Tag Archives: homeownership

Americans not so sure playing field is level, American dream attainable

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Data from recent years suggests fewer Americans think they can get ahead:

Surveys continue to show that Americans, in large numbers, still believe in many of the tenets of the American dream. For example, majorities of Americans believe that hard work will lead to success. But, their belief in the American dream is wavering. Between 1986 and 2011, around 50 percent of those polled by Pew consistently said they felt that the American dream was “somewhat alive.” However, over that same time period, the share who said it was “very alive” decreased by about half, and the share that felt it was “not really alive” more than doubled…

The majority of Americans once thought the playing field was more or less level. No more. Back in 1998, a Gallup poll about equal opportunity found that 68 percent thought the economic system was basically fair, while only 29 percent thought it was basically unfair. In 2013, feelings about fairness had reversed: Only 44 percent thought the economic system was fair, while 50 percent had come to feel it was unfair. Another 2013 poll found that by an almost two-to-one margin (64 to 33 percent), Americans agreed that “the U.S. no longer offers an equal chance to get ahead.”

Perhaps as a result of all of this, there are signs that the very idea of the American dream is changing. The American dream has long been equated with moving up the class ladder and owning a home. But polling leading up to the 2012 election revealed something new—middle-class Americans expressed more concern about holding on to what they had than they were with getting more. Echoing these concerns, Pew reported in 2015 that when asked which they would prefer—financial security or moving up the income ladder—92 percent selected security. This is a seven percentage point increase since just 2011, when 85 percent selected security over economic mobility.

And while majorities of Americans continue to say that home ownership is a key part of the American dream in general, when a survey asked people which things were the most important to their personal American dream, only 26 percent selected “owning a nice home” as a top choice, while 37 percent chose “achieving financial security” and 36 percent chose “being debt free.” In a 2013 Allstate/National Journal Heartland Monitor poll that asked respondents to define what it means to be middle class, 54 percent of respondents chose “having the ability to keep up with expenses and hold a steady job while not falling behind or taking on too much debt,” and only 43 percent defined being middle class as earning more, buying a home, and saving…

Three thoughts:

  1. Presumably, the economic crisis of the late 2000s contributed to this but so likely have other trends such as a declining amount of trust in social institutions and the decades-in-the-making changes brought about by economic globalization.
  2. Some have suggested that these numbers mean Americans no longer want these traditional markers of the American dream – like owning a home. More precisely, the surveys suggest Americans are more pessimistic about their own chances of owning a home. But, if the economy turned around (wages started going up, more good jobs became available, etc.), I suspect many Americans would go back to earlier behaviors. Maybe this would change if the pessimism and economic trouble continues. Yet, Americans have shown a willingness in the last century or so to consume at high levels when economic times are good.
  3. There has never truly been an “equal chance of getting ahead” in the United States. There have been times – such as after World War II – when prosperity was more broadly shared among the population and the gap between the rich and the poor shrank. Additionally, perceptions of this matter beyond the social realities. If people feel that social conditions are unequal, they can be unequal indeed.

Where are the Latino families on HGTV?

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After watching plenty of HGTV over the years, a question hit me: why don’t more of the shows feature Latino families and home buyers?

-According to recent figures from the Census, Latinos comprise 17.1% of the US population.

-According to the 2014 State of Hispanic Homeownership Report, the Latino homeownership rate is 45.4% (down from 2000), Latinos have the purchasing power of $1.5 trillion (comparable to all of Canada), and the number of Latino households is growing. In other words, there is a market here.

Put these two factors together and I would expect to see more Latinos. Actually, if I had to guess, whites are overrepresented on HGTV, particularly among hosts.

Homeownership continues to drop, housing costs rise

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Twin trends in American housing: homeownership is down while housing costs increase. First, on homeownership:

Only about a decade ago, in 2004, 69.2 percent of all homes were occupied by their owners; the home ownership rate has since fallen to 63.4 percent, the lowest in almost fifty years despite some of the most attractive mortgage interest rates on record. In part this is due to the difficulty young couples have in qualifying for a mortgage, as once-burned, twice-fined and increasingly risk-averse banks, looking over their shoulders at their regulators, raise their lending standards.

