A house used to be a savings vehicle as much as it was a place to live. Now the savings vehicle part has gotten much riskier. From Charles Hugh Smith at oftwominds.com:
Bottom line: with the loss of predictability, we’ve also lost any sense of future financial security.
Home ownership has been the foundation of middle-class stability and security for so long that it defines middle-class status as much as income. From the end of World War II in 1945 on, the deal was simple: buy a house and you’ll build equity that’s even better than a savings account because you get the tax break of deducting mortgage interest and you get a roof over your head at a cost that’s equal to or even lower than renting a house. Once you’ve paid off the mortgage, the costs of ownership drop, enabling a secure retirement.
Every one of these assumptions has either crumbled or is now in doubt. A recent report in The Guardian sketches out the forces undermining housing as the source of security:
‘I feel trapped’: how home ownership has become a nightmare for many Americans Scores in the US say they’re grappling with raised mortgage and loan interest rates and exploding insurance premiums.
“I’ve come to view home ownership and healthcare as destabilizing forces in my life,” said Bernie, a 45-year-old network engineer from Minneapolis. To finance owning his and his wife’s $300,000 home and saving for the future, the couple was foregoing medical and dental treatment of any kind and cutting back on expenses everywhere, he said, despite a pre-tax household income of more than $250,000.
Let’s break down what’s changed:
1. The non-mortgage costs of ownership are no longer predictable or affordable. For decades, the cost to insure one’s home was modest and predictable, not changing much year to year. Now that insurers are losing billions of dollars as a result of increasingly extreme weather events, rates are rising even in places outside flood, fire and hurricane zones.
Insurance rates are doubling or tripling in a few years, and insurers are leaving markets entirely or increasing the deductible that must be paid by the owners before insurance kicks in, and reducing the coverage.
