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The American housing dream--alive but smarter

As we commemorate the holiday that marks the "birth" of this country and celebrates the founding ideals that make this country so great, we wanted to take some time to consider whether the American dream of homeownership, despite all its current struggles, is still alive and well.

Homeownership: Is the American dream dead or alive?

For the Culpeppers, finding a beautiful first home was easy. After they found their four-bedroom dream home in suburban Houston, they plunked down money in June. "It was the right next step for us," says Shawn Lindsey Culpepper. "We were renting before. But we wanted to put down roots."

Getting mortgage approval proved harder--it took the couple six weeks. In the process, the Culpeppers needed more than 15 documents to process their loan, including 401(k) accounts and credit reports from the three bureaus. They discovered the new reality of buying a home these days: nailing down your finances.

"None of this deterred us," she says. "But we're glad the process is over. It was very stressful."

Not everyone is as lucky. Friends of the Culpeppers, who also wanted to buy a home, ended up backing out. After meeting with bank representatives, they realized that loan approval was going to be a gauntlet they did not want to run.

The dream still comes true

Given these hassles, is the American dream of homeownership still alive? The experts say "yes." But the dream is far more grounded than before--requiring squeaky-clean credit, tons more paperwork and unending patience. These hangovers from a housing market that was drunk on easy money--like high foreclosure rates and tight lending standards--will eventually wind down, the experts say.

The reason: homeownership offers too many perks. The pride of ownership alone--attaining "the American dream"--will always keep consumers interested in buying. Housing is also a stable, long-term investment that many experts believe will begin appreciating once again. And despite gloomy predictions, 5 million homes will change hands this year, according to RealtyTrac.com.

Foreclosure fears persist

"There's lots of resentment hounding the market," says Mike Arman, a Florida-based mortgage broker. He quickly ticks off the reasons why: fewer people applying for mortgages, fewer lenders and fewer mortgage brokers. "About 75 percent of the people who want mortgages can't get them," he adds.

Foreclosures, for one, are still dragging down the nation's housing market. Though they peaked last year, about 2.4 million homeowners will still get foreclosure notices in 2011 compared with 515,000 in 2005, according to RealtyTrac. Over 1 million homes were repossessed last year as well--more than five times the national average.

"Many potential new homeowners are sitting out the market," says Rick Sharga, a senior vice president at RealtyTrac. He predicts the housing recovery is still a few years away.

Homeowners who want to trade up are having an especially hard time, says Sharga, because they cannot sell their homes. Currently, there is a 9.3-month supply on the market, versus the typical six-month supply. First-time homebuyers are finding it easier though, since they may quality for FHA loans, he says.

Cash is king now

Gun-shy lenders are translating into lots of cash purchases--30-40 percent of all transactions, Sharga says. "And the government is complicating things even more with regulatory reforms--making it harder to buy homes," he says, echoing other experts.

Mark Shapiro, a business owner in San Diego, faced these dilemmas. He had difficulty selling his existing condo. On top of that, he discovered that cash is king when home shopping--putting him in an extra bind.

"Really good properties get picked up by investors with cash," he says. "It's hard to compete."

Finally in January, Shapiro found a more modest home than he originally wanted. It was 30 years old and situated in a less-desirable neighborhood than his dream home. Even then, getting a loan was a nightmare. And Shapiro was turned away three times, he remembers.

Renting was not an option, though, since he figured out he is paying three or four times more money per month than he would on a mortgage. "And this money would have to go someplace anyway," he adds.

Good times for the right buyers

Yet Sharga argues that homeownership is part of the American psyche that will never die. "Settling the West was the chance to establish a homestead," he says. Even now, despite housing turmoil, homeownership rates are 66 percent--versus the peak of 69 percent in 2004. "We're not that far off," he adds.

And despite all the hassles, both the Culpeppers and Mark Shapiro still believe in the dream of homeownership. "People are going into it slower and wiser," Shapiro says. "They're forced to run the numbers. So buying a home today is a smarter dream."

"For buyers, these are golden times," adds Sharga, "if you have the cash or the financing."

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