General06 Apr 2009 06:11 pm

In the US there have been two truisms regarding home ownership. One is that owning a house is the American dream and the other is that it is the major asset and investment of average US citizens.

During the last real estate boom a record percentage of US citiezens were labeled as home owners. Most home ownership estimates hovered around 70 percent.

Yet, this type of statistic is highy misleading. By homeowner they are saying anyone with a mortgage. Yet, as recent events have clearly demonstrated no person truly owns a house until the mortgage is paid off. Until such time the bank or finance company is actually the owner.

Now, the current home ownership as defined as anyone having a mortgage has declined over the last couple of years. So it would be safe to say that somewhere between 60% and 2/3 of the populace have a mortgage. Yet, statistics also claim that over 2/3 of people who have a home, have a mortgage. This means that somewhere between 75 and 80% of people in the US either do not have a home or do not officially own one until they pay off the balance of their mortgage. That being the case it is really more accurate to say that one in five, or 20% of Americans own a home.

When you consider the fact that the majority of people who own their home did so by successfully paying off a 30 year mortgage you logically have to reduce the percentage of people who live in a home owned by its inhabitants. The majority of homes in which the owner’s of the home paid off a 30 year mortgage are typically one or two person abodes. Such people are retired or are near retired couples or individuals whose households are relatively empty. The younger families who have children seldom own the home outright and are saddled by larger mortgages. Therefore, when you factor this into the home ownership equation I would say that less than 1 in 5 people live in homes with no mortgage. In other words, it would be more accurate to say that less than 20% of Americans are truly home owners, or inhabitants of privately owned homes.

This is a far cry from the near 70% home ownership that our government and media claim exists.We have never been the nation of home owners that we have espoused to be.

Though this exaggeration has existed for some time, the escalating rate of foreclosures and mortgage defaults is highlighting this fact.  We are a nation of bank owned homes, not a land of privately owned homes.

The other misrepresentation is in how profitable of an investment a home is. The sale of a mortgage free home is not the golden egg that it is cracked up to be.

A 30 year mortgage is more the rule than the exception, and the typical 30 year mortgage is usually a steep expense. In most cases a home buyer will have spent over three times the original purchase price of the home in principle and interest over the life of the mortgage. This means that a person who takes out a mortgage on a $100,000 home will spend over $300,000 over the course of the 30 years of the loan.

This is not being said to imply that home ownership is a bad financial decision, but rather an attempt to put it in perspective. Home ownership is more about being able to get a majority of the money you spent back, rather than being a terrific investment vehicle.

Yet, the goal of this blog was just to point out something that is often missed, and that is that home ownership occurs at the end of a mortgage and not at its beginning. This post also encourages its readers to reconsider viewing home ownership as a potential investment gold mine. Yes, one can take advantage of hot real estate markets and flip houses as their prices rise. One can also make a solid income by buying older homes and making substantial improvements that selling the homes for a nice profit over what you put into it.

Yet, for most of us, and for most sane real estate markets buying a home is about making a life and not about making a killing.

Realizing all this long ago I made sure I paid off my house in 10 years rather than 30. Even in this poor real estate market, we would still be looking to make a profit if we sold our home. Yet, we love our home and the thought of selling it is not something we ever really consider.

Jim Guido

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