Tag Archives: homeownership

Holding a McMansion mortgage limits your American freedom and liberty

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Here is another argument why you should not own a McMansion: it limits your ability to be a free American.

Want to sever from your body an arm and a leg in the name of the American Dream? It’s certainly at odds with what the dream is supposed to be about. If the idioms ‘freedom’ and ‘liberty’ still reign supreme in the minds of Americans, a mortgage on a single family McMansion is losing its shine.

The lifestyle manufactured by the burbs lacks the luster it once held. Working incessantly to maintain payments on your suburban box and pay for gas to drive EVERYWHERE is less desirable for those who have the luxury of choice in today’s America…

I recently visited a very well planned subdivision. It had a small row of shops, a park, lots of trees and wonderfully manicured lawns as far as the eye could see. It felt false. It felt like the neighborhood committee was the Joneses that enforced the keeping up. In older neighborhoods there are intermittent shops, bars, community halls, schools and houses of all shapes and sizes. Some neighbors are house-proud and commit themselves to a fine garden and home. Others have bottomed out station wagon in their front yard. The lots are different sizes. The houses have assorted kitsch, architectural details. There are old people who have lived there since the Great Depression.

It’s time for an organic refit of those suburbs that reek of bland mass-market ideals. They come from a time that was most certainly thrown overboard in the 2009 housing crisis. Surely, the frugality that was thrust upon us can manifest itself in creativity!

I interpret this argument as an updated version of a decades-old suburban critique. First, the old part of this critique which was quite common in the 1950s. Living in the suburbs stifles your creativity and ability to innovate. This is because all of the houses look the same, everyone has to drive, the zoning only allows for one use at a time, and conformity is encouraged. In this view, you can’t really be an individual in the suburbs because the environment pushes everyone to be the same.

The updated part of this argument is that owning a single-family home may not be worth the cost. For the last 100 years or so, the United States in both policy and culture has pushed homeownership and its ties to individualism and being part of the middle-class. But, taking on a big mortgage limits your options. Indeed, even conservatives like Dave Ramsey might agree with this critique as there has been an increase in advice to avoid taking on unnecessary debt.

In the end, I suspect this argument hinges on what you consider American freedom to be. Is it the “right” to get ahead and purchase a nice home in the suburbs where you can raise a family? Or is it the “right” to be an individual outside of the mass market and mass society and enjoy and contribute to vibrant communities?

National Association of Realtors commercial in support of tax incentives for homeowners

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The National Association of Realtors is running a new television commercial supporting tax incentives for homeowners. Here is the money line toward the end of the advertisement:

The National Association of Realtors supports maintaining homeowner tax incentives, because they make homeownership more affordable for more families.

There had been talk in the last few years about getting rid of the mortgage interest deduction (see an example here during the fiscal cliff negotiations) but I haven’t heard anything more recently. Is the National Association of Realtors trying to get out in front of this possible issue?

It is interesting how the ad plays on some common themes of American homeownership such as the home as a castle and that kids should feel safe at home instead of having to worry about whether it is affordable. Who exactly is the evil dragon in this ad – banks? Government officials? Putting kids out in front here is a smart move – who wants to deny children a nice home that their parents own?

Replacing the “master” in master bedroom

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The term master bedroom is falling out of favor in the Washington D.C. area:

A survey of 10 major Washington, D.C.-area homebuilders found that six no longer use the term “master” in their floor plans to describe the largest bedroom in the house. They have replaced it with “owner’s suite” or “owner’s bedroom” or, in one case, “mastre bedroom.”

Why? In large part for exactly the reason you would think: “Master” has connotation problems, in gender (it skews toward male) and race (the slave-master).

Enter the owner’s suite…

Winchester, Pulte Homes, NV Homes and Ryan Homes (both under the NVR Inc. umbrella), Van Metre Cos. and D.R. Horton Inc. have all replaced “master” in their floor plans, some more recently than others…

Over time, “master” will be filtered out entirely, he said. The change is “just working through the industry, and finally, bingo, we got it.”

Randy Creaser, owner of D.C.’s Creaser/O’Brien Architects PC, said he ditched “master” in the early 1990s in his home designs. He vaguely recalled a few lawsuits brought against builders over the phrase. Pulte spokeswoman Valerie Dolenga said Pulte made the shift maybe three or four years ago.

How long will it take to get through the entire industry? This clearly hasn’t reached HGTV yet…

More young couples buying a home together before getting married

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Buying a home together before getting married is becoming more popular:

Now, the results of a soon-to-be-released survey from Coldwell Banker indicate that today’s young couples are also more likely to buy homes together before marriage. Nearly one-quarter (24%) of polled married couples ages 18 to 34 said that they purchased a home before they were married. Among married couples ages 45 and up, just 14% said that they bought a house together before tying the knot. Couples in the Northeast stand out as particularly likely to buy real estate before getting hitched: Just 60% in the survey waited until marriage to purchase a home, compared to 72% in the tradition-minded South, where people tend to marry younger (and therefore, poorer).

