Feb 22, 2008 4:21 pm US/Eastern
Homeowners Need To Rethink Rules Of American Dream
Part 5 Of A Five-Part Series On The Real Estate Crisis In Massachusetts
BOSTON (WBZ) ―
Owning a home has always been a key part of the American dream. But in recent years many people have seen it as an easy way to tap into home equity lines of credit or even worse -- a way to get rich quick.
But experts say that's got to change.
In the days of June and Ward Cleaver, buying a house was about finding a place to live and raise a family.
That all changed as house prices shot up in a speculative feeding frenzy.
"That primary blame goes to human nature, we want to get rich quick," said financial planner Emil Ronchi.
But now prices and the number of sales are falling and many homeowners are in a bind.
"We are trying to refinance again, our interest rate is so high," said one Massachusetts homeowner. "I am afraid that they might foreclose my house."
"I couldn't get back what I paid for it three years ago," another homeowner said.
That's becoming a more common story. Experts said homeowners need to adjust their thinking when it comes to their houses and their finances.
"What I counsel my clients is to look at their homes as an investment asset and expect it to appreciate over time at roughly one percent over the rate of inflation, so that's on the order of 4 percent to 5 percent," Ronchi said.
Ronchi is a financial planner in Salem.
"If homeowners lose the mind set that they are going to get rich owning a home, and they appreciate the fact that the main value of owning a home is the forced savings aspect of having to pay down a mortgage, it becomes a very staid and conservative kind of way of looking at the investment aspect of their homes," Ronchi added.
Another conservative trend is the end of easy money in the form of home equity loans.
"It's tough when the best advice you can give someone is to cut back," Ronchi said.
And for the next generation, will it make sense to pursue the American dream?
"There are times when it's appropriate and times when it is not. If you can't afford it, you can't make it happen," Ronchi said.
In the end, all homeowners need to keep their financial dreams in perspective.
"It's a long-term investment that is primarily providing you with a place to live on a day-to-day basis," Ronchi said.
Ronchi says another danger about taking out too many home equity loans is that homeowners won't have them all paid off before they retire.
He says being clear of mortgage debt should be the goal before reducing income.
Home Buyer's Toolkit, MA Assoc. of Realtors Home Seller's Toolkit, MA Assoc. of Realtors Preparing Your Home For Sale, MA Assoc. of Realtors Traditional Mortgages, Understanding Your Options Specialty Mortgages, Risks and RewardsIs there something more you would like us to know about this story? Do you have a news tip to share with WBZ?
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