It’s rant time. The whole home ownership aspect of the “American Dream” escapes me.
A couple of years ago, four or five months after Isaac was born, the combination of frustration over being unable to find a decent apartment to rent and the lure of owning our own place, led us to look into buying a condo. Salomé had not returned to work yet so we applied for a mortgage based only on my income and were surprised by how much they felt we could afford. In the end, the whole process nearly drove me crazy, literally, as the road was filled with so many compromises and we backed out, renting a shitty little apartment instead and, six months later, headed south for Virginia.
It’s not the desire to own your home versus renting that I don’t get, but the at any cost mentality that people succumb to in order to quench that desire. A lot of it is simply societal brainwashing, no different from the willingness to live above your means on credit or the blanket notion that private schooling is better than public (I’m quite pissed about the voucher amendment passing through the House).
There’s a not-so-subtle message in American culture that equates owning a home with success. And don’t forget, interest rates are the lowest they’ve been since…blah, blah, blah!
One of the biggest issues I have with the “ownership is better” logic is the financial argument, that you’re better off putting your money into your own home than into someone else’s pocket. Building equity. The structure of the argument itself is biased, though, clouding the big picture. Yes, in some cases, you are much better off putting your hard-earned money towards your own home. Those cases include people with stable jobs, that are not essentially living month to month, have at least a six-month reserve in the bank for emergencies and are in a position to benefit from the services their property taxes fund. That’s a rather limited group these days thanks to continuing job cuts, an unstable economy and record levels of personal debt.
Also, just because someone can theoretically afford the monthly payment doesn’t mean they should own a house because it doesn’t take into account the difference between calling the super to fix a leaky ceiling and having to do it/pay for it themselves. Never mind a collapsed roof or even the little nickel-and-dime things like paying for your own utilities, sewage and garbage pickup or mowing the lawn and shoveling the snow.
(Finance 101: The fuzzy math of mortgages and what you can afford hinges on the crazy notion that up to 38% of your gross monthly income can go towards debt, including your mortgage payment. That’s gross income, as in before taxes, before insurance, before your 401(k). In other words, if you make $120,000/year (which I was not!), that’s $10,000/month of which $3800 can go towards your house, car, credit cards, etc. Not too bad, right? Actually, yes, it IS bad. At that income level, with standard deductions and a few dollars in your 401(k), you could squeeze yourself into the 25% tax bracket, so that $10,000/month is actually $7500/month. Suddenly, that $3800 represents 51% of your monthly income, a huge chunk of change to throw towards debt! Now subtract FICA, state taxes and whatever you pay for health benefits, and you’re easily looking at well over 60% of your net monthly income going to debt. And this is on a $120,000/yr income, a pretty good living by most standards.)
The tax issue is another sticky subject. Here in New York, it’s a valid argument, as the cost of housing is so ridiculously high, the interest you pay the first five or so years will almost always take you above the standard deduction and get you the tax break so often claimed as one of the major benefits of ownership. If, however, you live in an area where housing is mostly under the $150,000 range, you’re likely getting little to no tax break while taking it on the chin everywhere else.
Of course, taxes are the one thing you have no control over and, if you think 5-8% rent increases are annoying, imagine how homeowners that got hit with an 18.5% property tax increase felt last year. No deductions available there!
An example: young couple with a new car payment, some school loans and a few credit cards, endures four-hour round trip commutes from deep in Jersey or the Poconos. They pay less in taxes and get more house for their money, but spend a significant chunk of their workday in a car or bus commuting into Manhattan because there’s no comparable jobs or salaries where they live. Not to mention the cost of commuting that often counters any tax savings and, psychologically, lowers their overall quality of life. Further, lower taxes generally means an underfunded school system that’s not ready for the influx of children that follows five years down the road which leads to a rise in property taxes right around the same time the tax deductions for the interest on their mortgage becomes less significant or completely disappears.
There’s a commercial out right now, I forget for what company, with this guy talking about all of the things he owns – his new house, his new car, etc – and at the end he says, “I’m up to my eyeballs in debt. Please help!” That reminds me of several friends and even more aquaintances who are bending over backwards, making all kinds of sacrifices, financial and otherwise, to afford owning their own homes. Most of them think it’s worth it, though, and I guess that’s what’s important.
Not my cup of tea, though.