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​Home Ownership at 50-Year Low: Good or Bad?

There was a recent interesting piece in the WSJ regarding U.S. home ownership falling to a 50-year low.

My short take on the issue is that I don’t necessarily believe this is a bad thing in and of itself. Home ownership provides an element of stability and a source of equity to borrow against, if required. But at the same time, too many Americans wrap up a substantial portion of their net worth in their homes. For middle-class Americans, it’s been upwards of 70%, which goes a decent ways toward explaining why the 2008 financial crisis became so severe for so many Americans. No individual should wrap up the majority of their savings in a single company's stock, so why should an individual do that with respect to their homes?

On top of that, in most parts of the country, houses do not appreciate in real terms. In some geographical regions, such as certain parts of the San Francisco Bay Area or New York City, homes have appreciated well beyond the pace of inflation in the past 25 years due to robust local economies and peninsular geographical characteristics that have restricted housing development. Aside from certain areas, homes appreciate at about the rate of inflation, often come with large costs for maintenance, property taxes, and realtor fees, and consequently provide little to nothing in return with respect to after-inflation gains. Therefore, homes should (normally) primarily be viewed as use assets rather than investment assets.

For the vast majority of Americans, I believe renting makes the most economic sense, while home ownership should come at a time when purchasing would represent a fairly modest portion of one’s personal net worth.