Pursuing The Slowly Fading and Elusive American Dream of Home Ownership
Published 3/13/08 (Modified 3/8/11)
It's unbelievable how much it costs to buy a house these days. Looking at single family home prices in my area and even those located in less appealing crime ridden neighborhoods, I am just now realizing that I may never be able to afford one in my lifetime. Well, at least not the American dream home I always imagined. Not that I ever really wanted the traditional country home with the proverbial white picket fences, but somehow I always envisioned I would be closer to this dream by my late 20's. I always figured by this time I would already be the proud owner of a brand new single family home or at least a newly constructed townhouse. So far, due to the lack of sufficient finances to match the out of control housing prices, I have not been able to attain my goal. Is this dream becoming a fantasy I wonder?
Ever since the beginning, the great American dream of prosperity and happiness has always revolved around owning a piece of land (preferably with a house on top of it). Home ownership has always been associated with security and stability. The mere act of possessing a parcel to call your own has always symbolized the triumph of moving from the unexplainable stigma of renting to a greater plane, found only on higher rungs up the economic and social ladder. But in recent years, even those who thought they had found their American dream have seen it shatter into a nightmare of swirling foreclosures and defaulting subprime loans. For prospective future home buyers like myself, we can only hope that the correcting market will find a way to prevent the dream from fading out of our financial grasps.
The Rapid Rise In Home Prices Has Almost Put Home Ownership Out Of Reach For Many
During the housing surge in 2003, I witnessed most of my older friends snap up brand new home constructions left and right. Their newly purchased homes seemed to appreciate and grow in value at an unstoppable velocity. Homeowners at the time saw their home equity surge to staggering heights in a short period of time, and many couldn't help but bask in the financial glow of their paper net worths. But for everyone else like me looking in from the outside, it was a difficult and demoralizing time. I thought I was missing out on the greatest boom in history.
The fact that I resided in a nice Maryland suburb of Washington D.C. known for its historically high real estate prices made it even worse. Single family starter homes in areas convenient to work easily tipped the scales at $700,000 for old homes and nearly a million dollars for newer, nicer ones. These are just your basic houses, without the frills or additions. To seek out more affordable options, I would have to move further out into the distant suburban boonies of ghetto Baltimore and deal with a 2-3 hour round trip commute to D.C. everyday - a very hard pill to swallow, and one I just could not reconcile with.
The Heavens Finally Grant Us The Housing Collapse Needed To Help Bring Normalcy and Order Back To A Real Estate Market Gone Wild
It was not until the housing bubble finally popped and released its full fury that the market has finally started to regain its senses and inch its way towards equilibrium again. For the last few years I thought the American dream of home ownership was disappearing from the reach of many ordinary middle class Americans like myself. Thankfully the dream has not disappeared, but merely faded out of sight while the housing hype and hysteria rode its doomed coaster. I am utterly relieved that housing prices have finally began to make its descent back to normalcy, to better match the steady growth of jobs and employment wages.
For too many years, housing prices were inflated by irresponsible homeowners and unscrupulous subprime mortgage companies offering easy money, sped on by the Federal Reserve's interest rate decisions. Mortgage companies aided and abetted the creation of the housing bubble by tempting highly advertised mortgage loan offers of 1% interest rates, interest only adjustable loans, pick a payment packages, and agreeing to fund home purchases for buyers with questionable credit histories. Inflated home appraisals were also a big component of what fueled the housing bubble. For years, home appraisers were pressured by mortgage originators, real estate agents, and home sellers in tandem with borrowers alike to overvalue the homes they appraised. With the unspoken collaboration of unethical home value appraisers, real estate prices soared to unchecked levels. At least one of my friends who worked as an appraiser was cognizant of the demand to keep home price valuations artificially high. Those who failed to play ball and produce the desired numbers would lose business and commissions to another appraiser willing to churn out fraudulent home valuations. This all resulted in a real estate system that soon became broken, corrupted, and in desperate need of a good shell shocking.
While I sympathize with current homeowners who are dismayed at retreating home prices, I think in the grand scheme of things, this type of market blood letting is a must for the sake of our nation's economy and housing future. Home prices must accurately and efficiently match the supply and demand of the market, backed by the strength of jobs and wages. Hopefully, rapidly dropping prices spurred on by an ever increasing housing inventory supply will weed out the flippers and those with subprime credit who irresponsibly bought too much home than they could reasonably afford.
My Housing Plans and Recommendations For The Future
For now I plan to rent an apartment for the foreseeable future, at least until my life takes a turn (marriage etc). I still hold on to the American dream of home ownership, but for now that dream will have to wait until market prices settle. Fallout from the credit crisis and subprime mortgage debacle will take years to sort out and run its course. But looking at the high cost of home prices today, I also know that so long as I remain single and rely solely on my own income, my dream of owning a single family house will not be possible. The American economic system was simply not designed for single middle class individuals - only through pooled resources as a married team can a couple afford a home.
But for everyone out there who is not head over heels in debt and has a good FICO credit score with a solid credit history, now is an attractive time to be a prospective home buyer. Today's market is definitely a buyer's market. Home prices are more reasonable now that interest rates are low again. But I think most people should still hold out. While bidding competition from investors is currently very low because there are few buyers, there are still many more significant price drops to be had. Don't believe anything you hear from delusional housing market pundits like the National Association of Realtors.
Unless you can successfully get the home seller to accept a low ball offer that is substantially less than the listed price, I would recommend that buyers wait at least 2 more years until 2010 before they even consider buying a home (renting is not as terrible as some people seem to think). As always, don't buy more home than your current stage in life requires and always buy within your means. The general rule of thumb is that most prospective homeowners can afford to mortgage a property worth 2 to 2.5 times their annual gross income. Obviously it's much easier to afford a home mortgage when you are married with two income streams than it is on just one single person's paycheck. If I had prematurely jumped into the house buying craze years ago, I would probably now be owning an upside down mortgage on an overpriced home rapidly losing its value, and struggling with mortgage payments.