Home Ownership: The Myth Of The American Dream
GUY RAZ, host:
The debate over how to regulate Wall Street might not have come up now had it not been for the housing crisis.
For much of the past decade, Americans rushed out to buy homes, in many cases with little or no money down. Now, home ownership has been promoted by both Democratic and Republican administrations.
President George W. Bush made it a pillar of his domestic agenda. Here's a clip from a speech he gave back in May 2002 on the American dream.
(Soundbite of archival recording)
President GEORGE W. BUSH: Owning a home is a part of that dream, it just is. Right here in America, if you own your own home, you're realizing the American dream.
RAZ: Well, if you read financial writer Felix Salmon's blog at Reuters.com, you'll find his argument for why the American dream is actually more of a nightmare.
Fannie Mae recently put out a huge survey on how consumers view home ownership. Felix Salmon read all 117 pages, and he joins me from New York. Welcome to the program.
Mr. FELIX SALMON (Columnist, Reuters): Thank you very much.
RAZ: So, how do most Americans, based on these survey results, view the institution of home ownership?
Mr. SALMON: They love it. They aspire to it. If they're renters, they want to own. If they're owners, they're happy owning. Even when they're underwater on their mortgages and they've lost tens of thousands of dollars, they still think that home ownership is where they want to be and what they want to do.
RAZ: I mean, huge majorities of Americans believe in the institution of home ownership. It doesn't seem surprising and it doesn't seem particularly off base.
Mr. SALMON: It doesn't because home ownership has enormous psychological benefits. You feel like you're in control of your own destiny, that you're not being controlled by a land lord who can throw you out any minute. So there are lots of reasons why people like to own homes, and they're good reason.
The problem is that they kid themselves about the reasons that they're buying and they tell themselves what they're doing is they're investing in a home and that what they're doing is they're making a good investment. And this is just something not true.
RAZ: Buying a home is not a safe investment?
Mr. SALMON: Well, for one thing, it's the most leverage thing that actually anyone will ever do in their lifetimes. If you put 10 percent down on a house, that means you're levered 10 times.
And any investment, no matter how nominally safe it might be, is going to turn unsafe if you levered up 10 times.
RAZ: That's still better odds than AIG, though.
Mr. SALMON: Not much, no.
RAZ: I mean, at the height of the sort of the craziness on Wall Street, some companies are leveraging, what, 30 to one, was that right?
Mr. SALMON: Right. And at the height of the craziness on Wall Street, people were buying houses with no money down at all, (unintelligible) leverage.
RAZ: Which is 100 in one. Yeah. Felix Salmon, explain something to me. My entire life and presumably your entire life living in the United States, we have been told that the American dream is homeownership, and that homeownership, in the long run, benefits the national economy. It is good for Americans to own a home. So, is that just wrong? Is it a blatant lie?
Mr. SALMON: Yes. It's entirely wrong and it is a blatant lie, especially now that we live in a world where economies have become very localized. That you can have small vibrant sectors with the economy in places like Silicon Valley, say, while other areas in the rust belt around Detroit are suffering very, very hard.
And the way that any economy reacts to that is through labor mobility. You need people to be able to move to where the activity is, to move to where the jobs are, to move to where the wealth is. And if you own your home, it's very hard to move, especially if you're on the (unintelligible) on your mortgage.
RAZ: And what about the psychological factors though? I mean, the idea that, you know, your mortgage is going into something that you own, that you're living in something that you are slowly buying rather than just sort of paying rent on a property that belongs to somebody else?
Mr. SALMON: There's this weird fallacy that somehow, paying rent is throwing money away, whereas paying a mortgage isn't. But one of the commenters on my blog put it very well when they said that if you buy a house, you're still renting; you're just renting the money to buy the house rather than renting the house itself.
And all of those mortgage interest payments, even if they're tax deductible, they're still going to the bank rather than the landlord. And maybe you think that Bank of America is a more worthy place to send your money than your landlord but that's not necessarily the case.
RAZ: One final question for you, Felix: do you own or rent?
Mr. SALMON: I own. I bought it very near the top of the market in 2005. I never intend to sell so I don't watch the market.
RAZ: That's Felix Salmon. He blogs about finance at reuters.com.
Felix, thank you so much.
Mr. SALMON: Thank you.