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Your mortgage: Home first, investment second

Where does housing fit in the American Dream?

Tess Vigeland: Owning your own home has always been an element of the American Dream. Few assets loom larger in our lives -- both financially and emotionally. Today, in collaboration with The New York Times, we'll break down the numbers and the feelings behind home ownership from the perspective of those who own them, those who want to, and some who've lost them over the last five years. Let's start with some thoughts from the streets of L.A.

Brearley Khan: My name is Brearley Khan. We got a loft unit that had previously gone bankrupt. And we were able to get a really good deal on it and a really good mortgage rate. But I do sometimes feel like you're taking advnatage of other people's misfortune.

Daniel Passage: Daniel Passage, Long Beach. We just bought our home in 2004 and we've just paid it off. Because of paranoia over what's going on in the economy. We wanted to get in a situation where we could never end up being homeless, no matter what happened with my job.

Belinda Roberson-Tunord: My name is Belinda Roberson-Tunord. I'm a native of Los Angeles. I would love to buy a home, I just can't afford it here. In 2008, I was glad I didn't buy one. We were looking at one, my husband and I. But we were very glad we didn't buy a home.

Eric Kowalski: Just bought my house two and a half years ago here in Highland Park. I know the home isutaiton's still tough. You know, I think it's gonna get better. I mean, home ownership is one of the American Dreams.

Jonathan Barker: Jonathan Barker, I live in Echo Park. This is with my wife, our first home. It's a big process, nerve-wracking. But we love our house. It's just nice to have a house as opposed to an apartment. You get a yard and now we have a dog.

A few voices from around Los Angeles. Ron Lieber joins us now. He's the Your Money columnist for The New York Times. Glad to have you on the program.

Ron Lieber: Good to be here.

Vigeland: So what we're taking a look at is the question of where housing now fits into the American Dream. Has it always been a part of that?

Lieber: I think you can safely say for -- at least roughly the last 30 or 40 years -- people felt like owning their own little, tiny piece of America is part of what it meant to be a successful American.

Vigeland: That has changed, perhaps, over the last three or four years with the collapse of the housing market. Let's talk a little bit about why we are addressing the housing question today.

Lieber: Well, the biggest reason to address it is because more often than not -- and just sort of forget the last five years for a minute -- the home and all of the equity in it is often your biggest asset by the time you're in your 50s or 60s. You've paid a lot of money towards it. Maybe you've paid it off entirely, maybe you own it free and clear. And it's an asset that you can use to borrow against or to live in rent-free. Or to sell and downsize to take some money off the table for your retirement and move in some place smaller.

Vigeland: And I think what we're going to hear a lot during this hour and that we read in the New York Times special is that part of the big problem that we saw over the last decade or two was that we started to think about it as an asset that was an investment more than anything else, more than being somewhere to live. And that's really what got us in trouble.

Lieber: Right. When people start to think about it in terms of an investment, they think of it as something that grows at a certain rate of appreciation each year, something that you can buy and sell and trade. And until four or five years ago, we never thought of homes as something that you could sort of flip over and trade to somebody else, that would go up by 10 percent a year the way that stocks might in a good year. But the moment that that started to happen for people, they began to treat their homes in different ways. It started to feel like it made sense to borrow more money to acquire that asset, because it was going to go up so quickly that you'd pay the loan back and keep going or sell it before the bill came due.

Vigeland: So what has all this meant to the home, particularly home ownership as part of the American Dream? I know we're going to hear about that in this hour, but what kind of conclusions can we draw from the reporting that we've done?

Lieber: Well, I think it's tempting to take a look at what's happened in the last five years and say, "The American Dream is dead and we've minted a nation of renters," and "People in their 20s and 30s who have seen the carnage who are thinking about buying" -- or people in their 40s and 50s who fell victim to it in some way shape or form -- "are never going to own homes again as long as they live." But I think it would be a mistake to draw that conclusion. Here's the problem we tend to have mentally when something extraordinary happens and it lasts for a long time. We tend to think that "Wow, this time is different. This changes everything. We're never going to back to the way we were before. We've achieved some kind of permanent alteration in the way the human condition" -- or at least in the way that humans analyze this particular condition.

But let's get real here, right? The home is a great form of forced savings. You have to make the mortgage payment each and every month. Some of it goes towards principal, although not very much at first, but that goes up over time. You're sort of forced to do it. So it's useful in that respect -- just as long as you're not buying at the tippy top of the market, which is what happened to people who bought in 2005 or 2006.

Vigeland: Ron Lieber writes the Your Money column for the New York Times, our collaborator on this program today. Thanks so much, Ron.

Lieber: Thank you.

About the author

Tess Vigeland is the host of Marketplace Money, where she takes a deep dive into why we do what we do with our money.

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