The past few months we have been paying a ridiculous amount of rent in southern Ontario. At the same time, we have been waiting for our home in Saskatchewan to find its next owner and have been paying full-blown mortgage payments in the meantime. So the question of whether I want to buy a home again has been crossing my mind almost every day. Is homeownership a blessing? Or is it a money-sucking leviathan? I know I’m not alone in thinking these thoughts. Yet people continue to ask whether we’ll buy a new home now or wait until our home in Regina sells. When I say neither, the look of shock on their faces is priceless. For generations, people have thought of homeownership as a rite of passage into an elite group. It’s a quality that gives off an air of stability, maturity, and even wealth (Retsinas & Belsky, 2002, pp. 375-380).
Buying a home was once considered the American dream by most in North America. Homeownership displayed how hard-working you were and was the determining factor of whether your peers and neighbours respected and admired you. Hard work was evident with homeownership because the option was to literally build your own homestead, with the resources available on your land and your own two hands, like the Little House on the Prairie. People would admire you and think of you as resilient and tireless. Another option, in more recent decades, was to work hard at your job for a few years, whatever that profession was, and run a tight ship at the same time. You could save your money and soon enough you would be able to buy that lovely detached bungalow—white picket fence and all. Of course, this was back in the 1950s and 1960s, when housing costs and market competition were not that high. We all know now that the current situation is a lot different.
Across the country, thousands continue to struggle with increased costs and standstill wages (Pew Research Center, 2017, p. 4). Many, especially those in multi-household families, now often need to work at more than one jobs to be able to pay all the bills. A report released in 2019 by Statistics Canada explains how over one million Canadians are working more than one job, especially those employed in health care, social assistance, and educational services (Fulford, M and Patterson, M, pp. 4-5). While Statistics Canada doesn’t give the reasons why many people work such long hours, a Bank of Canada survey done roughly around the same time, on gig work and odd jobs, claims that one third of Canadians take up a side job, such as driving for Uber, housecleaning and yard care, dog walking services, and freelance assignments, because of weak economic conditions (Kostyshyna, O, and Luu, C., pp. 4-8). I’m led to believe we may all need to wake up from this American Dream of ours, as it appears to be turning into a nightmare.
As times change, our beliefs need to adapt and change also. Baby Boomers, Generation X, and Millennials all have sky-high levels of personal debt. Most people’s cash flow and financial states these days would make even the most hardened homesteaders cringe, and they would likely try to sell off their cattle to try to salvage the situation. What worries me the most, however, is that many families don’t understand their financial situation—or they don’t want to. They’re always trying to buy the next best thing or experience the latest trend from fear of missing out.
People now measure their happiness and self-worth based on what they drive, what they wear, what neighbourhood they live in, and how many beds and baths their newly-purchased home has. They don’t even bother to open the bills that arrive in this beautiful new home because they know that if they take out a calculator they’ll have to face reality: they’re not the closest bit to breaking even. The best-case scenario is what we call “house poor” — spending the majority of income on mortgage payments and property taxes, barely able to keep up. Bratt, Stone, & Hartman explain that in the U.S., “The number of shelter-poor households has exceeded 30 million since the early 1990s, an increase of more than 70 percent since 1970,” (Bratt, R., et al, C, p. 39). This tells me it’s not a new trend, we’ve obviously been doing this a long time. Some younger AU students may not even remember a time when mom and dad weren’t carrying a mortgage or a HELOC. God forbid life throws us a curveball such as an illness, job loss, or even an uninsured auto accident. But the unfortunate irony is, it just did. And the banks just might have to change people’s opinions about the American Dream.
