*Whither The American Dream?*
**By George Yacik**
***The U.S. homeownership rate recently has been holding steady at 65%, putting it at its lowest level since the third quarter of 1995. That’s down sharply from the peak of 69.2% reached in the first quarter of 2009. But while some people in the housing and mortgage industry believe – or fervently hope – that the drop in homeownership is a temporary reaction to the Great Recession and the bursting of the mortgage bubble, it could be that a broad, long-term trend is underway among consumers, away from the “American Dream” of owning your own home. The current home ownership rate may therefore be as high as we can reasonably expect it to get, maybe for a long time to come.
****A recent poll conducted by GFK Custom Research for Credit.com found that most respondents (27.9%) said the American Dream is retiring financially secure at 65, with being debt-free coming in second with 23%. Only 18.2% picked owning a home.
****In another section of the survey, home ownership came in even worse. When consumers were asked what financial goals were most important to themright now, being free of debt won by a landslide, with more than a third of the vote.The runners-up weren’t even close; buying a home came in a distant fifth, with less than 7%.
****“The poll underscores something I have long suspected — there’s a great deal of nostalgia for a promise that increasingly and tragically no longer exists,” says Credit.com’s co-founder and chairman Adam Levin. “Once upon a time, the American Dream was owning a home full of thriving, college-bound kids, two cars and little debt. Now it appears that for many Americans, the American Dream has changed.”
****A survey released last April by the MacArthur Foundation found that consumers have a more favorable attitude towards renting. The survey, entitled How Housing Matters: Americans’ Attitudes Transformed by the Housing Crisis & Changing Lifestyles, found that renting was becoming a much more acceptable option for consumers than it used to be.
****While seven in 10 renters said they aspire to own their own home one day – not too far off the current homeownership rate — the overall appeal of renting versus owning is changing.Fifty-seven percent of adults said they believe that “buying has become less appealing,” while nearly the same percentage (54%), believes that “renting has become more appealing” than it was before.
****In addition, even among people who already own their own homes, renting is becoming more desirable. Nearly half (45%) of current owners said they can see themselves renting at some point in the future.
****“The public is recognizing that owning is not the only acceptable option, and the sense that renting is somehow undesirable appears to be fading,” the study said.
****“I see more and more people electing to rent their homes rather than buy,” Elle Kaplan, CEO and founding partner of Lexion Capital Management LLC in New York, told me. “The mortgage crisis changed the American Dream. We have shifted away from the idea that homeownership is a universal goal and benchmark of success. Many Americans today are deciding that owning a home would be a significant liability. Renting provides flexibility and the chance to have money invested in the markets, as opposed to a concentrated investment in a home.”
****Certainly, the record high ownership levels in the early 2000s were artificially inflated by government policies that encouraged practically everyone to buy a home, whether they could afford it or not, so we shouldn’t be surprised that the homeownership rate has moved back toward more historical, realistic levels. That in itself will sharply reduce the size of the market and growth opportunities.
****But the larger question is how badly the aftermath of the mortgage bubble has damaged consumer attitudes toward homeownership. That could take a long time before it changes, if it ever does.
****No doubt the data and survey results I’ve cited are overly pessimistic, and as the Great Recession recedes further and further in our rearview mirror and the memory of the mortgage bubble fades, attitudes will soften. But neither should they be taken lightly.
****Too many people in the mortgage and housing business, I think, take for granted that the American Dream still means owning your own home just as much as it used to. To more and more people, it doesn’t.
****The mortgage industry needs to get out there and promote the benefits of home ownership – and demonstrate how it can help consumers – if it hopes to get people interested in buying homes again. It’s not too early to start.
George Yacik has been a financial writer for more than 30 years. After working 12 years at The Bond Buyer and American Banker as a reporter and editor, he joined SMR Research Corp. as a vice president, where he was the lead research analyst and project leader for SMR’s studies on residential mortgages and home equity lending. Since 2008 he has been writing for a variety of mortgage-related and financial publications. George is based in Stratford, CT, and can be reached at email@example.com.