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Some dream of mortgage freedom instead of ownership
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Date published: 12/13/2009

By Bill Freehling

HOMEOWNER-SHIP is the quintessential American dream, but many people who bought during the housing boom are discovering that they're better off renting.

That was the take-away of a front-page Wall Street Journal article that ran Thursday and states that "giving up on the American dream has its benefits."

"Thanks to a rare confluence of factors--mortgages that far exceed home values and bargain-basement rents--a growing number of families are concluding that the new American dream home is a rental," the Journal writes.

About one in five American mortgages was under water as of Sept. 30, according to Zillow.com.

Many of those people can probably get back "above water" after a few years of payments. But people who bought near the peak of the boom in bubbly markets such as California, Arizona or Florida might need decades to build even a penny of equity in their homes.

The Obama administration is trying hard to encourage banks to allow some of the people in this predicament to refinance their mortgages. But as the Journal notes, many people are instead opting for "strategic defaults" on their home.

That means the homeowners could afford to continue making the payments but they decide not to. Rather, they voluntarily turn in the key and go rent a place for far less than their monthly payment is costing now.

Partly as a result, the U.S. homeownership rate has fallen to 67.6 percent as of September from a peak of 69.2 percent in 2004.

As the Journal points out, there are many reasons not to opt for a "strategic default." Going into foreclosure damages your credit for years, and many people fear the stigma that's attached. Others believe defaulting is morally wrong and don't want to saddle banks and taxpayers with the losses.

But many people are getting past those hang-ups and voluntarily giving up on the house in order to start over and rebuild their finances.

Because these folks have so much more disposable income than before, the Journal writes that this trend "might be clearing the way for an economic recovery." An economist cited in the article calls it a "stealth stimulus."

One final note--all of the above deals are with people who are seriously under water on their loans. The article isn't saying that home ownership is a bad idea. Prices have fallen dramatically since the years when most people in the Journal article bought their home, and interest rates are low.

People who buy today are in a much different place from those who tried to tap into the American dream a few years ago with nightmarish results. Many of the latter are finding it makes the most sense just to walk away.

Staff reporter Bill Freehling writes this weekly column on business, personal finance and investing. He can be reached at 540/374-5405 or
Email: bfreehling@freelancestar.com.