Is Renting the New American Dream?by Tim Manni
Is owning a home still the American dream? According to an article in today’s Wall Street Journal, some Americans are finding a new version of the American dream in renting rather than owning. However, the way they are going about it has others up in arms.
A little neighborhood outside Los Angeles — once known for high property values and owner-occupied homes — has suffered like many other areas of the country, succumbing to falling home prices, foreclosures, and an increased renter population. Many of the new renters in this neighbor chose to “walk away” from mountains of mortgage debt for much lower monthly payments. Despite the fact that some deem “walking away” morally wrong, renting has allowed these former homeowners to increase their savings, as well as pour the money they’re saving into the economy:
“It’s just a better life. It really is,” says Ms. Richey. Before defaulting on her mortgage, she owed about $230,000 more than the home was worth.
Ms. Richey’s family of five used some of the money to buy season tickets to Disneyland, and plans to take a Carnival cruise to Mexico in March. Mr. Fernandez takes his girlfriend out to dinner more frequently. “We’re saving lots of money,” Ms. Richey says.
“It’s a stealth stimulus,” says Christopher Thornberg of Beacon Economics, a consulting firm specializing in real estate and the California economy. “The quicker these people shed their debts, the faster the economy is going to heal and move forward again.”
Call us traditional, but in our opinion, achieving the American dream is graded on more than just home ownership. The American dream is achieving merits — such as home ownership — through hard work and sacrifice. While cheaper monthly payments certainly help those who have rented in lieu of owning an underwater home, many agree that those who do so are not only foregoing a moral obligation, they’re putting the rest of the country in financial jeopardy:
Tom Sobelman, whose family of four lives across the street…sees mortgages as a moral as well as financial obligation.
Mr. Sobelman, 37, argues that people who choose to default are unfairly benefiting at the expense of taxpayers, who have put trillions of dollars at risk to bail out struggling banks. “All these people are gaming the system, and I’m paying for it,” he says. “My kids are going to be paying it off.”
Mr. Sobelman has plenty of company. In a recent study of people who owe more on their mortgages than their houses are worth, economists Luigi Guiso, Paola Sapienza and Luigi Zingales found that about four out of five believe defaulting on a mortgage is morally wrong if one can afford to pay it. But they also found that the people become 82% more likely to say they’ll default if they know someone else who defaulted.
If Guiso, Sapienza, and Zingales’ research is accurate, then “walking away” could be an ugly wave of the future — one we hope never catches on.