Tag Archives: homeownership

American homeownership was originally not about an investment

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One writer suggests Americans have bought into the lie that houses are good investments:

Would it surprise you to know that if there are two equally expensive houses—one for rent, one to buy—the person who buys will pay 40 percent to 50 percent more each month? That’s what happens when you factor in property taxes, insurance, maintenance fees and assorted fees like repairs—which almost nobody does…

The truth is, most of what we’ve been raised to believe about owning a house simply isn’t true…

Run the numbers. Yale economist Robert Shiller found that from 1890 to 1990, the return on residential real estate was just about zero after inflation.

ZERO.

This trend toward seeing homes as a good return on investment is a recent development. Perhaps it hints at the commodification – and a need to see a potential return on investment – of everything.

But, if owning a home is not a great investment, why do Americans still privilege homeownership? Here are some historic reasons:

  1. Land is valuable. In the past, people needed land to some degree to survive. Think of all those tenant farmers in the Middle Ages who always had to pay someone else. Or think of sharecroppers in the United States. Land equaled food or the ability to run a business on your property. Additionally, having your own piece of property meant that you could get away from others as well as the government. It is that the home is your castle thing.
  2. Owning a home is a sign of material prosperity. When you are a homeowner, you have made it enough to be able to own and maintain your own property. In other words, you have the resources to waste it. This is the realization of the American Dream as George W. Bush once put it.
  3. Additionally, homeownership is a sign of dedication to your local community. Renters are assumed to be lower-income, transient, and not committed to civic organizations. Homeowners have a stake in their community because they (1) will be there for an extended time and (2) want to protect their property values (though this is also a more recent development).
  4. Combining #2 and #3, homeownership was assumed to keep people invested in capitalism as opposed to socialism. Again, if you own your own property, you want to see it do well rather than hand it over to an outside manager (the state or a landlord).

Black homeowners not seeing the same rebound in home values

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As if residential segregation and disparities in homeownership (and wealth) weren’t enough, black homeowners haven’t benefited as much from the housing recovery:

The communities in South DeKalb are almost entirely African American, and they reflect a housing disparity that emerges across the Atlanta metropolitan area and the nation. According to a new Washington Post analysis, the higher a Zip code’s share of black residents in the Atlanta region, the worse its housing values have fared over the past turbulent housing cycle.

Nationwide, home values in predominantly African American neighborhoods have been the least likely to recover, according to the analysis of home data from Black Knight Financial Services. Across the 300 largest U.S. metropolitan areas, homes in 4 out of 10 Zip codes where blacks are the largest population group are worth less than they were in 2004. That’s twice the rate for mostly white Zip codes across the country. Across metropolitan Atlanta, nearly 9 in 10 largely black Zip codes still have home values below that point 12 years ago.

And in South DeKalb, the collapse has been even worse. In some Zip codes, home values are still 25 percent below what they were then. Families here, who’ve lost their wealth and had their life plans scrambled, see neighborhoods in the very same county — mostly white neighborhoods — thriving…

These disparities, though, are not simply about income, about higher poverty levels among blacks, or lower-quality homes where they live, according to economists who have studied the region. The disparities exist in places, like neighborhoods in South DeKalb County, where black families make six-figure incomes.

Race strikes again in America. While the issues may not be the same as past actions such as official redlining or blockbusting or restrictive covenants, even in wealthier communities – ones like these that tend to look like the white suburban dream of a big house in a nice community – race continues to affect home and property.

This also reminds me of the book Crisis Cities which I had my urban sociology class read for the first time this past sentence. The one sentence summary: government and private sector actions after major urban crises like 9/11 and Hurricane Katrina tend to privilege the already wealthy and do little to help the poorer residents of major cities. Similarly, poorer and minority residents were hurt disproportionately by the economic crisis (through means like subprime loans – another quote from the article: “Nationwide, black families earning around $230,000 a year, according to research by sociologist Jacob Fa­ber, were more likely at the height of the bubble in 2006 to be given a subprime loan than white families making about $32,000”) and then don’t share as much in the recovery. We need urban and housing policies that at least help everyone, if not provide more for those who need more help.

