Monday, April 27, 2015
The American Dream Scam
I was shocked and surprised when I came across this article. The title, “9 things that rule about owning a home” got my attention right away. As I read through the nine categories I found what I expected to find, traditional and promotional information about home ownership that is either partially or mostly incorrect. Here they are.
1. Your money's going to you, not to a landlord. It goes on to explain that with renting “you're just renting space,” but “money that you put into your home builds equity, the value of your home after the mortgage is subtracted. Loans taken out against your home's equity can be used to put money towards other things, such as college education.” In reality, especially with the popularity of very low down payment mortgages, most of your payments for the initial years go to interest. True, you are not renting space; instead you are renting money. Before the turn of the century, the value of houses increased at approximately the rate of inflation. You didn’t sell a house at a profit unless you intended to buy a smaller house. About twenty years ago this changed, but we learned (or at least some of us learned) from the recession resulting from the overdue correction that the surge in housing values was mostly artificial. Finally, the rate for home equity loans is lower, but that’s because you are risking your house, using it as collateral and exposing yourself and your family to foreclosure if it’s not paid back.
2. You get tax benefits. As I explained in detail two weeks ago, the tax deduction is partial at best. About two in three do not itemize deductions so it does them no good at all. Those who do benefit only to the extent that their total deductions exceed the standard deduction, which is automatic. In nearly every case the tax benefits of paying a mortgage are either non-existent or exaggerated.
3. It's forced savings. The argument is that “those payments are coming back to you in the form of home equity, which increases your net worth.” It may increase your wealth on paper, but if you sell the house that equity is swallowed up on a down payment for the next one. Eventually you will have an asset that is all yours, but it’s not a very liquid asset because you still need some place to live.
4. You get more for your money. Sometimes this is true and sometimes it’s not. The balance between buying and renting fluctuates based on supply and demand in the respective markets.
5. You have the freedom to make it home. The argument here is that you don’t need a landlord’s permission to make changes. You can fix up everything the way you want it. But you also need to fix everything that goes wrong and pay for it yourself. I’ve heard it said (and experienced it myself) that when you buy a house you get a hobby: repairing, replacing and maintaining or researching for a reliable person to do it for you.
6. You can have pets. Some rentals also allow pets.
7. You'll love the stability. Stability is one side of the coin. The other is finding that you must move and are stuck with two mortgages until you find a buyer for the first house.
8. You know everything about the place, because the bank required an inspection, which you paid for, before you moved in.
9. It’s yours! "You feel empowered that you actually own something…like you have a piece of the American dream." Wow, if they can’t get you with the first eight, why not appeal to your ego?
Those are nine very weak reasons to buy a house, every one of them partially or mostly untrue. I don’t think I am being unusually fussy when I point out that many of these fall under the category of what “Robert J. Samuelson termed a ‘psycho-fact,’ [a] belief that, though not supported by hard evidence, is taken as real because its constant repetition changes the way we experience life.” As many people found out over the past 10 years, buying a house is not something to be taken lightly or to be done without reading the fine print and fully understanding the situation.