American Dreamin’

Is the American dream of home ownership still alive?

Many people don’t think so. The appreciation from ’03 through ’07 seemed to make it impossible to buy in unless you used special financing. Demand grew and prices soared across much of the country. But then the loans started to turn sour and unqualified borrowers defaulted. The bubble burst and home prices declined by up to 50%. Is the dream dead?

It depends on what that dream is. If homeownership means investing in something that will appreciate 30% per year, pay your bills, and fund your retirement, those days are over. Those dreams have become nightmares for millions who have been foreclosed upon and are now sliding towards bankruptcy. But if the dream means having a solid and fairly safe long-term investment that’s coupled with the satisfaction of owning the home you live in, that dream is still alive.

The financial benefit of housing was never based on appreciation. Over the long-run, home prices grow along with incomes. No, it’s based on what economists call “imputed rent.” A home provides an essential service—shelter. Typically, the value of that service is about 6% on your investment after maintenance and repairs.

Look at it this way: after the dot-com crash, stocks declined by about 50%. When Enron went bust shareholders got nothing. But when home prices fall, homeowners still have a house. And the benefit is still tax-free. That’s why a home is still a sound investment.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-05T20:20:08+00:00 September 3rd, 2010|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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