The American dream: a myth?


If it's for love -- if you can envision raising kids or growing old there -- then by all means, buy a house if you are able, says Mitchell Levy, author of "Home Ownership: The American Myth."

But if it's for money, then he advises to think again and consider, of all things, renting.

"I'm telling people to get back to the old-fashioned idea that a house is a home, and not necessarily an investment," said Mr. Levy, a manager with Sun Microsystems Inc., in Palo Alto, Calif.

If owning one's home is tantamount to the American dream, certainly renting is not the financial nightmare many have made it out to be, he says. In fact, the numbers actually often work in reverse of what many would expect, Mr. Levy says.

"Homeowners don't always make money; nor do renters necessarily lose it. Renting and saving, for many, can be a viable alternative to homeownership," he said.

Mr. Levy, 33, with a master's degree in business administration from the College of William and Mary, began wondering a decade ago about the whole notion of owning vs. renting, when his accountant advised him to purchase a home "for investment purposes." Then, as now, many financial advisers advocated buying a home to build equity. Renting, said Mr. Levy, was regarded as a concession, a last resort synonymous with throwing money down the drain.

Personal research changed Mr. Levy's perspective and convinced him to self-publish a book about the myths of homeownership, the most pervasive of which is that homes always appreciate.

"They don't," Mr. Levy said. "And without reasonable real estate appreciation, it might be better to rent and save the difference one would otherwise be spending on a home."

How can a homebuyer estimate future price appreciation?

Mr. Levy recommends asking local agents about appreciation in different neighborhoods. He suggests asking chambers of commerce what businesses are coming in and what ones are leaving.

"Making an informed decision really requires legwork and research," he said.

The book -- published by Myth Breakers, for $11.95 -- offers a financial analysis that determines the approximate appreciation necessary in make owning better than renting. Three figures are given: ones for staying in the house three, five and 10 years.

For instance, using a median home price of $113,300 and an average monthly rent of $629, Mr. Levy's formulas claim that the yearly appreciation necessary for a Baltimore homeowner to break even is 4.2 percent at three years; 3 percent at five years; and 1.8 percent at 10 years.

"I think appreciation of home prices in Maryland would considerably exceed that on all counts," said James P. O'Conor, chairman of O'Conor, Piper and Flynn Real Estate. "Even in the recent recession, there was, on the average, an appreciation of values [statewide].

"In general, people could expect a 3 to 5 percent increase in home values per year, although there are obviously exceptions to that rule. Some neighborhoods may be static; but that passes."

Mr. O'Conor said building equity is only one of the many satisfactions of homeownership -- people also buy houses, he said, so they can plant a tree or put up a fence.

"People are in a hurry at five o'clock to go home," he said, "not to go to rental unit."

Mr. Levy agrees. He's not anti-homeownership, he said; in fact, he has a place he calls his own in Cupertino, Calif.

By applying his personal situation to the sample analysis in his book, the author figures he could save more than $40,000 in a three-year period if he rented.

"I happen to be very good at saving," he said. "But I purchased a home for emotional reasons. To me, that's a rational approach, because even though the numbers didn't work out, I'm considering both the financial and emotional components."

Those who might benefit in particular from his advice, he said, are first-time buyers contemplating short-term starter homes for the sole purpose of building enough equity to enable them to buy a more desirable property.

The typical span of homeownership is approximately seven years, according to Mr. Levy, who discourages people from buying homes they don't want to live in for at least 10 years.

"The homeownership ladder of the 1970s and '80s has crumbled," Mr. Levy said. "I would advise people to rent -- and save -- for a couple years, maybe long enough to increase the down payment to buy a house they ultimately want to live in."

The author assumes that rent is not as much as a mortgage, and that's not often the case, said John G. Craten, vice president of financial planning at Legg Mason Wood Walker Inc.

Mr. Craten abides by the old adage that a home is one of your best investments, especially for nesters: those people who are not going to be moving for 10 to 15 years.

"But people have to understand that pension plans and after-tax savings are an important part of financial well-being," he said, cautioning against counting too heavily on one's home as a sole investment.

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