Over 80 years ago, James Adams said “life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement”. This is known as the American Dream. Buying a home has also long been called the American Dream, probably because it gives one a great sense of accomplishment. After a lot of hard work, and intentional saving, one is able to purchase a little slice of American soil. A slice they can call home.
My, how things have changed.
My grandparents lived in one house for 30+ years, and they worked for the same company for 30+ years, but this lifestyle is now the exception, not the norm. The average length of home ownership now is about eight years.
It’s like we’ve been brainwashed by America circa 1940. We’re told The Dream is to own a home, so we buy one. But did you know that you are nearly 10% underwater the second you buy your home? No really you are. Check out this example…
- Todd has been saving like a mad man and pays cash for a $300,000 house. He decides three months later to take a job in a new city. He no longer wants this home, so he puts it on the market for $300,000. He gets a full-asking price offer, but after Todd pays 3% commission to the buyer’s agent, 3% commission to the sellers agent, and another 3%-ish in fees Todd only has $270,000 in his pocket. He lost 30 grand even though he sold the house for exactly what he paid for it.
Do you get it?!
The numbers don’t lie, real estate is a pretty terrible investment. It barely beats inflation. But that pesky American Dream tricks you in to thinking the house you’re looking to buy is, for some reason, a steal of a deal. You tell yourself it’s under-market value or in an up-and-coming neighborhood, but you ignore the fact that you will probably sell it long before you realize any significant return-on-investment.
Look, I’m not anti-homeownership. Girl Ninja and I are still looking to buy our first place, but I can’t let us get caught up in the American Dream hype. It’s only when one buys a home, and lives in it long enough to either A) no longer have a house payment, or B) realize a substantial appreciation in value, that I think it makes financial sense to take the risk.
Time’s have changed kiddos, whether we choose to acknowledge that or not remains to be seen.