But even a further loosening of credit standards that have already been relaxed for “jumbo” loans (in excess of $417,000 and $625,500, depending on the region) is unlikely to change the trend towards renting rather than owning, last month’s increase in construction of single-family homes notwithstanding. Jordan Rappaport and Daniel Molling, economists at the Federal Reserve Bank of Kansas, find that adults in their 20s and early 30s, so called millennials, are not alone in preferring to rent rather than buy. Ageing baby boomers, now in their 50s and 60s, have tired of mowing, hunting for plumbers, fixing leaky roofs and coping with the nightmares that accompany realization of the one-time American dream of home ownership. They have accounted for the bulk of new renters, and are likely to continue to “be the main drivers of multifamily [apartment] construction as they age through their senior years,” conclude the Bank’s economists.

Second, on housing costs:

Consumer prices rose modestly in July, and according to the U.S. Labor Department those gains were largely due to a 0.4 percent increase in the cost of shelter—the government’s measure of housing costs. This was the largest increase in the shelter index since 2007.

While inflation for other Consumer Price Index (CPI) basket items has been decelerating, the inflation of shelter has only been going up since 2010. Compared with July of last year, shelter prices are up by 3.1 percent. In the coming months, shelter inflation is expected to continue…

Rising housing costs, paired with stagnant wages, are a big concern for most Americans because not only is rent often already the largest part of monthly expenses—it is increasingly becoming more expensive. One study found that half of all renters spend more than 30 percent of their income on rent and utilities.

Interestingly, this is getting very little attention from politicians. Let’s say a politician wanted to appeal to the masses in the United States. One traditional way of doing this has been to push homeownership, a strategy pursued from Presidents since the 1920s. Owning a home might be the modern equivalent of a chicken in every pot for Americans. Since owning a home has been viewed as an essential part of the American Dream, most politicians want to be viewed as in favor of expanding this opportunity. (Of course, there are other reasons for pushing homeownership including boosting the economy and fighting communism.)

Perhaps other issues are more pressing at the moment. Or, I suspect few leaders really know what to do about reviving housing given the efforts in the early 2000s to expand homeownership that contributed to a big economic bust. Yet, since most major politicians today want to appeal to the middle class (and they don’t pay much attention to the poor – another story for another day), this would be one easy way to go if they could just figure some sort of plan.

The American rental market continues to get more expensive

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A report shows the rental market continued to tighten in the United States in recent years:

And it’s probably getting rougher. “Rental markets tightened again in 2014 as the national vacancy rate fell by nearly a full percentage point to 7.6 percent—its lowest point in two decades,” Harvard’s researchers tell us. Meanwhile, rents rose at twice the rate of inflation, and faster than wages. However bad 2013 was when it comes to the country’s collective rent burden, it seems likely last year will look worse when the final numbers are in.

Rents are rising for the simple reason that, thanks to the never-ending hangover of the housing bust, a larger share of Americans are renting their living places now than they have in 20 years. And while developers have responded by building apartment buildings like mad—last year, there were the most multifamily housing starts for rent since 1987—it hasn’t quite been enough to keep up with demand. (Moreover, new construction is largely catering to wealthier buyers, while the families most burdened by rent tend to be lower-income.) Old, unwanted single-family homes from the boom days of the 1990s and early 2000s are relieving some of the pressure on the market, but not quite enough to keep prices from jumping.

Meanwhile, demand for rentals is probably going to keep rising. First, the Federal Reserve would really, really like to raise interest rates in the near future, which will make mortgages less affordable. But more importantly, millennials are getting older. Thus far, most of the growth in renting has been driven by middle-aged and older Americans. But even if young adults continue living with their parents at the same rate as today, there are simply so many twenty- and thirtysomethings that the rate of new household formation is bound to jump in the coming years, which is going to create much more appetite for rentals.

If expensive renting becomes the new normal, it would have widespread effects. Spending more money on rent means that people have less money to spend elsewhere, a problem in an economy driven by consumer spending. It could change how Americans view renters, which has negative connotations in a lot of wealthier suburban communities. Developers could continue to pursue different building options if they see a lot of money in multifamily housing. Lower-class residents may have a harder and harder time finding affordable housing, already a problem in many major housing markets. Denser development could shift ideas about homeownership and suburban life.

All that said, it remains to be seen whether this an economic stage or blip or whether the housing market will turn away from rental units and back toward single-family homes. Housing prices may be close to their 2006 peak but clearly fewer homes are being built and demand is down.

