Owning private property has long been a vision in American society. Since WWII, home ownership has been dubbed “the American Dream.” Our entire way of life evolved from the original agrarian economy, crossing through the industrialization era, eventually arriving in our current information age.

Prior to industrialization, Americans were focused on feeding their families, for the most part, to the exclusion of building wealth. Personal home ownership may have been a dream, but it didn’t yet qualify as “the American Dream.” Our economy was attuned more to survival than to upward mobility.

The arrival of the post-WWII economy freed citizens and resources to engage in “other-than-survival” pursuits. Agriculture became more efficient and mechanized, requiring an ever-shrinking workforce. Industrialization that had ramped up for wartime production shifted to a more consumer orientation.

Today, about 65% of Americans reside in homes that they own (supported by the massive mortgage industry). In most cases, these Americans are experiencing increasing wealth, both from mortgage pay-down and property appreciation. Proponents of home-buying favor the argument that making rent payments to a landlord is tossing money down the drain. How true is that argument? Let’s look at some considerations.

Rent payments may be considerably lower than mortgage payments for a similar property. This is common, and especially so in times of high interest rates. For potential buyers with heavy demands on their paychecks, monthly dollars not spent on a mortgage may be critical to lifestyle and comfort.

Just how much equity might be gained by these people if they could achieve ownership? First, down payments and closing costs are often a strain on current financial assets, to be made up slowly over time. Buyers paying less than 20% down at closing will have to pay expensive PMI (Private Mortgage Insurance). PMI does not benefit the buyer – it protects the lender, but at the buyer’s expense. Talk about money down the drain!

Home maintenance costs are currently averaging about $9,000 annually ($750/month) for a median-priced home. A $250,000 mortgage (based on 30 years, fixed at 6%), includes payments to the mortgage principal (equity) of about $250/month. The additional $500 monthly expense is essentially lost.

Recently, I performed a study of home ownership costs and benefits. My conclusion was straightforward and unsurprising. During the first half of a 30-year mortgage, home equity growth is furnished about 29% through principal paydown, and 71% through appreciation. Time is the true benefit.

In later life, homeowners’ net worth averages 38 times that of renters. Despite the costs and pitfalls, ownership forms the fundamentals of a good life.