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How the recession changed homeowner psychology

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Worried about owning a home? So are millions of other homeowners, particularly those who have watched their home values fall 35 percent over the past five years.

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It's no doubt the housing crisis has had a profound effect on consumers nationwide. Before the housing bubble burst, many homeowners thought of their monthly mortgage payments as "money in the bank." As long as they kept paying those mortgages, they thought, their homes would appreciate and they'd be sitting pretty.

But when everything came crashing down, the nation's homeownership mentality shifted. Homeownership was suddenly seen as a risk and, for some it was a risk worth avoiding. After all, no one wants to sink thousands of dollars each month into a home that may eventually be worth less than what they paid for it.

As we reach what will hopefully be considered the bottom of the housing market decline, real estate industry professionals and observers wonder whether homeownership is still the American Dream.

In a piece of good news for Realtors, home builders, mortgage lenders, and appraisers, the answer appears to be yes, according to a recent survey by Coldwell Banker and psychotherapist Dr. Robi Ludwig. But even that bit of good news is tempered by studies from other experts, including James Bullard, president and CEO of the Federal Reserve Bank of St. Louis, that have suggested there's been a fundamental shift in the way Americans view homeownership.

At a speech in New York, Bullard was reported by Bloomberg to have said:  "My sense is that the housing debacle of the past five years may have scared off a generation of potential homeowners. New home buyers likely see homeownership as a fundamentally riskier proposition than earlier cohorts and therefore may be far more likely to rent rather than own."

While new homebuyers may better understand the risks of homeownership better than those who bought pre-recession, they've not given up the dream of owning their own home. According to the survey by Dr. Ludwig and Coldwell Banker, 91 percent of Americans — 93 percent of homeowners and 89 percent of renters — still agree that owning a home is part of the American Dream. Eighty-three percent of renters said they want to own a home one day, and 94 percent of homeowners said they are glad to own a home, despite the economic challenges so many have faced.

The reason, Ludwig says, is as basic as the human need for stability.

"Renting offers many people a suitable temporary solution, but in the long run, owning a home appeals to our innate desire for having things we can call our own, while providing a connection to the community around us," Ludwig said. "Homeownership is a commitment. It's about being rooted, which is one of our basic human instincts. I was encouraged to see that so many respondents recognize that commitment to a home, just like in a relationship, can bring immense satisfaction."

People still want to own homes, but they're being more careful about how they go about it. They're learning from the mistakes of others and trying not to get in over their heads. According to the survey, 86 percent of U.S. adults agreed that people are more closely evaluating how much home they can truly afford, compared to before the recession.

There's more to the psychological shift in homeownership than sticking closely to a budget. A majority of Americans -79 percent — said the Great Recession has caused society to rethink what homeownership means to them. Instead of buying a house with the intent to profit financially, more buyers are taking into consideration the emotional factors.

"[Now] that we're picking up the pieces, we're seeing a psychological shift," Ludwig noted. "Instead of looking at homes through the eyes of an economist, we're realizing that a home doesn't solely equate to financial return or measure only to a mortgage amount. Instead the home is the emotional center of our lives, and it remains a critical component of who we are."

It's not surprising, considering the memories people make in their homes: weddings and funerals, births and deaths, and jobs won and lost.  Even for individuals without kids or who own their home alone, precious memories are housed within those walls. When homes are skyrocketing in value, it's easy to forget the emotional attachment we form to our abodes.

Most Americans want their children to enjoy the emotional — and hopefully financial — perks of owning a home one day. According to the Coldwell Banker survey, 95 percent of parents and legal guardians believe it's important for their children to own homes one day. Seventy-four percent believe it's absolutely essential or very important.

If there's anything good that came out of the Great Recession and subsequent housing market collapse, it's that Americans have started to look beyond their finances for other sources of happiness. Homes are still important, but it's no longer necessary to go over budget to impress the neighbors. Instead, the survey found, owning a home is now about living within your means and has become a place to enjoy the little things in life.

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