 

 

TV show uses McMansions to show off differing personalities

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The TV show The Last Man on Earth features McMansions intended to quickly display the personalities of different characters:

“We wanted to play off the fact that we’re all worried about ‘bigger is better.’ With these McMansions, it’s kind of like, ‘Look what we’ve become,’ ” Hill says.

As with any good comedy, though, the main function of the McMansions is to reflect the personalities of the characters who live in them. The motley crew of pandemic survivors who unite in Tucson have little else in common, and the homes they adopt embody this.

“For Phil, we wanted something a little more masculine to kind of embrace the earth tones of the Tucson area,” Hill says. “Phil’s environment, obviously after the first few months he’s there, goes from this pristine environment with the artifacts he brings from all over the country to this completely slovenly layer upon layer of bottles and cans.”

Forte finds his foil in Kristen Schaal’s character, Carol, whose spotless home looks like a living Pinterest board. “For Carol, we wanted it to be a little bit more formal, a little bit colder,” Hill says. “She brings her own layer of craftiness.”

This works on two levels. First, television – particularly comedies – have limited time to develop characters. Thus, they have to use some shorthand to quickly convey character traits to viewers. Big differences in houses could imply quite a bit. Second, Americans generally have believed that their homes reflect them. Poorly maintained lawn and messy house? Garish decorations? Immaculate style? Lots of rooms but not as much furniture? Americans also think homeowners are more invested in their properties and communities than renters. Additionally, homes help denote status in their size, upkeep, and furnishings. Overall, McMansion owners are likely viewed poorly because their homes are designed poorly, try too hard to impress, and may be viewed as wasteful while homeownership gives them back some points. But, if you are truly the last people on earth in Tucson, Arizona, perhaps you have to differentiate yourself in some way…

See this earlier post about the use of McMansions on The Last Man on Earth.

The “Black Tax”: higher property taxes for black homeowners in order to eventually seize homes

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A new study looks at a practice common in Chicago and other cities where raised property taxes for black residents helped others take their homes:

Kahrl’s case study, which was released this month by the Journal of Urban History, traces the practice of tax-lien speculation to a 1951 reform in Illinois state law called the Revenue Act. During the same years when “redlining” emerged as a severely racially discriminatory mortgage practice, assessors in cities such as Chicago systemically over-valued homes in black neighborhoods for property-tax purposes…

Tax-lien speculation proved to be one hell of a business. Over the course of six months in 1973, for example, Gray acquired the deeds to 93 homes in Chicago’s Woodlawn neighborhood for a total of $70,000. Each parcel was worth as much as $20,000 at the time—and potentially much, much more to speculators once all the neighborhood’s black residents had been evicted…

Not every tax-lien sale resulted in a transfer of deed, but they always resulted in a transfer of wealth. Many homeowners managed to pay off their liens at high interest rates—often 18 percent, the legal ceiling—along with a host of fees. Making real money depended on finding the poorest and most vulnerable owners in the poorest but most over-assessed neighborhoods. This practice was perfectly legal. The “Black Tax” was law…

The remarkably resilient predatory-tax-lien business continues to thrive, despite efforts at reform. The industry is enormous. Late in 2014, the Abell Foundation published a report on the state of the practice in Baltimore City. In 2013, the city sold tax liens for more than 2,000 owner-occupied homes. Almost one-tenth of these liens were attached to water bills. In 2014, of some 6,690 tax liens sold, 2,236 were for owner-occupied homes.

Given the interest, fees, and court costs, a homeowner’s $500 delinquent tax or water bill can mushroom to $3,000 over a two-year window—the time an owner has to pay down the lien. According to the report, there were 2,805 pending tax-lien foreclosure cases in Baltimore City in 2014. Noting the difficulty in tracking these tax-foreclosure evictions, the Abell Foundation report’s authors warn that in Baltimore, the “tax sale can lead to evictions, homelessness, and property vacancies and abandonment in a city already plagued by all three.”

More inequality via race and property in the United States. As if residential segregation wasn’t enough – ongoing lending practices and tax policies continue to make it difficult for blacks and other poor residents to build wealth over time.

