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I recently had a neighbor with three young daughters move to Wisconsin from California because a) the husband’s family lives in Wisconsin, but also b) so they could purchase a home and stop renting. Purchasing a home in which they could raise a family has been part of their dream, but is it still part of the American Dream?
The dictionary defines the “American Dream” as the ideal by which equality of opportunity is available to any American, allowing the highest aspirations and goals to be achieved. The term was actually coined by writer and historian James Truslow Adams in his best-selling 1931 book “Epic of America.” He described it as “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.” Many of STRATMOR’s clients would define it as 20 percent down and a white picket fence (though there are other products and down payment options available to suit your needs, if you qualify).
Since the financial crisis, many people, especially young people, have been happy to rent. Well maybe not happy, but content, or patiently waiting if they are trying to save enough money for their own home. Especially in high cost places, like parts of California, gathering a large enough down payment together usually is a considerable cost barrier to owning a home. That leaves the option of either renting for high prices every month, or moving to a locale where the cost of living is much more manageable.
Rent prices are going up not only in city centers, but also all across the nation. Being priced out of a community because you can’t afford to rent, let alone buy, is not only crushing emotionally but means that there are few long-term prospects for saving enough money to buy a home there. Many would argue that this will eventually strip a community of its art and vibrancy, making it a place where the have-nots serve the haves, like Manhattan or San Francisco. Others would say that is how capitalism works.
Certainly monthly cash flow matters in the decision to move from renting to owning, right? There are other reasons, of course. Living near one’s family, in the right school district, the desire for stability, and pride of ownership all matter. And financially there is appreciation to consider, as well as equity, forced savings, and… taxes? Despite the serious adverse impact of the 2017 tax laws on the financial advantages of owning, people still want their own place!
Although we must remember who is doing the polling, the National Association of Realtors does an annual survey in which they have consistently found over 9 in 10 homeowners see homeownership as part of achieving their personal American Dream. In 2018, 71 percent of millennials aged 18-34 perceived homeownership as part of the American Dream. And 75 percent of non-owners say that homeownership is part of their American Dream. All three of these statistics point to a population that, if they had their druthers, would like to be living in a home of their own.
So what is stopping people from going out and purchasing homes? The homeownership rate is a lot less than the percentage of people who want to own a home. And will this inability to purchase homes make it so that homeownership eventually is not part of the American Dream?
Aside from the down payment, qualifying for a rate that makes monthly payments manageable, and then going through the mortgage origination process with all the documents and phone calls is enough to scare off some potential qualified borrowers. Renting is easy, if something breaks the tenant calls either the property manager, the landlord, or the home warranty company and the problem is fixed. The mortgage process seems much scarier, and often is, than a rental application. People, especially millennials, love convenience (e.g. delivery food apps, next-day delivery, free returns, etc.), and the mortgage process is not convenient. Quite the opposite. Some companies, like Quicken with Rocket Mortgage, have attempted to streamline the user experience, but the process of originating a mortgage requires certain documents and is subject to a whole host of rules and regulations that can bog down many borrowers., Though this would only seem a minor impediment to the American Dream of homeownership if it really was someone’s dream.
There are obviously other components to the American Dream. It is also the belief that anyone, regardless of where they were born or what class they were born into, can live in a society where upward mobility is possible and that person can attain their own version of success through sacrifice, risk-taking, and hard work. This could mean finding a job, being accepted for who you are, or being given equal opportunity. Homeownership, and having a place you can call your own where you can rest your head every night knowing your hard work led to this, seems inextricably linked to the American Dream. The symbolism of owning a house will never be lost on the people in America, and this should not be forgotten by loan officers in the United States.
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