Why would we want to promote more HOAs with a tax break?

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A new proposal in Congress would allow members of a HOA to deduct their association fees from their federal taxes:

Upward of 67 million people live in these communities — ranging from sprawling master-planned subdivisions down to individual condominium or cooperative developments. As of 2014, they contained nearly 27 million housing units. Their homeowners associations often provide the functional equivalents of municipal and county services, and residents nationwide pay roughly $70 billion a year in regular assessments to fund road paving and maintenance, snow removal, trash collection, storm water management, maintenance of recreational and park facilities, and much more.

The same residents also pay local property taxes to municipal, county or state governments. But unlike other homeowners, only their local property tax levies are deductible on federal tax filings. Their community association assessments that pay for government-type services are not.

Now a bipartisan group of congressional representatives thinks that’s inequitable and needs to be corrected. Under a new bill known as the HOME Act (H.R. 4696), millions of people who live in communities run by associations would get the right to deduct up to $5,000 a year of assessments on federal tax filings, with some important limitations…

The bill’s primary author is Rep. Anna G. Eshoo, D-Calif. Co-sponsors include Reps. Mike Thompson, D-Calif., and Barbara Comstock, R-Va.. Though the bill has little chance of moving through the House or Senate during this election year, it sends a message to the legislative committees now working on possible tax code changes for next year: Congress needs to acknowledge the role the country’s community associations play in providing municipal-type services. The way to do it is to allow deductions on a capped amount of the money residents are required to pay to support community services.

It will be fascinating to see what sort of formula is used to calculate these deductions as the fees paid to associations do not cover all sorts of municipal services used outside of the association.

At the same time, won’t this promote more HOAs, or at least make them more attractive? And do we really want more? They certainly are popular but they continue a trend that is not necessarily good for society: privatizing municipal goods and helping neighbors guarantee their property values. For the first, instead of paying a municipal government, a new layer of private government is enabled to take care of certain services. Americans tend not to like more and more layers of fees and government. However, this might be outweighed by the second factor: the HOAs help keep the neighbors in line without owners directly having to interact with other neighbors. Instead of possibly having to live next to the neighbor who paints their house purple and starts a garden in the front yard, the HOA polices this. In other words, this tax break might help more and more Americans work out civic life through private associations that they see as a necessary evil.

Given all of the HOAs, is there any analysis that shows they pay off financially in the long run either for the property owners or the municipalities?

“Housing Bust Lingers for Generation X”

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The Wall Street Journal discusses how Generation X’s ability to own a home was significantly affected by the housing bubble:

The data show an enormous swing in the fortunes of people born between 1965 and 1984, the group defined by the Harvard Joint Center for Housing Studies as Generation X.

Compared with previous generations, Generation X went from the most successful in terms of homeownership rates in 2004 to the least successful by 2015, according to the data, which date to the early 1980s.

The culprit: a historic bull market for housing, fueled in part by easy-to-get mortgages, that encouraged record levels of home buying until the financial system cracked and the housing market collapsed. Earlier generations such as baby boomers, who entered the market before the frenzy of the early 2000s, have fared better.

Wrong place, wrong time? The effects of this could be long lasting:

  1. Less wealth in the long run since owning a home is one of the biggest investments Americans make.
  2. What does this mean for retirement, both for the money that could be gained in selling a home and the need for different housing options as people age?
  3. With the assumptions Americans make about community involvement and homeownership (as compared to renting), does this mean a whole generation is less involved in community life?
  4. Will economic changes like this affect future decision making both for Generation X and their children who saw what happened?

In other words, we won’t know how important this change is for quite a while.

29% of suburban residents are renters

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A new study of the 11 biggest American cities finds that an increasing number of suburbanites rent:

About 29 percent of suburbanites living outside the nation’s 11 most populous cities were renters in 2014, up from 23 percent in 2006, according to a report released Tuesday by New York University’s Furman Center real estate think tank and the bank Capital One.

