Why are people OBSESSED with owning a house? (8%, housing, insurance)
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I would not call desire for home ownership an obsession, just a preferred choice. It is not limited to the US. Most people would prefer to own their own property, rather than borrow someone elses, who can raise the rent and then decide to not renew your lease.
Who says the house has to be big and what do fancy cars have to do with it?
I'm curious to know the where the origins of America's obsession with owning houses comes from (you know, the American dream: big house, fancy cars, etc.).
Most people feel more secure with stability and roots. Even cavemen wanted their own cave. Slaves dreamed of their own home, for privacy and roots. In Europe, landholders owned huge swathes of land, with serfs to work the farms. The serfs could be thrown out on a whim and were completely at the mercy of the landholder. Even in the US, large manufacturing companies -- mines, mills, etc. -- housed employes in the company housing -- if you lost you job, were no longer able to work, or retired, you lost your home, too. As the song went, "I owe my soul to the company store . . ." In China, many of the huge manufacturing facilities have dorms to house their workers -- four to six to a room, several rooms on a floor sharing one bathroom. And people flock to them, because at least it's a place to sleep and work.
It's not an American obsession, by any means. There are countries where one cannot own property -- i.e., China. In China, you may pay for a house/condo, but what you are really paying for is a 75 year lease for the property. Same in many parts of England. That's one reason why there are so many foreign investors in the United States -- land doesn't go away. It's generally a stable investment, albeit somewhat finite.
I think you are misstating the American dream somewhat. Each American has their own dream, but for many, it centers around independence -- from a bank, a landlord, etc. -- to have a home that no one can take away from you. There are many, many people who place a higher value in owning a house outright, and buying a home within their means, than in gambling that their income will be able to keep up with high mortgage payments. Most millionaires live in relatively modest homes, because they DON'T waste their money on things that don't create wealth.
The 30 year mortgage came into being around the Depression -- before then, many mortgage were very short term, and often renegotiated from year to year -- essentially, the bank was the landlord. During the Depression, the Federal Housing Administration and FNMA was created to pick up the gap many homeowners fell into, where banks would not renegotiate loans because of bank failures, etc. Then, at the end of WWII, the GI bill gave an entire generation of servicemen attractive rates to establish homes and lives -- that's when 30 year loans started to become a standard.
I would not call desire for home ownership an obsession, just a preferred choice. It is not limited to the US. Most people would prefer to own their own property, rather than borrow someone elses, who can raise the rent and then decide to not renew your lease.
Who says the house has to be big and what do fancy cars have to do with it?
^This. I see more of an obsession with young a adults wanting new houses with all the bells and whistles right after college.
Certainly there's more of a benefit to owning a home. The exception being if you don't intend to stay in an area for too long. Planning to relocate in less than 5 years? I don't see a benefit of being tied to a mortgage and possibly getting stuck in a bad market for sellers.
Most people feel more secure with stability and roots. Even cavemen wanted their own cave. Slaves dreamed of their own home, for privacy and roots. In Europe, landholders owned huge swathes of land, with serfs to work the farms. The serfs could be thrown out on a whim and were completely at the mercy of the landholder. Even in the US, large manufacturing companies -- mines, mills, etc. -- housed employes in the company housing -- if you lost you job, were no longer able to work, or retired, you lost your home, too. As the song went, "I owe my soul to the company store . . ." In China, many of the huge manufacturing facilities have dorms to house their workers -- four to six to a room, several rooms on a floor sharing one bathroom. And people flock to them, because at least it's a place to sleep and work.
It's not an American obsession, by any means. There are countries where one cannot own property -- i.e., China. In China, you may pay for a house/condo, but what you are really paying for is a 75 year lease for the property. Same in many parts of England. That's one reason why there are so many foreign investors in the United States -- land doesn't go away. It's generally a stable investment, albeit somewhat finite.
I think you are misstating the American dream somewhat. Each American has their own dream, but for many, it centers around independence -- from a bank, a landlord, etc. -- to have a home that no one can take away from you. There are many, many people who place a higher value in owning a house outright, and buying a home within their means, than in gambling that their income will be able to keep up with high mortgage payments. Most millionaires live in relatively modest homes, because they DON'T waste their money on things that don't create wealth.
The 30 year mortgage came into being around the Depression -- before then, many mortgage were very short term, and often renegotiated from year to year -- essentially, the bank was the landlord. During the Depression, the Federal Housing Administration and FNMA was created to pick up the gap many homeowners fell into, where banks would not renegotiate loans because of bank failures, etc. Then, at the end of WWII, the GI bill gave an entire generation of servicemen attractive rates to establish homes and lives -- that's when 30 year loans started to become a standard.
I'm curious to know the where the origins of America's obsession with owning houses comes from (you know, the American dream: big house, fancy cars, etc.). I do not see the appeal of being a slave to a bank for 30 years. I see people with mortgages claim that they own their homes, but they don't own the house (the bank technically does). Let's see what happens when they miss 2 mortgage payments. They no longer own the house anymore. I would not be surprised if the American dream was manufactured by big banks and the automobile industry.
