Tag Archives: homeownership

Americans like homeownership – but some really dislike the process of obtaining a mortgage

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Recent data suggests numerous Americans don’t like the process of getting a mortgage:

To be fair, a little more than half the 1,000 people polled this fall found the buying-lending experience rather simple and easy to navigate. But nearly 1 in 4 said they would rather gain 10 pounds, and almost 1 in 8 would rather spend 24 hours with the person they dislike the most.If you think that’s bad, 7% would rather have a root canal, and almost that many would choose a night in prison over going through the mortgage process again.

Asked another way — “Which of the following makes you extremely uneasy or anxious” — obtaining financing again scored very low in the Guaranteed Rate study. In fact, more people were more comfortable with public speaking, being in high places, flying in an airplane, being around snakes and being in a confined space than they were going through the mortgage process.

This flies in the face of the latest J.D. Power mortgage origination satisfaction study, which found that more borrowers were pleased with their lenders now than at any time in the last seven years.

Overall customer satisfaction improved for the third consecutive year. But as you might expect, first-time buyers who have never had to navigate the system weren’t as tickled as repeat buyers and refinancers.

I remember a whole mess of paperwork though the actual numbers and costs didn’t seem too complicated. Several pieces of this process might lower people’s satisfaction:

1. The idea that someone knows all of your financial information. Americans are pretty guarded about their incomes (try bringing it up even vaguely in social settings) so even though the bank needs all of this information, it makes people nervous.

2. The purchase of a home will be the biggest single investment many people make so it induces nervousness about being tied down and having to make monthly payments for the next (usually) 30 years. Perhaps this kind of investment should make people nervous…

3. First-time homeowners are not well educated about what it takes to purchase a home, even if they have a strong idea that they should purchase a home. For example, HGTV shows the mortgage process isn’t much of anything at all: you go from liking a home, making an offer, to living happily ever after in the home. Granted, getting the mortgage and working out the details is not exciting television but there is little information about mortgages conveyed by these shows.

It is too bad the article doesn’t discuss the characteristics of those who disliked the mortgage process more. Could it be disproportionately lower-income residents who don’t have that much money to spare? Could it be younger adults who are used to processes going quicker?

New tool from HUD to estimate combined commuting and housing costs

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Opponents of sprawl argue too many people buy cheaper homes further from the city without considering the added transportation costs. Here is a new tool to help address this issue:

More than 3 in 4 home buyers polled in the National Assn. of Realtors’ latest Profile of Home Buyers and Sellers said commuting costs are either “very” or “somewhat” important to their ultimate purchase decisions. After all, the combined cost of housing and transportation consumes close to half of the typical working family’s monthly budget…

The Location Affordability Portal from the Housing and Urban Development Department and Transportation Department enables users to estimate the combined housing and transportation costs for a specific region, neighborhood and even street.

LAP is actually two tools: one, a map-based Location Affordability Index, is a database that predicts annual housing and transportation costs for a particular area. The other, My Transportation Cost Calculator, enables users to customize data for their own household and potential residential locations.

LAP includes diverse household profiles — which vary by income, size and number of commuters — and shows the affordability landscape for each one across an entire region. It was designed to help renters and homeowners — plus planners, policymakers, developers and researchers — get a more complete understanding of the costs of living in a location given the differences between households, neighborhoods and regions, all of which affect affordability. The data covers 94% of the U.S. population.

Use the tool here. Some good info here. I plugged in some quick numbers of our housing and transportation costs and the yearly transportation costs were about 57% of annual housing costs. Driving, even with commutes that aren’t that far, add up quickly. Here is what the Location Affordability Index looks like for much of the Chicago region:

LocationAffordabilityPortalChicagoArea2

On this map with combined housing and transportation costs, I feel like you can quickly see places where the housing is more expensive (some places on the North Shore) and other places where transportation costs are higher (and where there may be fewer jobs – Will County, western DuPage County).

The idea here is that more people need more information about commuting costs when making housing decisions. If they had the commuting costs, they would choose differently. For how many people would this be true? I suspect some Americans would place more emphasis on a cheaper house, even if the commuting costs are higher. In other words, these aren’t equal considerations when Americans, particularly of certain incomes, have to make a choice.

