Tag Archives: homeownership

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.

Renting or buying housing difficult for young adults

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The housing market is such that either renting or buying a housing unit is difficult for those under 35:

If you’re an American man or woman under the age of 35, there’s a historically large chance that you’re living with your parents. And if not, you’re very likely to be renting, and paying too much for the privilege. Only 34.8 percent of young adult households actually own their home, the smallest fraction since at least 1994, and among those who are forking over cash to a landlord, nearly half are considered “rent burdened”—meaning housing eats up around a third or more of their income.

And what about those who’d at least like to buy? Well, there’s a pretty good probability they’re getting boxed out of the market. On top of the challenges posed by tough post-crash mortgage standards, Bloomberg reports Thursday that prices for typical starter homes have been on a tear due to a lack of supply, and are now actually above their past bubbly heights.

As others have pointed out, high housing costs for those trying to start their adult lives or in their careers can have some large consequences. How to pay off college debt? How to easily move to the next new job opportunity? How to build wealth? How to start family life? This has been a problem for a few years now and doesn’t look like it will get much better soon.

Great Quotes in Homeownership #3: Bush in 2002

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As the War on Terror was underway, President Bush traveled to Atlanta in June 2002 and promoted homeownership for minorities:

But my attitude is, if somebody can’t find work and they want to work, we’ve got to continue to work on expanding the job base. And part of economic security is owning your own home. (Applause.) Part of being a secure America is to encourage homeownership. So somebody can say, this is my home, welcome to my home.

Now, we’ve got a problem here in America that we have to address. Too many American families, too many minorities do not own a home. There is a home ownership gap in America. The difference between Anglo America and African American and Hispanic home ownership is too big. (Applause.) And we’ve got to focus the attention on this nation to address this.

And it starts with setting a goal. And so by the year 2010, we must increase minority home owners by at least 5.5 million. In order to close the homeownership gap, we’ve got to set a big goal for America, and focus our attention and resources on that goal. (Applause.)…

I want to go back to where I started. I believe out of the evil done to America will come incredible good. I believe that as sure as I’m standing here. I believe we can achieve peace. I believe that we can address hopelessness and despair where hopelessness and despair exist. And listen, I understand that in this great country, there are too many people who say, this American Dream, what does that mean; my eyes are shut to the American Dream, I don’t see the dream. And we’d better make sure, for the good of the country, that the dream is vibrant and alive.

It starts with having great education systems for every single child. (Applause.) It means that we unleash the faith-based programs to help change people’s hearts, which will help change their lives. (Applause.) It means we use the mighty muscle of the federal government in combination with state and local governments to encourage owning your own home. That’s what that means. And it means — it means that each of us, each of us, have a responsibility in the great country to put something greater than ourselves — to promote something greater than ourselves.

These are not unusual sentiments for an American president. Even as danger lurks in the larger world (now the threat of terrorism rather than the threat of communism), American residents need to be able to participate in the American dream. This dream includes at least a few factors including good jobs and schools but is anchored in owning a home. Bush adds to these broad aspirations in this speech by noting that minorities have lower homeownership rates (this is still the case today) and the government and American society should be committed to helping them join white Americans in owning homes.

On one hand, this is a laudable goal that I suspect many would still support today: minorities should be able to buy homes in good neighborhoods. On the other hand, setting such goals is now viewed as helping to contribute to the economic crisis of the late 2000s. President Bush discusses a variety of means to push homeownership – government programs, community associations, faith-based groups – but we know at least part of this was accomplished through subprime and other loans that produced a facade of increasing homeownership without much substance behind it.

For the future, what is a sustainable path that truly gives minorities opportunities to own a home for the long-term? This might require jettisoning the idea that a home should be an economic investment. It may mean more operating outside of the free market to provide good housing.

Housing policy that encourages both affordable housing and rising home values

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This article points out a contradiction in housing policy: can we promote affordable housing while at the same time suggesting housing should be a good investment?

So how are these two conflicting ideas to be reconciled? Well, that’s the basic challenge of housing policy. Perhaps a start would be to acknowledge that there is, in fact, a tension here—that “protecting” or “promoting” property values is the same thing as “making housing more expensive.” It’s somewhat discouraging, for example, when community organizations claim that “affordability doesn’t mean housing values have to remain stagnant,” without acknowledging that if housing values aren’t stagnant—i.e., they’re growing—that means they’re also becoming less affordable.

But there is some hope. One thing that could help is robust production of housing that isn’t priced by the market, and therefore isn’t affected by rising market prices. That can be accomplished through public housing, privately-developed affordable housing with programs such as the low-income housing tax credit and housing vouchers. At the moment, few places produce non-market housing at anything close to a scale that would provide broad affordability, but there are encouraging examples: Portland, for instance, has created 2,300 units of affordable housing in its redeveloping Pearl District, adjacent to downtown, financed largely by taxes.

In many places, having a wide variety of housing types and sizes can also make room for people with a wide variety of incomes. My street in the Edgewater neighborhood of Chicago, for example, contains a handful of single-family homes, whose value at this point probably reaches into the six figures; expensive newer condo buildings; older multifamily buildings, some of which have large, luxuriously updated units, and others whose apartments are somewhat smaller, or have less up-to-date finishes; and a few single room occupancy buildings, with minimal accommodations. As a result, there is market-rate housing for everyone from upper-middle-class professionals to working-class immigrant families to low-income elderly adults. Of course, that sort of diversity is typical of a pre-zoning “illegal neighborhood”: A vanishingly small proportion of American neighborhoods allow that sort of mix to be created today, which is a large part of the problem. Making these kinds of neighborhoods more common might make America’s housing policy a little more cohesive and less contradictory.

In the explanation of why we have two contradictory positions, I think two key pieces are missed. One is the political dimension of these two goals for housing. Both have broad appeal – people want to be able to move to better neighborhoods even as they want higher housing values – and politicians continually push homeownership for the average American.  This has been a common theme going back to the 1920s (see an example from 1931). To put it bluntly, it helps secure votes. Second is the role of residents themselves who continue to want both outcomes. Policy, particularly at the federal level, is important here and a number of scholars have noted how decisions about mortgages and urban renewal privileged homeownership in the suburbs. Still, numerous residents practice NIMBY behavior, resisting change once they have their secure position within the home and neighborhood they want. Given the amount of money required to buy a home – it is the biggest single investment many people will make – this is understandable but it certainly doesn’t help others.

Both of the proposed solutions above are difficult to pull off. Using public money for public housing or affordable housing has been opposed since the early 1900s. Having mixed use and mixed income neighborhoods may be popular with some (New Urbanists, young people moving to the city) but it doesn’t get the same level of support from the broader public. To have housing for all or many would mean giving up some on the idea of housing as investment but those with more means – from the middle class on up – will not like this idea one bit.

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.