Home Ownership

For some, not all, the American Dream includes home ownership. In my generation this was a truism and many bought homes as soon as they could. The idea was why pay rent to a landlord when ownership meant you paid the rent money to yourself. A rule of thumb that was used at the time was the house payment should not exceed one fourth of your monthly income. If you made a thousand a month the payment should not exceed $250 a month. Of course, there was up-front money of from 10 to 20% needed to satisfy the bank to make the loan. Everybody I worked with in the fifties owned homes, some had very expensive homes in upscale neighborhoods or on a lake. It was the thing to do.

The government encouraged home ownership by allowing an income tax reduction for interest on a mortgage. They were helping to fulfill the American dream. In its way it promoted families that tended to stay rooted in the place in which they had residence. That mortgage deduction had a built in incentive for getting a larger, or more expensive home if your personal income increased. The larger the mortgage the greater the deduction. It was like free money.

For a home owner, a move to another city brought a problem that had to be resolved, what to do with the house. A divorce also brought the need to shed a house but with additional social problems if children were involved. Divorced men nearly always lost the house, courts were delighted to award it to the female. Many comical movies were made about this frightening situation.

Since home ownership was the prevailing meme at the time many people that should not buy a home did so. Some of the reasons that cause the whole idea of home ownership to fail are: unstable income, ignorance of general maintenance, laziness, unstable personality, lack of care for the neighbors, infidelity and extravagance. These types of people tended to lose their invested and accrued capital.

The last ten years has added an additional example of those that should not own a home, the under invested owner. Partly, this was brought about because home values were steadily increasing.over time. It was reasoned: Since a $100,000 home sold today would be worth $140,000 in the near future, it would be good for business to ignore, or expand, the rules for home loans. The home as an asset would increase to eliminate the original risk. Therefore, many in the government desiring more people to make the possible gains decided to change the rules for lending, mostly they were liberals. Others saw disaster in changing the rules because good times do not always continue and housing prices could come down, mostly they were capitalists. Of course, events came about to prove the capitalists correct, the whole housing market collapsed causing a severely depressed economy. We are still trying to get out of this hole.

Nevertheless, now is a wonderful time to buy a house, Prices have not been this low for fifty years and interest rates are also historically low.