The American Dream: Homeownership or Financial Burden?
John and Jane Doe did everything right. They’re married with two kids, disciplined savers, and have accumulated $1 million in investment assets—including $500,000 in Treasuries earmarked for a home down payment. They live comfortably within their means, taking home $12,000 per month after taxes while keeping their expenses to $11,000. They even maximize their 401(k) contributions each year. Yet, despite this financial prudence, they’re struggling with a sobering reality: the home they want, in a good school district, costs between $1.4 and $1.6 million.
Scarcity and the Housing Affordability Crisis
In Basic Economics, Thomas Sowell explains that scarcity is a fundamental principle of economics—when there’s a limited supply of a resource, its price rises. That’s exactly what has happened in housing markets across the country. Desirable areas, particularly those with strong schools and job opportunities, have experienced skyrocketing demand while supply has remained constrained. Limited new construction, restrictive zoning laws, and slow permitting processes have all contributed to rising prices, making homeownership unattainable for many—even those who are financially disciplined like John and Jane.
The Trade-Offs: Can They Afford It?
Buying a $1.5 million home with 20% down means a mortgage of roughly $1.2 million. With today’s interest rates, their monthly mortgage payment would exceed $7,000, not including taxes, insurance, and maintenance. That pushes their total expenses well beyond the recommended range of 21% of take-home pay. This means John and Jane would be stretching their budget, even though they’re millionaires on paper.
Opportunity Cost: What Else Could They Do with That Money?
Putting $300,000 into a down payment means that money is no longer working for them elsewhere. If invested in stocks or even left in Treasuries, it could provide a steady return without the risks associated with homeownership. This is the opportunity cost of buying a home—choosing one financial path means sacrificing potential gains elsewhere.
Incentives Have Shifted: Is Renting the Smarter Choice?
For decades, homeownership was incentivized through tax breaks, low interest rates, and steady home price appreciation. But today, the equation has changed. Property taxes and maintenance costs eat into any potential returns. If John and Jane chose to rent, they could have more financial flexibility, allowing them to invest their cash while avoiding the risk of being house-poor.
Competition and the Rising Cost of Living
Even outside of homeownership, the cost of raising a family has soared. Childcare, healthcare, and education costs continue to rise, adding additional financial strain. Unlike past generations, where a single income could support homeownership, today’s families often rely on two incomes just to stay afloat. This is why even well-off families like John and Jane are struggling with what should be a simple decision—buying a home.
Supply, Demand, and the Future of Homeownership
Unless there’s a major shift in housing policy or economic conditions, home prices will likely remain elevated. The basic principles of supply and demand suggest that as long as there’s strong demand and limited supply, affordability will remain an issue. This means more families will have to rethink whether homeownership is truly the best financial move for them.
The New American Dream: Financial Freedom Over Homeownership
John and Jane are realizing that homeownership isn’t necessarily the golden ticket it once was. Instead of stretching themselves thin for a home, they’re considering alternatives—keeping their savings in investments, renting in a desirable neighborhood, and maintaining financial flexibility.
The American Dream has evolved. For past generations, owning a home was the pinnacle of success. Today, financial security, flexibility, and the ability to make smart trade-offs may be the new markers of prosperity. Maybe, just maybe, the American Dream isn’t about homeownership at all—it’s about having choices.