NYTimes: A False Sense of Security? You Must Own a Home
A False Sense of Security? You Must Own a Home
The wonderful world of leverage has lifted homeownership to near-record levels, and we thump our chests with pride at the prosperity and middle-class life that possessing a home implies. Hovering in the background, however, is a glaring statistic: Never before have homeowners actually had such a small ownership stake in the houses they occupy.
The reason is debt. Home prices have gone up a lot, but borrowing against homes has gone up even more in almost all of the last 20 years.
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The culture of “own your home free of debt as soon as possible” had endured for decades. Through the 1960s and ’70s, owners’ equity ranged from 65 to 70 percent. As recently as 1983, some 52 percent of American homeowners who were 55 to 65 years old owned their homes without any mortgage debt — allowing them to be free of monthly installment payments during their retirement years. By 2004, however, that percentage had dropped to 36 percent, according to Federal Reserve data.
So how do you plan to retire? I hope to have a house paid off before retirement. My current house will not be that house, but maybe the next house will. Either way I’d like to keep rolling the paid-off amount of each house into the next purchase. Retirement calculators assume you’ll only need about 70% of your current income in retirement. Some of that is the 6-10% you should already be putting into your 401(k), but the other 20+ percent can be housing. I’m not going to spend any less on food and travel in retirement.