Big companies buying up hundreds of Chicago area homes

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In a sign of the post-Great Recession real estate market, big firms are buying up Chicago area real estate:

The Chicago market is vast enough that even an invasion of this size won’t change home prices overnight. But the frenzied activity is a clear sign that professional investors believe two important trends are ripe for opportunity: housing values are recovering, and many Americans have given up on the dream of homeownership and will become renters…

Three years ago in an opinion piece for the Tribune, Matthew Desmond, then a sociology department fellow at the University of Wisconsin, voiced worries about what he predicted would be a concentration of housing stock among a few owners, causing big landlords to get bigger and smaller landlords to fall by the wayside. He called it the “Wal-Martization of urban housing.”

On one hand, this represents a change in the Chicago market as firms look to buy homes, rent them, and possibly make more money down the road when prices rise again. On the other hand, the percent of units these bigger firms are buying is not huge yet.

Desmond’s comments are interesting. Why shouldn’t real estate and housing operate in a market space where corporations can get involved? We have few problems with this in retail so what is the problem in housing? Desmond and others might argue that housing is a more basic need – though American residents do not have an explicit right to it. Also, there is a long-standing ideology in the United States that residents should have choices among places to live and homeownership, determining the fate of one’s own property, is the end goal rather than having to be subservient to a corporate landlord.

Perhaps we’ll know Americans prefer renting when HGTV focuses on renting and not homeownership

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The vast majority of programming on HGTV focuses on acquiring and/or rehabbing homes. It is hard to go more than a few episodes of these shows without someone talking about the pride of homeownership or achieving their dreams. This is all very American.

But, if the housing market still isn’t great, why aren’t there more shows about rentals? The one consistent show that includes rentals, Income Property, only views the rental from the homeowner’s perspective and how much money they can extract from the rental.

A theory: we’ll know when there are more Americans who really want to rent, particularly in the key 25-49 demographic, when HGTV features more prime-time shows about renting and rental properties.

Study: white flight led to increased homeownership rates for blacks

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A new study suggests one positive outcome of white flight from American cities: more opportunities to purchase homes for blacks.

Historic data suggests, however, that the mass exodus of the white middle class from central cities had one positive result for the people left behind: Suburban white flight helped boost black homeownership in America. And the extent of the effect is striking. Economists Leah Boustan of UCLA and Robert Margo of Boston University have estimated that for every 1,000 white households that moved out of central cities for the suburbs between 1940 and 1980, about 100 black households became homeowners.

In a fascinating paper published in the Journal of Urban Economics, the researchers argue that the two trends didn’t simply occur in tandem. One directly helped cause the other. Between 1940 and 1980, a period during which Boustan and Margo examined data in 98 cities, the share of white metropolitan households in the U.S. living in the suburbs nearly doubled from 35 percent to 68 percent. Over that same time, the homeownership rate among black metropolitan households rose from 19 percent to 46 percent – a jump of 27 percentage points that had been unprecedented in American history…

By their calculation, 26 percent of the nationwide increase in black homeownership between 1940 and 1980 can be attributed to the white exodus to the suburbs. As white families left for newly created housing – following newly paved highways into the suburbs – demand (and prices) dropped for single-family homes in the city. As the cost of homeownership then declined, more blacks who had previously been renters – a group that now made up a much larger share of would-be home-buyers – were able to buy a home for the first time.

The effect was particularly strong in cities that had a large stock of existing single-family homes conducive to ownership, and in those central cities that had a relatively large black population. In New York City, for example, only 15 percent of the housing stock was owner-occupied in 1940. As a result, Boustan and Margo model that every 1,000 white household departures led to just 50 new black homeowners. But in Birmingham, Alabama, with its large black population and numerous detached single-family homes, 1,000 white departures generated 450 new black homeowners.

Interesting claims though it sounds like white flight only accounts for 26% of the rise in black homeownership. What were the other factors?

Also, this article says little about how we might reassess white flight. Does this suggest white flight was partly okay because it led to new homeownership opportunities? Even if blacks were able to purchase these homes, wasn’t it still the case that a massive amount of wealth, financial and social, left urban neighborhoods? It seems like this research could be used to highlight the paradoxes of homeownership – it isn’t a perfect good even if it is a American social ideal.

Should every home improvement increase the value of your home?

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HGTV host Sabrina Soto discusses five home improvements that might actually lower the value of your home:

Converting bedrooms into other spaces: If potential homebuyers “see it’s a four-bedroom house, they want to go to the open house and see four bedrooms. You have to take the guesswork out,” says Soto. If you do convert a room, there’s one feature you should absolutely never mess with. Watch the video to find out what that is.