Yet, like the sheep led to the slaughterhouse, we keep telling ourselves that owning a home is the best investment we can ever make. I thought so too, until a few years ago. My family and I, in the middle of the oil & gas boom, scrounged and saved every penny until that down payment was in the bank. The minute we had the keys to our new home, we were on top of the world—for a couple of weeks, anyway. Almost immediately homeownership and maintenance bills started arriving. Costs I had never even heard of! That is not to say homeownership is a complete wallet-killer. The key is to have a strong foundation in place before entering this highly-coveted status. Potential homeowners needs to be aware of the costs and continuous expenses involved in owning a home.
Dave Ramsey, a home ownership crusader, is on a mission to get the American people out of debt and generate wealth. He has a different approach than most financial advisors, however, on how to go about it. Those that follow or have ever listened to him are familiar with his US-based empire. Dave is the author of many books, podcasts, and in-person ‘Financial Peace University’ courses. Dave has managed to make a fortune for himself by yelling at others to not buy exactly what his company promotes or sells. But I get it — people are dumbasses, so you might as well make a buck. Dave’s followers are divided; some do an overall fantastic job because they carefully listen and understand Dave’s methodologies and advice. These guys and gals have a very good chance of climbing out of the hole they buried themselves in. This is because these people tend to learn from the mistakes of others and will avoid the potholes and roadblocks the first time around, through plenty of real-life examples and screw-ups on Dave’s podcast.
Then there are the Dave followers who half-heartedly listen. They think they’re smarter than a 70-year old yelling on the radio. So they keep doing things “their way,” because they know better, and keep digging a bigger hole—until they discover they can’t outsmart the system they were sucked into. They also don’t think about the fact that their way is what got them into this mess in the first place. I do admit, Dave has some very sage advice — such as the importance of having a concrete emergency fund in place, which I support 100%. One thing I don’t agree with, however, is the pinnacle of Dave’s finance plan for America: homeownership, paid in full of course.
Dave claims that if people deal with homeownership in a responsible way, it will be the smartest investment they ever make. This is because it’s viewed—by most—as an equity-building tool. The key, though, is to not be house poor. Both Dave and many other traditional finance gurus insist that homeownership is an asset—something you own that has value and also adds to your net worth. Elsinga & Teller (2007) explain how this belief tends to be widespread and not applicable to North America alone. In Belgium, Germany, the Netherlands, and Finland people choose to buy a home because they perceive renting as losing money, whereas homeownership accumulates wealth for the homeowner and eventually leads to ‘free’ housing. In Portugal, people stated they would rather spend money on their own property rather than spend money on something they will never own. The same applies to the UK; the majority of those surveyed view paying rent as ‘dead’ money (Elsinga M., et al., p.304).
So, the question remains as to whether homeownership is an asset after all. On the one hand, your home’s remaining mortgage balance counts toward your liabilities, but the paid-off balance adds to your net worth. It makes sense. In plain English, as you’re making your mortgage payments, you’re reducing the amount you owe and increasing the amount you own. To add to that, without even realizing it, you’re doing all this while the value of your home is increasing—in an ideal world. Most people insist on this financial pillar of thinking, even though we have all seen instances of how volatile the housing market is. Many individuals and businesses are still trying to recover from the Canadian oil and gas boom, which turned into a bust, a few years ago. To make things even worse, this current pandemic has economists predicting chaos for all real estate markets, sending banks into a frenzy. I can only hope individuals and corporations start to question and further analyze their beliefs surrounding the homeownership and mortgage issue.
This brings us to the topic in the next Struggling Student Rants, the flip side of the coin. It’s a topic that causes thousands of arguments in personal finance forums and online discussion posts. Those who disagree with the traditional philosophy of home-ownership present very strong arguments on their end. Those who prefer to stick with traditional methods of managing household finances, and those whose best interest continues to rest with pro-homeownership, have labeled these radicals as conspiracy theorists, uneducated, or plain stupid. But, when making your own decisions, you should always analyze both sides of the coin—your coin. Haven’t we learnt throughout history that any visionary trying to take off our blindfold is always seen as a conspiracy theorist or heretics? Imagine where we would all be if we all still believed the earth is flat.