The finances of home ownership since the mortgage meltdown might be a lead reason for the change, but the cost of renting also is rising in most of the biggest metropolitan areas, the study found…

Renters

 

 

 

 

 

 

 

 

Traditionally, suburbs have not been very open to renters, particularly when it comes to apartments. The stereotypes of renters are that they care less about the community, they are more transient, and that their dwellings drive down housing values. But, two major things changed that could contribute to the effects of the economic crisis:

  1. What if more new renters are renting single-family homes rather than apartments? The same stereotypes regarding renters might still apply but these renters are not as easy to spot and look like they are living the suburban dream of homeownership. Plus, isn’t having renters in single-family home preferable to all the vacant homes due to foreclosures?
  2. There are more suburbs than people often think that don’t look like wealthy bedroom communities. In other words, these renters might be clustered in particular communities where housing is cheaper and apartments are more plentiful but renting in wealthier suburbs may not have changed much.

It will be interesting to see how suburban communities respond to the uptick in renters. New regulations? Reconsideration of how renters should be viewed?

Proposing a stronger theory of NIMBYism

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A lawyer in Austin is working on a more-encompassing theory of explaining NIMBY responses to development:

The key to any strong definition or explanation, suggests Bradford, is that it must go beyond the simplistic idea that NIMBYism aims to protect home value, full stop. If that’s the case, why do some homeowners reject development projects so forcefully while others don’t? Why is California more NIMBY than Texas, for instance, or Austin more NIMBY than Houston? Why is NIMBYism more intense now than it was 40 years ago, when home value mattered just as much to personal wealth?

Bradford builds his own central thesis around the idea that NIMBYs seek to monopolize “access to neighborhood amenities”:

“In the absence of zoning restrictions on the number of housing units in a neighborhood, neighborhood amenities would be a public good. Zoning converts neighborhood amenities from a public good (a partially non-rivalrous, non-excludable good) into a “club” good (a partially non-rivalrous, excludable good). Because “club” membership is bundled with home ownership, zoning causes the value of neighborhood amenities to be capitalized into home prices. NIMBYism can be thought of as the practice of objecting to development in order to protect the value of “club” membership.”…

As for realistic policy solutions, Bradford makes an initial go at these, too. Rather than trying to undo existing single-family zones, he says, an easier place to start would be for local planners and officials to stop automatically applying such zoning to new developments. “There is no particular constituency for zoning fringe greenfields exclusively for single-family use, so cities ought to stop doing it,” he writes. “This practice merely begets the next generation of NIMBYs.”

It sounds like the argument is that property values are part of a deeper desire to protect the neighborhood from use by others. People buy a property with the expectation that they will have exclusive use of particular features, whether that is parks, roads with less traffic, or nearby open spaces.

The policy solution offered above is intriguing. If buyers don’t have any knowledge of how the land nearby might be used, it lowers their expectations about what might be there some day. Still, they might object to any changes – home buyers on the fringe become quite enamored with empty fields. Additionally, this recommendation doesn’t help deal with infill or redevelopment situations.

I wonder if some developer could up the value of their properties by writing into the deed or through some other contract that the land nearby will not change for a certain number of years. Would buyers be willing to pay a premium if that land was controlled and they knew they had exclusive rights to amenities? If a developer couldn’t be sure of the actions of a municipality, perhaps they could purchase a buffer zone that they would control.

CNBC: owning a home may be “the new luxury item”

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CNBC suggests the dream of owning a home is becoming less attainable:

Almost half of those people who don’t own a home said their financial situation is standing in the way, according to a report by Bankrate.com released Tuesday. Additionally, 29 percent said they can’t afford a down payment and 16 percent said their credit isn’t good enough to qualify for a mortgage…

“A lot of people could be feeling traumatized by what happened to the housing market and are counting themselves out,” she said…

These days, first-time homebuyers, who are primarily in their 30s, are spending a bigger chunk of their incomes to buy their first house — coughing up about 2.6 times their annual pay; in the 1970s, first-time homebuyers purchased homes that cost only about 1.7 times their yearly salary, according to Zillow.

Tighter lending standards and hefty down payments have further deterred some buyers.

Economic conditions and reasoning can go a long ways to determining who can access parts of the American Dream and when they may do so in life. This reminds me of other analyses I’ve seen in recent years suggesting the delayed age for marriage as well as a decline in marriage is also tied to economics: people want to be more financially secure before they marry. Similarly, buying a home is now being put off – not because Americans don’t want it but because they just aren’t set and the conditions have imposed particular restrictions.

