Additionally, they have been pushed OUT of their homes due to property taxes going up in neighborhoods with newer construction. It’s a tough road. My grandparents certainly couldn’t afford it either.

    @Alisa – Banks swinging deals to save possible forclosures makes sense. I wish they granted the responsible ones breaks like that. ;)

    @Tamara – Sorry I don’t have any answers for you. Maybe next time.

    @shadox – I say that because everyone across the PF realm always writes about the benefits of home ownership – I’m not saying there aren’t, but I’m saying that there are other options is all.

    @MrsMicah – True story – if you have the money to buy now, you might have better luck in waiting a bit to see if them market corrects itself a bit. It won’t bounce immediately back, so when you see it start, might not be a bad time to start looking!

  • Pingback: Beno Varghese dot-com blog » Blog Archive » Credit Crisis Management - November 10, 2008

  • http://myinvestingblog.com/is-home-ownership-just-fancy-propaganda/ Rosa

    I appreciated the quote from James Adams, ““The American Dream is that dream of a land in which life should be better and richer and fuller for everyone,…in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable”. This dream includes every aspect of our lives, such as family, careers, spiritual aspirations, and financial goals. I agree the government should not have specifically mentioned home ownership as part of the “American Dream”; however, some of us do include home ownership in our financial or family goals.

    I have rented for the past 3 years waiting for the market to allow me the opportunity to “invest” my money into a home. I have never felt comfortable in a rental and recently had a bad experience with one of the landlords. You can never really make it your home because you’re always worried about your kids destroying something that the landlord is going to charge you an arm and a leg to fix or replace (I’ve had that happen before).

    So, renting served its purpose for the time being but finally, this year, we were able to go into contact and get a home of our own. The whole atmosphere changed. There was freedom and peace knowing that we own this home. Even though it’s a Note, we still have our own names on it. We want to eventually move again but want to keep this house under our name so will probably rent it out and have someone else make the payments for us as the market improves and the value goes up, those renters will help my family reach our financial goals.

    There are many ways to look at homeownership depending on what your individual goals and aspirations are. Many reach them without ever owning a home because their money is invested in other opportunities. Isn’t that what America is all about…the land of opportunity?

  • Pingback: Beno Varghese dot-com blog » Blog Archive » Credit Crisis Management

  • http://www.youngdough.com Blake

    I think our ‘keeping up with the Joneses’ mindset had a huge negative influence as well. Whatever happened to getting a nice, small starter home for the first-time homeowner; something they could actually afford with a traditional mortgage? They’d rather take out an ARM loan and get into something twice as expensive in the newest suburban housing development. That’ll do wonders for making them look better off than the really are! Sure it does, until it goes into foreclosure…

    Blake’s last blog post..My Little Civic at 105,000

  • http://www.thefinancialqb.com Richard Reyes

    As a homeowner, I have yet to feel the dream. Sure I have seen appreciation in my home and have gotten some tax deductions. However, are me and my family happier. Not really. I believe that in hindsight we were happier living in a small apartment we lived in while our home was being built.

    If I would have taken the difference in rent vs. mortgage, taxes, and upkeep and invested it in the same prudent portfolios I provide for my clients. I would definitely have more money over time than that supossed appreciation you are supposed to get over time.

    Believe me, owning is way overrated.

  • http://www.oldschoolvalue.com Jae Jun

    If people thought of homes as residences rather than “investments” or a “piggy bank” I don’t think it would have come to these levels.

    Nonetheless, it offers the first home buyer like me a great opportunity. I sure didn’t want to buy during the peak, and seeing how this may last for the next year, better for those who plan and understand what a budget is.

    Jae Jun’s last blog post..Puget Energy: Price Drop On No News

  • http://best-etf-funds-list.blogspot.com/ Best etf funds

    The real problem is 2 things . First how can you make loans to people with no ID no job and no adress. Second because we gave out loans to anyone that drove prices up. If you look at home prices they are stable most of the time and do not really go up like people think. I like the graph showing home onwership stays in narrow range just like everything else. It shows that the actual value of homes in any area are based on the average income of the people who live thier. if every one makes 40 thousand dollars than they can not sell homes in that area for 500 thousand.

    Best etf funds’s last blog post..Gold double long etf.

  • http://forexgeek.org Dream Gone

    Yes, it was my dream to own my house but since it's gone down so much in value, I'm getting disillusioned.

  • http://panicdisorderhelp.org Panic

    To me home ownership is important. It is a dream for many including myself. But with this crisis now, it's sad to see so many lose their homes.

  • http://condominiumsinsabah.blogspot.com eugene

    Bought a condominium as I always thought it should be first priority. Paid all with my savings but now it's in bad shape and gone down half in value. Perhaps I should have been objective.

  • http://watchpctv.org TV

    I wanted to buy a house two years ago and now I'm glad I didn't. I just couldn't take everybody around me asking when I'm buying my own house instead of renting. The all feel that having your own house is a must. Like you have reached your adulthood.

    But now my landlord is selling me the house at 60% of what he offered me 2 years ago.

  • Pingback: Festive Link Love Carnivality #31

  • Tamara

    It is the laws and property taxes that need to be changed. If after you paid the mortgage and taxes, the estate was your free and clear( property tax paid in full) that would change home owners perspective, as well as inheritance!  There would be a more solid foundation and a goal worthy to achieve!

  • http://click4pips.net not steady anymore

    Our grandparents will always ask us to invest in a house before any other thing.  The house is a security they feel everyone should have and it was true in my father's time.  By the time he retired, his house had appreciated 30 times. It's a different story now.  House prices don't steadily go up and in fact they can go down as well.  I bought a house 5 years ago and now the price is less than when i bought it.  

  • http://milliondollarpips.org million dollar

    In a normal economic environment the house is a good investment.  But when things go out of hand like the present situation, I think we should consider all factors before actually investing in a house. Of course money is not everything and to many people, there is a feeling of satisfaction and security in owning your own home even if you have to take a loan.  So these factors should also be considered.