How big investors buying up properties may be limiting cheaper housing

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The economic crisis opened up space for bigger housing investors yet here is one argument about how their actions may be limiting the supply of cheaper housing:

A recent article in the Wall Street Journal highlighted how some investors are using algorithms to quickly parse housing data and formulate bids on undervalued properties, site unseen. While doing so is a cool technological feat, it can spell trouble for normal people trying to navigate the often complex home-buying process in order to make offers on similar homes. And algorithms aren’t the only benefit that more sophisticated investors have. “Investors are winning over the first-time buyers in some bidding processes because investors are all cash,” says Lawrence Yun, a chief economist at the National Association of Realtors. For a seller that means a smoother deal: no waiting around on financing, loan approvals or other inconveniences that traditional buyers bring to the table.

For their part, some investors contend that the homes they purchase don’t put them in direct competition with first-time buyers. Invitation Homes, an investing and leasing company owned by Blackstone says that they typically funnel another 10 to 12 percent of the purchase price into renovations in order to make a property market-ready—an investment that most first-time home buyers wouldn’t be able to afford. Many investors also contend that compared to the number of homes that are bought and sold nationwide, their activity is just a drop in the bucket.

When looking at the big picture, that’s true. Nationwide, large institutional investors made up only 4.3 percent of the single-family home purchases in the market during 2014, according to RealtyTrac a real-estate data firm. And overall investment activity is dwindling as home values return to normal and there are fewer deals to be had. Dallas Tanner, the chief investment officer at Invitation Homes says that the group currently buys about $25 to $30 million a week of single-family properties, that’s down from their 2012-2013 peak when the group spent upward of $160 million each week.

But like all things in real estate, it’s also a matter of location. Lots of investor activity is concentrated in markets where homes are still available at reasonable enough prices that purchasers can turn a profit. According to a February 2015 report from RealtyTrac, “There were 35 zip codes nationwide where at least 50 single-family homes were purchased by institutional investors in the fourth quarter, with institutional investor purchases representing from 17 percent to 74 percent of all single-family home sales in those zip codes.” Places like: Atlanta, Phoenix, Las Vegas, and Memphis. Those are also places that first-time buyers have the best bet of stretching their dollar far enough to purchase a home. Herbert, of the JCHS, says that that in some places, developers may in fact be pushing out normal home buyers, “For certain property segments, they may be creating competition.”

Even as the higher end of the housing market does well (see recent evidence here, here, and here), any impediment on the lower end of the market isn’t helping these days. With developers not showing much interest in building starter homes, these institutional investors may be grabbing up homes that those who want to join the housing market – whether recent college graduates or those working lower-income jobs – would need to get their foot in the door.

So if Americans – from politicians to average citizens – want to push homeownership, are these institutional investors good for this in the long run?

Chief economist for Zillow says “homeownership is not for everyone”

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The chief economist for Zillow suggests we need alternatives to homeownership for low-income American residents:

All this leaves us with a conundrum: Overall, homeownership is a tremendous boost to millions. But in some specific cases, it simply does not deliver as advertised. Depending on circumstances, homeownership is not for everyone. And our steadfast belief that homeownership is always the better option has led us to worry less about the one-third of Americans that rent,leading to a crisis in affordable rental housing.

Please don’t get me wrong. None of this is to say that lower-income Americans should not aspire to homeownership, nor be given opportunities to access its tremendous benefits. But we also need to be steely-eyed about the realities and foster a wider diversity of options on housing, crafting innovative solutions that address the reality we face, not the one we imagine.

If we truly believed this, we could do different things. We could focus on the creation and maintenance of more affordable rental housing. We could find innovative new ways to build wealth, aside from homeownership. Given the prevalence of single-family rentals in the aftermath of the recession, we could explore the feasibility of renting-to-own on a wider scale. We could narrow and sharpen our focus on addressing the fundamental sources of inequality that drive differences in homeownership in the first place.

Yet, even with the strong negative effects of the recent economic crisis/housing bubble, I wonder if it is easier to promote homeownership than it is to advance other policies. Here are several reasons why this might be the case:

1. Americans really do seem to prize homeownership. Homeownership is closely tied to the American Dream, making this issue both politically and culturally important. As far as I know, every president since the 1920s has promoted homeownership. Suggesting that everyone can’t access the American Dream can be problematic.

2. Renting may be a good short-term solution but because of the status conferred to homeowners, renters receive the opposite sentiments: transient, less committed to their community, more prone to social problems, etc. Plus, how many wealthier residents want to live near cheaper rental housing?

