Home sweet home, until it isn't

Poof! That's the American dream of homeownership vanishing for those unable to pay their mortgages – leading one major mortgage lender to declare bankruptcy this week. Perhaps Americans need to rethink the merits of this dream.

The US rate of homeownership is at a historic high – 69 percent. But there's no rule that says "countries prosper when 'x' percent of people own homes." Some developed nations have high homeowner rates (Singapore, 91 percent; Spain, 83 percent; Ireland, 77 percent). Others have lower ones (Switzerland, 35 percent; Germany, 43 percent; Denmark, 53 percent).

The Declaration of Independence singles out "life, liberty, and the pursuit of happiness," but the Founding Fathers often spoke of life, liberty, and property.

Owning land gives a person a stake in the future, which is one reason Congress has encouraged it. Free land through the Homestead Act of 1862 lured settlers to develop the West. Government mortgage insurance under the Housing Act of 1949 helped ignite the postwar suburban housing boom.

Property ownership is good for society. People who own their homes tend to vote. They (usually) keep up their properties and keep down crime. They feel invested in their communities. And ownership fosters individual responsibility.

But it's not for everyone. Probably the biggest misconception is that it's generally a great investment. Economic studies repeatedly show that the expense of a home – the financing, insurance, taxes, upkeep, renovations, etc. – adds up to more than most people make when they sell their home.

Most homeowners move within seven years. A renter who invests a down payment in the stock market could do much better than the owner within that same time frame. Owning is "a lot riskier than the S&P [500]," says Austan Goolsbee, an economics professor at the University of Chicago Graduate School of Business. That point is made clear by the drop in real estate prices.

Of course homeownership is more than an investment. No matter how humble, people's properties are their castles to do with as they please (within zoning laws). And many folks find satisfaction in gardening or home improvement projects.

So what does all this have to do with increasing foreclosures, many of them involving "subprime" mortgages – loans subject to high interest rates for people with poor credit, low income, or no down payment?

These loans have allowed once-excluded buyers, many of them African-Americans and Hispanics, to join the owner ranks. In some areas, rising rents forced them to buy. Meanwhile, 87 percent of subprime owners are still making their payments – a point Congress must consider as it looks at corrective measures.

But homeownership is not a good option for people who can't afford the higher interest rates after the introductory "teaser" rate expires. Even for those who can afford to buy, other factors should give them pause: The US is a mobile society, making short-term ownership risky; real estate prices in some metro areas are still too high for the demand; and new houses have become more technologically complicated and large – presenting upkeep challenges.

Not that people should stop dreaming. But buying a home is a major undertaking. Both eyes should be wide open.