Hot tubs: Soto thinks inheriting someone else’s hot tub is a turn-off — and she’s not alone. “You’d be surprised how many potential buyers find them to be a little gross.” And once a hot tub is installed, it’s not an easy feature to remove from a deck or backyard.

Colored trim and textured walls: It seems like any potential homebuyer would see these features and know they can easily paint over them, but not so fast, says Soto. “I would much rather paint walls than trim any day — it’s a beast of a job,” she says. And textured walls are “a mess to sand down and remove. The fad is over anyway, so just let it go.” If you feel your trim is outdated, see the video for Soto’s tips on what to do.

Children’s theme bedrooms: Spending hundreds of dollars on a mural for your child’s wall is throwing money away. Not only will they outgrow it in a matter of years, but “you’re never going to get that money back when you sell, so just keep it neutral,” posits Soto.

Too much landscaping: Conventional wisdom says you want your yard to look as nice as possible, but heed Soto’s warning: you want to “keep up with the Joneses — but don’t exceed them.” To a potential buyer, gorgeous, overdone landscaping screams high-maintenance.

My question after reading this list: what if you simply want these features for yourself and not because it might add to your resale value? Granted, if you are looking to sell your house, you might not want to pursue these options. But, if you are looking to live in your house for a while, you might decide that one or more of these features is what you want.

The bigger issue is this: doesn’t a list like this perpetuate the idea that a home is primarily an investment? That is one way to view things but there are other reasons for owning a home.

If homeownership in the US isn’t about making a good investment, what is it really about?

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Politicians and others argue homeownership is a good financial investment. But, if it isn’t really a good investment, what is homeownership in the United States all about?

Politicians and pundits across the spectrum regard homeownership both as the best investment a family can make and a measure of national prosperity. But a significant majority of Americans believe differently. According to a 2012 Pew survey, 86 percent of Americans now believe the key to a middle-class life is a “secure job,” almost double the share (45 percent) who say the same about owning their home. To compare, seven out of ten respondents to a Time/CNN/Yankelovich survey back in 1991 said that homeownership was essential to middle class membership, while just one-third said that a white-collar job was required. Since 2004, the overall rate of homeownership in the U.S. has declined from 69.2 percent to 65 percent…

Of course, I’m by no means advocating that we put an end to homeownership altogether and become a nation of renters. My hunch is a homeownership rate of between 50 and 60 percent is just about right; and that’s not too far from where the U.S. is now. But we can’t hide from the fact that excessive levels of homeownership — either among nations or metros — seem to be associated with lower levels of innovation, productivity and economic development.

I wholeheartedly concur with Columbia University economist Edmund Phelps (I quoted him in my book The Great Reset) when he says, “it used to be the business of America was business. Now the business of America is homeownership.”  And, he adds, “America needs to get over its ‘house passion.'”

Americans like financial investments but they also like other aspects of homeownership. Here are a few other reasons:

1. Some have argued Americans like private spaces to the detriment of public spaces. Having a home that you control, and not just rent, is the epitome of this private space. Owning a home is viewed as related to independence and self-determination.

2. Americans like to consume and houses are another consumption object. When you own, you can put your own personal stamp on the property as well as shape the house into a reflection of yourself. (This is opposed to viewing homes primarily as dwelling places, not as individual expressions.)

3. Owning a home is historically linked to the American Dream. Being able to buy your own home demonstrates that you have made it. The American Dream may indeed change in the future but it takes time to overcome this decades-old inertia.

4. This may not come up much now but homeownership was viewed in the past as a bulwark against communism.

5. Building homes as well as buying and selling them is a big industry. There is a lot of money to be made – though homeowners themselves might not make much.

6. There are long-standing negative perceptions about renters including renters are often from less desirable segments of society and renters are less committed to a community because they are more transient and don’t have the same kind of investment in their property.

While the idea of investing in a home may soon fade, there are other influential reasons Americans choose to buy homes. Economics may be a powerful motivator but it isn’t the only one when it comes to homes.

Don’t think that buying a McMansion will make you happy

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A new book titled Happy Money: The Science of Smarter Spending suggests buying a nice home does not lead to greater happiness:

What could possibly be more satisfying than ditching that old starter home you and your spouse moved into during your broke newlywed years?