Then there's the group of people who see housing as a great investment, where the property value always goes up. Based on the historical data, it's simply not true. Property values just keep pace with inflation. There are just people out there who should NOT have gotten themselves into a mortgage (e.g., beyond their budget, unstable job, etc.).
You buy a home when you are 30 with a $1200 PITI payment for 30 years. You pay $432,000 for the house. So when you are 60, you only have the TI (taxes and insurance) part of that payment plus repairs. You also have something that you can sell or loan against if needed.
Let's assume for ease that rents are equal to home payments (in my city owning is cheaper right now). So lets say the landlord raises the rent just 1% a year for inflation. So for that same house you would pay in rent $500,772 plus your rental insurance payment for 30 years, let's just say $100 a year for ease. So that's $503,772 over 30 years. So the homeowner has saved $71,772 but a good chunk of that will be repairs over those years. So the homeowner will be a little bit ahead still, but not that much.
I won't even touch on the mortgage interest deduction that homeowners get that help to offset some of those costs. Paying less tax is considered a good thing by most people.
So at 60, the homeowner has a bit dated, but well maintained asset and the renter has nothing. This is where things really kick in for the homeowner because taxes, insurance, and repairs will not come close to rents at that point and so while the renter is paying market value for rent, the homeowner isn't. The chunk of your lower retirement income going toward shelter is considerably less.
So if you are a renter at age 70 and get really sick and can't pay your rent because your medical bills are piling up, you get to be homeless, be bounced around family, or whatever. If you are a homeowner, you can tap into that asset with a reverse mortgage and stay put.
American isn't obsessed with home ownership, but I will give you that our society is obsessed with large homes. When people live within their means, homeownership is a part of a good financial plan for long term financial health.
If you are someone that would move a lot, owning makes no sense because the costs of moving would eat into the $71k number very quickly and it would actually cost you more over time to own. So whether or not the math is in your favor depends on your lifestyle and job. There was a poster on this forum that was renting in San Fran for $375 a month. He should not buy a house. He can stash his money, invest it in something else, and when he is ready to retire pay cash for a house then.
I think the most important thing is to plan to outright own a place when you are older, so that you have some security for yourself if something happens. I mean in Oregon it takes 6 years of not paying your property taxes before they will foreclose. Owning a home as a senior gives you financial options.
I've sold several homes under conservatorship because the parents have Alzheimer's disease and those kids get to use the money from the home sale to care for parents. Those parents get to live in nicer facilities than those dependent on the state for care. While we all hope for good health, sometimes life has a different path for you. Best to plan for that event when possible.
My home was built in 1978 and sold to the original owners for about $70k when interest was running about 15%. Can you imagine? When I bought it almost exactly 30 years later, I paid just under $300k. Even if the original owners had refinanced for lower interest rates, I have my doubts that they profited from the sale once thirty years of principle, insurance, taxes, interest, and annual maintenance were considered.
Its not about straight profit...... its about comparing renting to owning. You need to live somewhere.
Say at the end of the day that person who bought in 1978 simply broke even at the end of 30 years. He still lived there for 30 years and now he has $300,000 in his pocket to go do something else with his life.
The renter, has paid $300,000 in rent over 30 years and walks away with $0.
Its not about straight profit...... its about comparing renting to owning. You need to live somewhere.
Say at the end of the day that person who bought in 1978 simply broke even at the end of 30 years. He still lived there for 30 years and now he has $300,000 in his pocket to go do something else with his life.
The renter, has paid $300,000 in rent over 30 years and walks away with $0.
Who would you rather be?
I'm not arguing that point, but it appears that many people do not seem to understand that the cost of owning a home far exceeds its initial price tag, and one doesn't always come out ahead just because a house sells for more than its purchase price.
Last edited by randomparent; 02-16-2014 at 10:54 AM..
Reason: Grrrr, autocorrect.
I'm not arguing that point, but it appears that many people do not seem to understand that the cost of owning a home far exceeds it's initial price tag, and one doesn't always come out ahead just because a house sells for more than it's purchase price.
I'll address one of the things in your response to me and that's the amount of principle your previous owners paid: it was $70K spread out over 30 years. Yes, they paid more with interest and your tax benefit reduces as the loan ages and eventually, at the end, zeroes out. But, property taxes are still deductible and is a benefit, especially in high property tax states, that renters typically don't have. Some states do have a renter property tax credit but in many cases it's limited to certain subsets of renters (PA does, it's for retired or disabled renters and is funded through the Lottery. It's rolled in with property tax breaks for homeowners in the same population.)
You paid $300K, the owners made a book profit of $230K. Did they spend that much over 30 years in maintenance? They could have if there was some sort of catastrophic event. Even with any upgrades you paid for them when you bought the house.
There is no tax benefit to homeownership. The tax benefit is in deducting mortgage interest, which diminishes as you pay down the mortgage principle.
Many home owners resell the home before the mortgage is fully paid off, so most benefit greatly from the tax benefit.
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