Misconceptions

• A conventional view of home ownership regards owning a home as a form of savings and investment. However, a study for the Federal Reserve Bank of Philadelphia concludes that the assumption is no longer valid. The study's authors, economists Wenli Li and Fang Yang, write that easy credit, allowing some people to borrow beyond their means, coupled with financial innovations, such as home equity lending, have limited the effectiveness of a house as a form of savings. Further, Li and Yang find high volatility in housing prices, and conclude that housing is no more stable an investment than stocks.
  
  

Significance

• A 2003 article for the National Housing Institute points to the rising rate of leveraged homeowners as evidence that home ownership has been oversold as a means of building wealth. During the 1930s, families saved to buy homes, making down payments as high as 40 percent of the home's value. By 2000, NHI reported, many buyers made down payments of less than 10 percent. Overall, American homeowners owed more than $5 trillion on their mortgages in 2003, a figure larger than the U.S. government's debt at that time, NHI said.
  
  

Geography

• Volatility in the housing market varies geographically, with prices for homes fluctuating much more in some areas than in others. Li and Yang point out that homeowners in one market can realize huge gains from selling their homes, while those in a troubled market may face huge losses at the same time.
  
  

Considerations

• Attacking the perspective that housing is a relatively safe form of investment, Li and Yang write that housing does not offer the opportunity to diversify that stocks and bonds offer. In addition, costs associated with owning a home, such as taxes, repairs and maintenance, translate to additional expenses beyond monthly mortgage payments. The National Housing Institute states that while owning a home has its benefits, the costs of doing so are significant, especially for low-income Americans.
  
  

Prevention/Solution

• After examining the costs and benefits of owning a home, Li and Yang conclude that the arguments for the government to subsidize home ownership have been oversold, and may even cost the economy at large. The authors conclude that home ownership is not for everyone and that the government should rethink policies designed to encourage it.