3. Speaking of cheaper housing, affordable housing is a very contentious issue. Where will these units be built? Wealthier neighborhoods and communities want little to do with affordable housing. Which developers will go this route rather than chasing bigger profits with larger and more expensive housing units?

4. Getting at the fundamental issues behind the the differences in homeownership is a huge task. Which shall we tackle first – Race? Social class? Residential segregation? Large disparities in wealth? Unequal access to resources?

Perhaps the price to be paid in housing bubbles is more palatable to those in charge than the other options…

“5 Reasons That Hispanic Homeownership Will Define Housing’s Future”

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Where will the housing market turn in the near future? A new report suggests a move toward Latinos:

1. Hispanic Homeownership – Since 2000, the number of Hispanic owner households has increased from 4.242 million to 6.810 million, a rise of 60.54 percent; in just the last four years, in fact, Hispanic owner households have risen 614,000.

2. Hispanic Households – When we extend our parameters to overall households, the numbers are even more stunning. In 2014, the number of Hispanic households grew by 320,000, or 40 percent of total U.S. household growth.

3. The Hispanic Population – Since 1970, the Hispanic population has increased by 592 percent. No, that is not a typo! Even more, the Hispanic population is expected to reach 120 million by 2050, more than double what it is today.

4. Hispanics in the Labor Force – Thus far in the new millennium, Hispanics have accounted for 65 percent of the growth in the U.S. labor force, and every year, one million U.S.-born Latinos enter adulthood; with numbers like that, it’s no surprise that Hispanic purchasing power is $1.5 trillion, and is projected to grow to $2.0 trillion by 2020 (that’s an increase of $500 billion!).

5. Hispanics in Housing – Sixty-five percent of top agents NAHREP surveyed expected 2015 to be a “breakout year” for Hispanic homeownership, but NAHREP’s report pulled no punches on the considerable barriers that remain for homebuyers, among them a lack of affordable housing, competition from cash investors and tight lending standards – problems will have to be overcome before homeownership can truly take off.

Reasons #2-4 involve demographics: an increasing population leading to more households and workers. Reasons #1 and 5 address more Hispanics getting involved in the housing market: an increasing number of owners, optimism from realtors, and factors limiting even more Hispanics from owning homes.

The demographics are suggestive but the evidence in reasons #1 and 5 is limited. Census figures from the last quarter of 2014 suggest there is still a long ways to go: the homeownership rate for non-Hispanic white alones was 72.3% but only 44.5% for Hispanic (of any race) and 42.1% for Black alone. A growing population and jobs alone are not enough; homeownership often involves consistently good jobs and wealth as well as access to capital and housing at cheaper levels of the housing market where homeowners can get a start.

What is the goal of Naperville’s first housing expo?

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Naperville will host its first housing expo this Saturday:

The new event is an effort to provide answers for people with all types of housing needs, said city spokeswoman Linda LaCloche. Help for buyers, renters and seniors usually is spread out among several agencies…

The DuPage Homeownership Center, BMO Harris Bank, Naperville Bank & Trust and the Main Street Organization of Realtors are the city’s main partners in the event, which will present resources from 19 agencies or businesses including banks, real estate agents, lawyers, home remodelers, title companies and insurance agents…

The 9:15 a.m. session will cover the money side of buying a house including topics such as financing, credit, grants, incentives, homebuyer assistance, budgeting and avoiding foreclosure…

A panel at 10:15 a.m. will cover home maintenance and tips for seniors to stay in their homes. How to choose a contractor, how to avoid scams, how to use programs that help pay maintenance costs and which types of repairs require city permits all will be discussed.

A final session at 11:15 a.m. will discuss the rental responsibilities of landlords and tenants. Members of the city’s housing commission, who helped plan the new event, will lead the session and share information about Naperville’s crime-free housing program. The city council could extend the voluntary program or make it mandatory.

It is not immediately clear the purposes of this event. The city suggests this is about providing information regarding housing needs. But, only certain groups are targeted – those who want to buy homes, seniors, renters and landlords – as I don’t see much information about affordable housing or dealing with teardowns or having good interactions with neighbors (as possible examples). If I had to guess, this sounds like more of an event promoting homeownership. This makes sense in a community like Naperville that is relatively wealthy but it doesn’t exactly promote a full range of housing issues.