Xmas gifts: America has socialized mortgages, free market health care

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The preface to Shaky Ground: The Strange Saga of the U.S. Mortgage Giants includes this fascinating section:

The big banks have at least superficially paid back the money the government gave them; General Motors and Chrysler are out of bankruptcy; but Fannie and Freddie are still in conservatorship. Even more significant, most of the mortgage market in this country is now supported by government agencies, more so that it was before the financial crisis. The former governor of the Bank of England, Mervyn King, told me this: “Most countries have socialized health care and a free market for mortgages. You in the United States do exactly the opposite.”

Americans of all political stripes have long supported the idea that residents deserve to own a home. This is reflected in government policy, as Bethany McLean argues, where politicians suggest they want Fannie Mae and Freddie Mac out of the mortgage business yet let them become a more and more integral part of the process.

It would be interesting to know how the money poured into the GSEs might be used elsewhere to support other things Americans like to have.

Declining American homeownership illustrated in Las Vegas

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That city that may have been the exemplar of the early 2000s housing boom may now provide good evidence of a shift from owning to renting in the United States:

The shift to rental in single-family homes is visible on streets like Recktenwall. Between 2005 and 2009, about 80% of such houses in greater Las Vegas were owner-occupied; by 2013, that had dropped to 71%, a 12,000-unit shift…

But the homeownership decline is not entirely tragic. For the footloose, the empty-nested, the risk-averse and assorted others (contract workers, military servicemembers) renting makes sense…

The housing crash’s ground zero was Las Vegas. People who thought you couldn’t lose money on a house lost everything. At one point, an astonishing three quarters of Las Vegas mortgage holders owed more on their homes than they were worth, a percentage that still hovers around 25%.

That’s one of many factors suppressing home sales. Another is the fact that millions of houses have been flipped to rentals by investors who snapped them up at rock-bottom prices years ago.

This long article that covers presidential support of homeownership in recent decades to the perks of some newer apartment complexes presents an interesting conundrum: Americans – including young adults – tend to say that they would prefer or aspire to own a home but for a variety of reasons – from bad credit to tight credit in the mortgage industry to uncertain jobs to college loans to better perks in rental complexes to more options like single family homes available for rent – see renting as desirable at the moment. Some of this might only be determined over time; will the housing market conditions continue to push people toward renting? And, if this happens, does the aspirations of owning a home also slowly decline?

What would be helpful to see with this article that uses Las Vegas: where has the population increased or declined in the metropolitan region over the last ten years or so? While the single-family home market was hit hard, does that mean the suburbs lost people and residents moved closer to the region’s center?

Multigenerational families, multigenerational mortgages

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A new Fannie Mae program allows salaries of relatives living in a home but not listed on the mortgage count towards the mortgage:

New rules adopted last month by Fannie Mae will allow mortgage applicants to qualify for a home loan by counting the salaries of other relatives who live in the house — although their names may not be listed on the mortgage…

“For the first time, income from a non-borrower household member can be considered to determine an applicable debt-to-income for the loan, helping multi-generational and extended households qualify for an affordable mortgage,” said the news release issued by the mortgage giant, which said its research found such extended households typically have incomes that are as stable or more stable than other households at similar income levels…

“What we don’t want is for a borrower to qualify for a mortgage on $5,000 monthly income and then family members move out and the borrower only has $2,500 income. Then we are setting ourselves up for a mortgage problem like we had not too long ago.”…

HomeReady loan applicants also will be required to complete an online education course preparing them for the home buying process.

If more families are living together – probably more commonly with grandparents or children – then there are more resources available to go toward housing costs. And it is not easy to find affordable housing in many metropolitan markets, leading to more extended family arrangements like this in the first place.

It will be interesting to see (1) how many mortgages are made in this program and (2) what the success rate is over time given the concerns expressed above about household members moving out and harming the ability to pay off the mortgage.

One last note: a move such as this provides a reminder that this country is still committed to pushing homeownership.