What Is the Link Between Homeownership and the American Dream?
In many ways, the American Dream is a concept of optimism. It implies equal opportunity and that any individual can aspire to financial stability and even superior wealth—regardless of their background—through hard work, entrepreneurial ventures, or other means. A large component of financial stability and the American Dream is owning your own home. The Great Recession and the ensuing housing collapse in 2008 cast doubt on the so-called "American Dream." The economic crisis precipitated by the 2020 lockdowns and job losses didn't help.
The American Dream is now considered out of reach for many groups in American society. This article focuses on how 2008 started to dismantle it.
Key Takeaways:
- The American Dream is a concept whereby any individual can achieve superior financial status regardless of their background.
- Homeownership plays an integral role in the American Dream.
- The collapse of the housing market during the Great Recession displaced close to 10 million Americans and ruined the American Dream for many.
- The growing wealth gap in the United States exacerbated by the 2020 economic crisis has placed the American Dream out of reach for a large part of American society.
Understanding the American Dream and Homeownership
Homeownership plays an integral role in the American Dream. The years 2003 to 2006 were a period of easy credit in the housing market when subprime lending was rife. Subprime lending gave access to mortgages to people who should not have qualified for a loan and were unable to shoulder the debt.
After recovering from the dotcom bubble, investor optimism was high, and homeownership was on the rise. Despite rising interest rates, homeowners had the backstop of capital gains. If they could not make mortgage payments, they could sell their house for a profit. For most, it was too good to be true.
The Crash
The collapse of the housing market during the Great Recession displaced close to 10 million Americans as rising unemployment led to mass foreclosures. In 2008 alone, 3.1 million Americans filed for foreclosure, which at the time was one in every 54 homes, according to CNN Money. The demise not only ruined the American Dream but increased skepticism among the younger generation that had yet to enter the housing market.
As the housing market stabilized and prices began to climb, skepticism remained. By the second quarter of 2016, the All-Transactions House Price Index had surpassed the pre-crisis high. However, homeownership in the United States continued to fall. A combination of growing inequality and the lingering mistrust in the financial system kept many on the sidelines. By 2016, homeownership in the United States had dipped below 63%—a 50 year low.
Is the American Dream Over?
Anecdotally, the American Dream pertains to homeownership amongthe working class of America. Proof that regardless of your income, your upbringing, or where you live, you can own your own home. However, even with the 2008 housing collapse a thing of the past and the U.S. economy back to full employment, the American Dream no longer exists. There is a wider wealth gap in the United States, working-class families are not buying homes, and they are swamped with debt. Then, in 2020, the economy was devastated by economic crisis and lockdowns.
The effect of the Great Recessionand subsequent events was that the so-called American Dream is no longer attainable for many, and optimism has been largely replaced by skepticism.
FAQs
The collapse of the housing market during the Great Recession displaced close to 10 million Americans and ruined the American Dream for many. The growing wealth gap in the United States exacerbated by the 2020 economic crisis has placed the American Dream out of reach for a large part of American society.
How did the 2008 housing crisis affect Americans? ›
The interest rate hikes increased the monthly payments on subprime loans, and many homeowners were unable to afford their payments. They were also unable to refinance or sell their homes due to the real estate market slowing down. The only option was for homeowners to default on their loans.
How did the 2008 financial crisis affect Americans? ›
During this period, hundreds of banks failed, millions of homes went into foreclosure, and Americans lost over $14 trillion in net worth. Unemployment levels swelled from 5% in 2007 to 10% in 2009. A recession is defined as two consecutive quarters of contraction in gross domestic product (GDP).
How did the American Dream and subprime loans contribute to the real estate crisis? ›
Among the important catalysts of the subprime crisis were the influx of money from the private sector, the banks entering into the mortgage bond market, government policies aimed at expanding homeownership, speculation by many home buyers, and the predatory lending practices of the mortgage lenders, specifically the ...
