Real Reasons for Home Ownership Re-Discovered

Join me in considering as the silver lining that can be found in the burst real estate bubble. That silver lining is that the benefits of owning a home are as true today as they ever were--only now the goals of ownership are free of the “make a killing” investment helium that pushed the real estate bubble to unsustainable heights.

As one of humankind’s three basic material necessities, “shelter”, in the form of the American home, was comparatively free of investment hype for the greater part of the 20th century. To be sure, home owners often experienced a degree of home price appreciation, but the appreciation was modest and the notion of real estate being a corner pin for wealth accumulation was secondary to more fundamental, non-monetary considerations. Rates of home price increase generally tracked rates of increase in the replacement cost of new construction, with those increases generally reflecting inflation in the range of 1½ -3% per year.


At the same time, home owners could expect economic benefit from real estate taxes and mortgage interest expense being tax deductible and from the slow, but steady build-up of equity that arises from simply making regular monthly mortgage payments.

What 20th Century American home owners could expect and did receive from their investment in “shelter” was a home from which they derived a measure of pride and pleasure, the establishment of roots and friendship in community with others and a savings plan for which the principal balance grew each time a mortgage payment was made, augmented when housing demand exceeded supply and decreased when housing supply exceeded demand.

This perception of home ownership didn’t mean that owners bought and never moved again. It meant that a series of 2-3 succeeding move-up homes were predicated largely on growth of the owner’s income and the freeing up of equity from sale of the prior home. In order for equity to be freed-up, the prior home typically needed to be owned for a period of at least two years. And, there could be unexpected market appreciation contributing as well to making the subsequent home purchase more affordable.

Largely absent until the late 1990’s was the patently unrealistic expectation of making a “quick, risk-free killing” in real estate predicated on taking on more mortgage debt than ever could be rationally justified or serviced and leaving no margin of safety for personal economic setbacks (e.g. unemployment, illness or salary reduction). When predicated on such unrealistic expectations, no investment will be deemed successful and we are now experiencing the result.

A home satisfied the reasonable expectations of ownership during all but the last few years of the 20th century because the expectations were financially modest and realistic. Today’s home buyers can find the silver lining in the real estate market by returning to expectations based on the value of steadily accumulating savings over a sustained period through mortgage pay-down and attaching value to pride of and satisfaction in ownership and becoming part of the fabric of a neighborhood and broader community.