Two studies cited in “Happy Money” prove otherwise.

When researchers followed groups of German homeowners five years after they moved into new homes, they all wound up saying they were happier with their newer house. But there was one problem: They weren’t any happier with their lives. The same was true in a study of Ohio homeowners in which it turned out they weren’t any happier with their lives than renters.

“Even in the heart of middle America, housing seems to play a surprisingly small role in the successful pursuit of happiness,” Dunn and Norton write. “If the largest material purchase most of us will ever make provides no detectable benefit for our overall happiness, then it may be time to rethink our fundamental assumptions about how we use money.”

Regardless of whether someone owns a McMansion or not, this goes against a lot of the American Dream. Critics argue McMansions aren’t great purchases because of their poor design, environmental impact, poor community life, and other issues, yet people have continued to buy larger houses in recent decades. At the same time, some of these critics would tell McMansion owners to buy homes that better fit their individual needs. What unites these approaches to homes is the idea that people are better off having purchased a home. Perhaps they are in the eyes of society – indeed, people once argued homeownership would keep people from taking an interest in communism. But, if this research holds up, then perhaps we should retire the argument that individuals will be more satisfied as homeowners and stick to making a civic or community-oriented pitch for homeownership.

Projection: US homeownership rate to continue to fall

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One firm projects the homeownership rate in the United States will continue to fall through next year:

The homeownership rate in the second quarter was unchanged from the prior three month period, according to Census Bureau data released today. It will hit bottom at about 64 percent in the next year as families leave the foreclosure pipeline and enter rental homes, according to a May analysis by London-based Capital Economics Inc. It’s currently the lowest in almost 18 years after averaging about 64 percent for 30 years through 1995.

First-time buyers and minorities are among the groups that have seen the sharpest declines since the crash. While property ownership among senior citizens was little changed at about 81 percent, the share below age 35 that own a home fell to about 37 percent from almost 42 percent five years earlier.

The rate for blacks reached almost 50 percent in the second quarter of 2004 from about 43 percent in 1995, Census Bureau data show. By the second quarter of this year, it had dropped to 42.9 percent. The rate for whites fell to 73.3 percent in the second quarter, from 76.2 percent in 2004.

The good news: the projection suggests the bottom is about 64 percent. The bad news: there are still plenty of people caught in the foreclosure pipeline. This is a reminder that foreclosures aren’t just about people having to leave their current home; it also gunks up the market far down the road.

See charts of the trends, with the latest 2013 2Q data, here.

HGTV surprised when it finds Americans willing to give up vacations to improve their home

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A recent survey by HGTV has some interesting findings regarding what Americans think about their homes:

The collapse of the housing market in 2008 may have put a check on the “the McMansion” era, but HGTV’s first HomePulse Survey finds that consumers still hanker for more space in their homes.

Home improvement remains a priority, with 61% surveyed saying they would “choose to spend on their homes rather than on something else like a vacation or the latest electronics,” according to the research series commissioned by HGTV owner Scripps Networks Interactive and Vision Critical.

Adding to the overall square footage of their home is a top priority. More women (31%) are interested in updating their décor than men (17%). More men (19%) want to improve their in-home technology than women (3%). One in three of the 1,010 panelists surveyed said creating “a beautiful outdoor space” is extremely important to them.

“We expected the ‘HGTV HomePulse Survey’ to confirm that people love their homes and are willing to spend money to improve them, but we didn’t expect that they would be willing to give up something as important as a vacation to do it,” said Denise Conroy, senior vice president, marketing, HGTV.

Some 81% said “money spent on improving my home will show a good return,” and 66% felt “now is a good time to invest in my home.”

Overall, this suggests Americans are willing to continue to sacrifice for homeownership (though I would like to see more specifics about other priorities). This reminds me of an idea in the New Urbanist book Suburban Nation: Americans have a superior private realm within their homes and it appears they want to keep it that way.

It would be helpful to see more about the interest in adding square footage. Making an addition is not an easy or cheap thing to do. It might be simply easier to move to a bigger home but this is more difficult to do in a depressed housing market. An outdoor living space might help the home feel bigger without actually adding anything. Perhaps this indicates HGTV needs even more shows about how to maximize the existing square footage and make use of all the possibilities.

If you are curious, HGTV says it trickle out more results from the survey.