Last week, Gallup released a poll showing that Americans, in Catherine Rampell's words, "still financially fetishize homeownership." Despite the financial crisis, respondents still considered real estate the best long-term investment—which "baffles" Rampell because, by her calculations, home prices have risen at a compound rate of 0.3% per year over the past century, compared to 6.5% for the S&P 500, she writes at the Washington Post. "Yet Americans still think it's financially savvy to dump all their savings into a single, large, highly illiquid asset."
Egged on by tax incentives, Americans consider homeownership part of the American dream, romanticizing "the idea of owning their own roof, walls, and fireplace," and confusing those psychological benefits for financial ones. They forget that houses deteriorate over time, even as technological advancements make building new ones cheaper. "Meaning your worn, old-fashioned home is competing with new, relatively inexpensive ones." As the Senate considers winding down Fannie Mae and Freddie Mac, many will complain that it makes homeownership less affordable. Maybe it should be. Click for her full column.