Waking Up to The American Dream

The American Dream once strongly stood for ideal freedom. For as a child in America, we are so fortunately nagged about what we want to be when we grow up: a fireman? an astronaut? or how about an entrepreneur? The American Dream meant career choices for everyone in America!

But somehow our freedom of choice that once so clearly encompassed the American Dream changed. Not sure when or how, but it clearly changed. For as I grew older, the American Dream became all about owning a home. What house, in what neighborhood, with how many bedrooms was all that we seemed to dream about. But then suddenly, the dream became a nightmare. 

It has always been kind of a weird dream anyway. These are the biggest assets in our possession by far, yet we don’t really own them. The vast majority of us do not have $20,000 for the car we drive or $300,000 for the house we live in. Instead, we borrow the money to use them. Basically “I’ll pay ya later!” became the status quo.

The nightmare seems to last longer now than it did just a month ago or even a week ago. Houses and cars continue to sit empty while more are still being built and others are being defaulted on. Inventories are still increasing as supply and demand run further away from meeting each other. Commercial real estate is the next big shoe to drop as hyper-deflation kicks in at the asset level across all property types. It will be a falling knife, so I would not try to catch it.

So what happens? Does the nightmare continue or can we get back to dreaming about freedom? Well you remember the old motto, “you’re throwing away money paying rent”. Or, “it’s much better to own a home than to rent one”. Well, that is a fallacy in the face of the “Credit Crisis”; as credit to buy things has gone the way of the absence of trust that once reinforced it. Just like low mortgage rates and appreciating home prices ignited home ownership; now with real mortgage rates on the rise and prices falling, renting is and will be the default currency of choice.

Cash will be king and the ability to pay anything today, as opposed to promise to pay tomorrow, will rule the day. Current “For Sale” signs will convert to “For Rent” signs as previous sellers rationally decide to get what they can by renting. When they will sell again, nobody knows. All we do know is that if you want to make something, anything of that vacant property, you better get somebody to rent it. 

So in a depreciating real estate environment (i.e. falling rents), there are a lot more landlords than “credit”-worthy tenants. As a result, landlords better cozy up to any and all quality renters, because the savviest renters are now in charge.

Waking up from The American Dream will not be easy for everyone. But those that figure out how to take advantage of rents that seem to be in a perpetual free fall will be the next big economic opportunists (hint: renewable energy utilities).

But just as the economic game has changed, so has the dream. Things that used to seem so expensive like education will suddenly seem free (think internet not college); while suddenly other items like food and electricity will get relatively more expensive, but worth it at any cost (like in most other countries where food typically comprises at least 70% of living costs). So when dreaming about what you want to be when you grow up, focus on such essential items that are vital to power the sustainable cities and towns of the future.

I assure you that The American Dream is certainly alive and well, it just may take time to get back to sleep after this nightmare. 

Now let me go back to dreaming about what I want to be when I grow up.

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