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Why you might never own a home
Houses used to be an essential part of the American dream. But for many middle-class families, a home of one's own now seems out of reach.
By Lauren Barack, MSN Money
Cathy Mano, 44, works at a nonprofit in San Francisco. Her husband is an acupuncturist. The two pull in a little less than $100,000 a year together. Mano knows she's nowhere near the poverty level, but she's not sure home ownership is in the cards.
"We can't afford to buy a home," she says. "Housing costs are so high that we haven't really thought about it -- although I do more often now that I have a daughter."
They don't have a yard, which means her daughter can't have a dog, Mano says. "So she has a guinea pig."
Home ownership used to be taken for granted by the American middle class. No longer. Rising home prices have made ownership impossible for many middle-class families, while easy credit and the pressure to overreach during the recent housing run-up have left America with a nasty housing-bubble hangover.
The urge to have our own bit of land is etched in the American DNA. As settlers pushed west during the mid-1800s, President Lincoln's Homestead Act granted land to anyone willing to farm on it. After World War II, Americans streamed into new bedroom communities complete with a garage, a front porch and a Labrador retriever that dug holes in the fenced backyard.
But the homes our parents took for granted are slipping out of reach.
Across the country, housing prices have risen on average about 45% over the past six years, according to the National Association of Realtors, a trade organization. (That rate of increase is now slowing, mostly because of the mortgage-lending crisis.) Map: See housing prices near you
By contrast, the median income for working-age households (those headed by someone under 65) is down 4% since 2000, according to an Economic Policy Institute analysis of Census Bureau data. That's a drop of about $2,400 a year. Calculator: Can you afford a home?
The pain is evident not just in pricey urban areas like San Francisco and New York City, but even in spots like Scottsdale, Ariz., where 55-year-old Linda Sirois frets that her son's generation won't be able to mirror her own family's success.
Sirois' son, at 29, has many of the trappings of middle-class life -- a nice car, an iPod. But a home still seems out of reach. "It's much harder than it was when we were starting out," says Sirois, who considers herself middle class. "We paid $16,000 for our first house. You can hardly buy a car for that now."
The consequences of America's home-ownership hunger are manifested in the latest mortgage woes.
During the past several years, the dream of owning a house -- coupled with attractive lending terms and what seemed to be an unending increase in prices -- pushed into the market many buyers who didn't belong there in the first place.
Now those enticing "0% down" stories are ending badly. Adjustable-rate mortgages with no money down have rates that start low but then may rise dramatically. Those mortgages have turned out to be bad deals for the American middle class. Video: A good time to buy?
About 2 million homes have fallen into foreclosure nationwide since January, according to RealtyTrac, an online foreclosures-listing service. In California alone, mortgage defaults are up 158% year over year, according to the San Diego-based research house DataQuick Information Systems.
I understand the pressure to take on a hefty mortgage. My husband and I were approved for a mortgage far larger than we could have comfortably paid.
We decided against taking it, and instead focused on a price range we felt we could handle without a lot of stress. But that meant looking at every far corner of New York City, from Queens to the upper tip of Manhattan, and nearly every neighborhood in Brooklyn.
To those living in the nation's heartland, New York City may seem an alien environment, but the hunt for a home here presents the usual challenges. There's a right side of the tracks and a wrong side, up-and-coming neighborhoods and ones that are past their prime.
Our daughter, Harper, grew from infant to toddler as we hunted for something we could afford. She was rolled in her stroller through open house after open house, and carried up and down countless subway steps, until we found a place in a 20-story brick apartment building.
Even then, the transition was a challenge financially. The online calculators that every real-estate site offers indicated that, after tax deductions, a mortgage in our price range would cost the same as our $2,500 monthly rent. Unfortunately, those tax savings never completely kicked in, and we had to close that gap every month -- for us, about $700.
We probably couldn't afford our home if we had to buy it today (from our front window, we can see flashbulbs pop on the Empire State Building's observation deck). So I'm glad we stretched to buy our apartment when we did. And yet: Inside, the financial strain is evident.
Harper points to pockmarked walls where tiles have fallen; we've put off re-plastering until Daddy makes time. The wood floors aren't level. The bathtub, from the original owner, is chipped. We would love to fix these things, but circumstances require that we put this stuff off.
And while there is a financial comfort in owning our own place, we also own a lot of potential problems. We own the repair bills when the closet door comes off its hinges after too many slams, or when the refrigerator refuses to run after a $150 trip to the grocery.
Fear of these big, open-ended costs -- and the lack of cushion for them -- keeps many families from making the leap to home ownership.
"I'm afraid of going over our heads," says Mano. "If we bought something, we'd be the ones who would have to fix the roof or rebuild the foundation."
For others, the cost of maintaining a home simply lurks.
Amy Lauer, 44, doesn't hesitate to buy a book for her 5-year-old son when the two are out for a weekend jaunt through their San Francisco neighborhood. She knows she can afford that kind of thing. But painting her small house in the Inner Sunset? Or buying furniture?
"I wait," she says, "because between my mortgage and after-school care, I have a big, steady outflow.
