On April 17^th, Gallup published the results of its most recent poll.  The results of that poll indicated that Americans consider owning a home among the best investments for their cash.   This was about the same result Fannie Mae (National Housing Survey) declaimed.

This belief holds despite the recent housing bust, which left many Americans owning homes that are underwater (they owe more on their mortgages than their homes are currently worth). Add to that, unless you are flipping your home every three or four years, that you need to spend considerable cash to keep one’s home up to date. And, even then, various home styles are considered passé, which means a total reboot- destroying one’s home to build a newer one.

It seems that we cling to the memories of the past, recalling when home prices were always increasing. But, we seem to have forgotten forget how much inflation changed the values of those numbers, too.

These results may also explain why the American Middle Class has been losing ground over the past few years. Not only in relative wealth to the rest of the population, but in competition with other nations. Our middle class is now at best number 2 in the world, with more ready to surpass us (Luxembourg Incomes Study Database [[LIS]).  This is not surprising once one recalls that the equity in one’s home is a major component of middle class wealth.

So, do you buy a new home or invest one’s money elsewhere?   One of the drivers behind that decision is the income tax code. The mortgage income tax deduction is a big component of the reasons why folks buy homes. Renting for $ 2500 a month is an expense that reduces your disposable income. Paying your mortgage company $ 2500 a month includes real estate taxes and mortgage interest that yields a change in your adjusted gross income, which sets your tax rate (lower).

And, that mortgage/real estate deduction is the foundation that lets one deduct other items. (Forget health care- since medical bills now need to exceed 10% of your income before you get to deduct a single penny.) But car property taxes, charitable deductions, donating stuff to the Salvation Army or Goodwill, all become valid methods to reduce your taxable income. Without a mortgage payment, you probably don’t qualify to use these decutions. (Unless, of course, you live in a high state/local tax region like New York City.)

One of the best divorce attorneys I knew, Betty Thompson, never owned a home. She rented two apartments and combined them to get the space and amenities she wanted. And, left the maintenance to others- at their expense.   She figured out that the tax deduction would not change her wealth- but would affect her lifestyle. Yes, it’s anecdotal. But, I  recently made the same calculation now that my kids are gone (grown up, not departed, thankfully).

Owning a home is (or was?) part of the American Dream. But, as I have written many times, that dream is now closer to a chimera.

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