Is home ownership still part of the American Dream?

Eve Troeh May 13, 2011

Is home ownership still part of the American Dream?

Eve Troeh May 13, 2011

Tess Vigeland: We start with this week’s good news-bad news number. Home values fell in the first quarter by 3 percent, the worst decline since late 2008 and terrible for homeowners. But on the other side of the calculation, home value is also home price and if you’re in the market to buy, it just gets better and better — not to mention mortgage rates are rock-bottom. But as many a house hunter will tell you, right now, there’s no guarantee of success for anyone hoping to own.

Marketplace’s Eve Troeh has our story.

Eve Troeh: When Christine Fazzino moved to L.A. about a decade ago, she and her husband stuck to a tight budget.

Christine Fazzino: We lived here for 10 years in a one bedroom. That’s how we saved all of our money.

Troeh: But you knew you were saving that money to buy a house.

Fazzino: Oh yeah.

Now, they have. Fazzino met me at her three-bedroom home in Los Angeles. She was lounging in the sun by one of its major selling points…

Sound of water

Fazzino: The pool, of course. Yeah, it’s kinda nice.

They got the home for $160,000 less than the starting price. So, happy ending, right? Well Fazzino says it’s hard to see it that way. She’s still reeling from half a year of hard negotiating to get the house.

Fazzino: A lot of tears, a lot of craziness. It was horrifying. It got to the point where I was like, “I don’t even want the house.” I was at a breaking point, just, like, I’m done.

She and her husband had already bid on several homes — and lost out to real estate investors who offered cash. When they did get a bid accepted, the sellers almost backed out, because the loan approval was taking too long. The bank wanted better proof of income for Fazzino’s husband; he works on a TV show that was between seasons.

Fazzino: We were going to lose the house, this house, and they were going to take our deposit, because on our end, we weren’t getting the loan.

They had to scramble for a new broker and bank to get the loan. When they finally moved in, what should have felt like victory, felt muted. Fazzino says buying a home used to bring hugs and cheers from friends. Now…

Fazzino: They don’t know what to say, you know… ’cause you don’t know. Did they overbid for that house? Can they afford that house? You know, what is the American Dream? Honestly for me, I have anxiety.

Because since the crash, her dream of home ownership comes with a new set of concerns. What if the home loses value? What if she loses her job? Add those anxieties to the higher standards to get a mortgage — more money down, impeccable credit — and a lot of would-be buyers are saying “no thanks.”

So says personal finance author and columnist Kimberly Palmer.

Kimberly Palmer: Buying a house and moving into your first home really used to represent stability. And now, we’d so much rather have money in the bank that we can access immediately if we want it.

She says younger professionals are still inclined to buy for lifestyle reasons, like when they have kids. But the recession changed the idea that renting instead of buying is a waste of money.

Palmer: You can’t ignore the fact that buying real estate is a huge risk.

One that might bring as much personal pain as it does pleasure. Grace Wong Bucchianeri studies housing at the Wharton School of Business. Her research shows we may have been deluding ourselves about the benefits of home ownership. When she surveyed hundreds of women who owned or rented single-family homes, she got striking results (PDF).

Grace Wong Bucchianeri: Home owners are actually not happier, and instead, consistently they show a higher level of pain associated with their home.

That shows up in ways like poorer health. Her data show owners weigh 12 pounds more than renters, on average. Owners travel less and spend less quality time with friends. And she did this research in the good old days of 2005, when home owners were probably at their happiest.

Now, this is one counterintuitive study, but Bucchianeri’s research also challenges a long-cherished belief: That home owners care more than renters about their communities.

Bucchianeri: I don’t find a very strong relationship overall between the home ownership rate and the civic participation or the general attitudes towards the neighborhood.

Renters were just as involved as owners. And that might mean that the financial risk of owning a home is not justified by the presumed social payoff.

Bucchianeri: Having good living conditions and being in a place that you’re happy with doesn’t have to involve putting all your money in one basket and own a home.

If happiness and home ownership don’t go hand in hand, that’s one less selling point for shoppers in this spring home buying season.

I’m Eve Troeh for Marketplace Money.

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