Published Jan. 18, 2008
Houses used to be an essential part of the American dream. But for many middle-class families, a home of one's own now seems out of reach.
By Lauren Barack, MSN Money
Cathy Mano, 44, works at a nonprofit in San Francisco. Her husband is an acupuncturist. The two pull in a little less than $100,000 a year together. Mano knows she's nowhere near the poverty level, but she's not sure home ownership is in the cards.
"We can't afford to buy a home," she says. "Housing costs are so high that we haven't really thought about it -- although I do more often now that I have a daughter."
They don't have a yard, which means her daughter can't have a dog, Mano says. "So she has a guinea pig."
Home ownership used to be taken for granted by the American middle class. No longer. Rising home prices have made ownership impossible for many middle-class families, while easy credit and the pressure to overreach during the recent housing run-up have left America with a nasty housing-bubble hangover.
The urge to have our own bit of land is etched in the American DNA. As settlers pushed west during the mid-1800s, President Lincoln's Homestead Act granted land to anyone willing to farm on it. After World War II, Americans streamed into new bedroom communities complete with a garage, a front porch and a Labrador retriever that dug holes in the fenced backyard.
But the homes our parents took for granted are slipping out of reach.
Across the country, housing prices have risen on average about 45% over the past six years, according to the National Association of Realtors, a trade organization. (That rate of increase is now slowing, mostly because of the mortgage-lending crisis.) Map: See housing prices near you
By contrast, the median income for working-age households (those headed by someone under 65) is down 4% since 2000, according to an Economic Policy Institute analysis of Census Bureau data. That's a drop of about $2,400 a year. Calculator: Can you afford a home?
The pain is evident not just in pricey urban areas like San Francisco and New York City, but even in spots like Scottsdale, Ariz., where 55-year-old Linda Sirois frets that her son's generation won't be able to mirror her own family's success.
Sirois' son, at 29, has many of the trappings of middle-class life -- a nice car, an iPod. But a home still seems out of reach. "It's much harder than it was when we were starting out," says Sirois, who considers herself middle class. "We paid $16,000 for our first house. You can hardly buy a car for that now."
The consequences of America's home-ownership hunger are manifested in the latest mortgage woes.
During the past several years, the dream of owning a house -- coupled with attractive lending terms and what seemed to be an unending increase in prices -- pushed into the market many buyers who didn't belong there in the first place.
Now those enticing "0% down" stories are ending badly. Adjustable-rate mortgages with no money down have rates that start low but then may rise dramatically. Those mortgages have turned out to be bad deals for the American middle class. Video: A good time to buy?
About 2 million homes have fallen into foreclosure nationwide since January, according to RealtyTrac, an online foreclosures-listing service. In California alone, mortgage defaults are up 158% year over year, according to the San Diego-based research house DataQuick Information Systems.
I understand the pressure to take on a hefty mortgage. My husband and I were approved for a mortgage far larger than we could have comfortably paid.
We decided against taking it, and instead focused on a price range we felt we could handle without a lot of stress. But that meant looking at every far corner of New York City, from Queens to the upper tip of Manhattan, and nearly every neighborhood in Brooklyn.
To those living in the nation's heartland, New York City may seem an alien environment, but the hunt for a home here presents the usual challenges. There's a right side of the tracks and a wrong side, up-and-coming neighborhoods and ones that are past their prime.
Our daughter, Harper, grew from infant to toddler as we hunted for something we could afford. She was rolled in her stroller through open house after open house, and carried up and down countless subway steps, until we found a place in a 20-story brick apartment building.
Even then, the transition was a challenge financially. The online calculators that every real-estate site offers indicated that, after tax deductions, a mortgage in our price range would cost the same as our $2,500 monthly rent. Unfortunately, those tax savings never completely kicked in, and we had to close that gap every month -- for us, about $700.
We probably couldn't afford our home if we had to buy it today (from our front window, we can see flashbulbs pop on the Empire State Building's observation deck). So I'm glad we stretched to buy our apartment when we did. And yet: Inside, the financial strain is evident.
Harper points to pockmarked walls where tiles have fallen; we've put off re-plastering until Daddy makes time. The wood floors aren't level. The bathtub, from the original owner, is chipped. We would love to fix these things, but circumstances require that we put this stuff off.
And while there is a financial comfort in owning our own place, we also own a lot of potential problems. We own the repair bills when the closet door comes off its hinges after too many slams, or when the refrigerator refuses to run after a $150 trip to the grocery.
Fear of these big, open-ended costs -- and the lack of cushion for them -- keeps many families from making the leap to home ownership.
"I'm afraid of going over our heads," says Mano. "If we bought something, we'd be the ones who would have to fix the roof or rebuild the foundation."
For others, the cost of maintaining a home simply lurks.
Amy Lauer, 44, doesn't hesitate to buy a book for her 5-year-old son when the two are out for a weekend jaunt through their San Francisco neighborhood. She knows she can afford that kind of thing. But painting her small house in the Inner Sunset? Or buying furniture?
"I wait," she says, "because between my mortgage and after-school care, I have a big, steady outflow.
Published Jan. 18, 2008
