The perception of real estate as a safe, continuously appreciating investment was a central myth behind the real estate bubble. Americans believed buying a home was a risk-free, lucrative investment with equity abounding year after year.

Then, of course, they lost it all.

Overwhelming household debt (particularly mortgage debt) contributed to the foreclosure tsunami. A vicious cycle of debt, job loss, more debt and default has left millions of one-time California homeowners to flounder in this jobless recovery.

With the so-called real estate recovery underway, the financial myths are once again rearing their heads. A reality check is in order. The results from the Financial Industry Regulatory Authority’s (FINRA) financial capability study is worrisome to people dependent on savings to fund the purchase of real estate.

According to the survey,

  • 40% of individuals in the U.S. either would not be able to come up with $2,000 if the need unexpectedly arose;
  • 60% of individuals do not have three months’ emergency funds saved; and
  • 40% believe they have too much debt.

Ouch. These are just the most extreme cases in the survey. It’s really a sliding scale, with many respondents claiming they could “probably” come up with $2,000 if they had to in an emergency — hardly confidence inspiring.

On their own, these survey results are easily pooh-poohed by the currently successful California real estate agent. One might say, “This survey represents the entire country — but California is an exception.” Or maybe, “Most of these respondents would never have become homeowners anyway — this is the half of the country that is destined to be renters.”

But this data does not exist in a vacuum. Rather it is part of a narrative that includes the crippling economic realities of income inequality, wage stagnation, persistent unemployment and, ultimately, declining homeownership and a softening real estate market.

In short, most Americans remain on the precipice of financial ruin, and you’re hoping they’ll buy real estate?

Prices will readjust in the coming months and the 30-year fixed rate mortgage (FRM) has already adjusted downward due to lacking home buyer demand. This is a taste of the bearish trends to come as our real estate markets soften to meet the hard realities of a cash-strapped middle class.