Home ownership is the central element of the American dream, even today, as much as 75% of Americans believe that it remains a cornerstone, according to Realtor.com
One thing is to dream, another is an assessment of the achievability of said dream, or better, what it costs relative to the benefits.
Home ownership has always been a topic that drives intense discussions, recently, some of the leading sentiments has been the rising costs of owning a home, bringing questionability to the achievability of the American Dream.
Home ownership to most Americans, is fundamental to building wealth, although the reasoning generally leans more on the idea of “shelter security” and a sense of achievement than home equity, tax benefits, leverage and appreciation of home value.
Grant Cardone, a real estate mogul, has been a vocal opposer of home ownership, recently framing it as an expense, not an investment — as most Americans view it.
Real estate investor Grant Cardone said in a recent interview that he primarily rents, and said he would rather pay for rent than a mortgage because renting also means avoiding the range of other costs associated with homeownership like property taxes and maintenance costs.
However, some financial advisors disagree with Cardone's perception that homeownership is more of an expense than an investment.
"From an investment perspective, homeownership remains the single most reliable path to long-term wealth creation for everyday families," certified financial planner (CFP) Thomas Ravert of Pathway Capital told Investopedia, noting that homes on average appreciate in value by about 5.45% annually, higher than the average rate of inflation. – Investopedia report
If Grant Cardone is right, this would mean that the American Dream is dead, seeing that home ownership remains its foundations.
Does home ownership remain the path to long term wealth creation?
To determine this, we have to look at the numbers:
–Home values appreciate at 5.45% annually (report above)
–Property taxes is as high as 3.02% of home value (data from Lincoln Institute)
–Median home value is $422,933 according to Zillow
–National mortgage average is 6.58% (estimates generally assumes a 20% down payment)
–$62,000 median income before taxes (estimates)
–15% Federal income tax for middle 20% income (2024 data from ITEP)
These numbers are quite awful!
What you see above would cost the median earner more than 50% of their income!
Certainly not worth betting on a 5.45% annually home value appreciation.
Most data points to renting being the smarter choice, if you can really survive comfortably on less than 50% of a $62,000 income, it'd be much more advisable to throw the excess into investments that doesn't cost so much annually.
This means that home ownership is in fact an expense, not an investment for long term wealth generation. Technological advancements is only going to make things worse by crashing prices and making labor cheap. This puts many out of jobs, making it even more expensive to buy a home and worse, those in prior contracts would be stuck paying a high interest loan for a property whose value had crashed.
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