How did the American dream of home ownership contribute to the latest recession? ›
How did the American Dream of home ownership contribute to the latest recession? During the last recession, people bought homes with high interest rates that they couldn't afford and there was a ton of foreclosures due to unpaid mortgages.
In what two ways did the Great Recession of 2008 affect Americans? ›
As a result of the Great Recession, the United States alone lost more than 8.7 million jobs, according to the U.S. Bureau of Labor Statistics, doubling the unemployment rate. Further, U.S. households lost roughly $19 trillion in net worth as the stock market plunged, according to the U.S. Department of the Treasury.
How was the US affected by the Great Recession and housing crisis? ›
Since the first quarter of 2006, U.S. households have lost over $7 trillion in home equity. As a result, CoreLogic estimates that 22 percent of homeowners with mortgages are now “underwater,” or have an outstanding mort- gage balance that exceeds the value of their home.
Who was most affected by the 2008 financial crisis? ›
The Carnegie Endowment for International Peace reports in its International Economics Bulletin that Ukraine, as well as Argentina and Jamaica, were the countries most deeply affected by the crisis. Other severely affected countries were Romania, Ireland, Russia, Mexico, Hungary, the Baltic states.
What happened in 2008 crisis in America? ›
It was among the five worst financial crises the world had experienced and led to a loss of more than $2 trillion from the global economy. U.S. home mortgage debt relative to GDP increased from an average of 46% during the 1990s to 73% during 2008, reaching $10.5 (~$14.6 trillion in 2023) trillion.
How did the recession affect the average American? ›
Increased stress all around
One of the most prevalent ways that recessions affect the average person is simply that stress goes up. It doesn't matter if you're comfortable in your job security and have a hefty financial cushion, or if you're struggling to make ends meet and have $100 in your savings account.
What groups (or individuals) actually profited from the 2008 financial crisis? - Quora. Plenty. Arguably the most famous was Michael Burry who bet hard against sub-prime mortgages when he was running his hedge fund, and made a fortune for his investors.
Who is to blame for the Great Recession of 2008? ›
Everybody involved with the 2007–2008 financial crisis is partly to blame for the Great Recession: the government, for a lack of oversight; consumers, for reckless borrowing; and financial institutions, for predatory lending and unscrupulous bundling and selling of mortgage-‐backed securities.
How did the housing crisis affect the economy? ›
In 2007, losses on mortgage-related financial assets began to cause strains in global financial markets, and in December 2007 the US economy entered a recession. That year several large financial firms experienced financial distress, and many financial markets experienced significant turbulence.
How does housing affect the American dream? ›
Homeownership is often considered a key component of the American dream – a symbol of both financial success and independence. In fact, surveys have suggested that many place owning a home above their career, family and college as a sign of prosperity.
What happened to the US housing market in 2008? ›
In 2008, the housing market bubble burst when subprime mortgages, a huge consumer debt load, and crashing home values converged.
How did the housing market crash affect the rest of the US economy? ›
The housing market collapse of 2008 had a devastating impact on the global economy. Millions of people lost their jobs, and many businesses went bankrupt. The US government had to intervene with a massive bailout of the financial system in order to prevent a depression.
How did the housing crisis affect people? ›
The consequences of the housing crisis ripple across various aspects of society. Families struggling to secure stable housing often face increased stress and financial strain, impacting mental and physical health, as well as their children's education.
How many Americans are affected by the housing crisis? ›
Record-breaking numbers of families cannot afford a decent place to call home: Nationally, there is a shortage of more than 7 million affordable homes for our nation's 10.8 million plus extremely low-income families.
How many Americans lost their house in 2008? ›
The Crash. The collapse of the housing market during the Great Recession displaced close to 10 million Americans as rising unemployment led to mass foreclosures. 1 In 2008 alone, 3.1 million Americans filed for foreclosure, which at the time was one in every 54 homes, according to CNN Money.