In a phone interview, Dr. Robi Ludwig, a psychotherapist and Coldwell Banker’s official “lifestyle correspondent,” said that buying a home together has become “the new engagement ring” for some young couples. They’re committing to purchasing real estate as a couple regardless of whether they’ve set a wedding date. Some even forego lavish weddings and honeymoons in order to cover the down payment and a chunk of the mortgage. “Millennials have a very pragmatic state of mind,” said Ludwig. “They know that they have an opportunity here, with low mortgage rates and low housing prices. And they think, ‘We’re moving toward marriage anyway, so let’s buy.’ It makes sense.”…

For young people who are in committed relationships and interested in homeownership, Ludwig said that the benefits associated with shopping for a home together go well beyond the prospect of owning property. While considering the very big step of buying a house, couples are forced to deal with exactly the kinds of issues that they should discuss before marriage. “When purchasing a home, there is a need to be transparent on many levels,” said Ludwig. “You must be upfront with your partner, and you also have to get real honest with yourself.” It’s possible to get married without actually knowing how much money your wife earns, or how much credit card debt your husband accrued in college. Salaries, debt, and more are all on the table when the time comes to get a mortgage, however.

Couples also must obviously figure out where they want to live, and envision how long they’re likely to live there. Even topics like how many kids you want to have come up—because that will factor in to the location, size, and style of home you buy. “It’s easy for couples to not think or talk about these things,” said Ludwig, “but they’re forced to once mortgages and banks are involved.”

This seems like an extra-expensive way to learn about each other before marriage. But, it does fit with a narrative that couples should be economically secure before getting married. Plus, couples do need a place to live…

Housing markets could benefit from Latinos who want to buy their first homes

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The executive director of the National Association of Hispanic Real Estate Professionals says many Latinos want to purchase homes:

Q: Your report (“The State of Hispanic Homeownership” at NAHREP.org), assembles data from a number of private and governmental sources, and contends that the number of Hispanic homeowners has grown to 6.69 million in 2012 from 4.24 million in 2000 and that they represented 51 percent of the total net increase of 694,000 owner-households in the United States in 2012. Considering the nation’s economic circumstances, that sounds pretty good. Yet, you say they’re facing head winds?

A: Even to our surprise, Hispanic homeowners seem to be very resilient, especially coming off the (housing) crisis. Affordability is at an all-time high and a lot of Hispanics have jumped into the market recently. Some of the biggest factors in this are household formation, income trends and overall consumer confidence. They’re forming households at a faster rate than the general population. If you look at the market of Hispanic households, they’re much more likely to be made up of a husband and wife with children, (an arrangement that’s) much more aligned with the purchase of a home.

But there are a couple of major barriers to this trend continuing, and though difficulty in accessing mortgage credit is an important one, even more important right now is the lack of inventory of houses for sale…

The fulfillment of this scenario of Hispanics being a dominant force in future homebuying will require the industry to be able to adapt to cultural nuances. And basically, NAHREP is saying the industry isn’t there yet. Twelve years ago, when we started this organization, we were selling a vision that few people bought into. It’s not really like that anymore — the major players in housing now understand, or are starting to understand, how important the Latino market is.But there are nuances to working with the Hispanic market — there’s language, of course, and the likelihood of so-called “thin” credit files (that limit access to mortgages) within a culture where having debt is not a desirable thing.

The housing market could benefit from such a reservoir of buyers. For example, those baby boomers who want to unload their homes in the near future may just want to access possible Latino buyers. Plus, the one cited figure above seems to suggest that some of the uptick in housing in the country can be attributed to Latinos. But, assuming different groups in the United States want to or perhaps more importantly can, given the wealth differences in the United States, purchase homes is not a given. There are still big gaps in homeownership rates by race and ethnicity.

It would be interesting to hear how real estate agents and others in the real estate industry are really adjusting their methods for potential Latino customers.

Will Baby Boomers be able to sell their houses?

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We may be nearing the “Great Senior Sell-Off” where Baby Boomers want to sell their homes but there may not be enough younger people to buy them:

In the coming years, baby boomers will be moving on (inching further through the python, if you will). “They will want to sell their homes, and they’re hoping there are people behind them to buy their homes,” says Nelson, director of the Metropolitan Research Center at the University of Utah. He expects that in growing metros like Atlanta and Dallas, those buyers will be waiting. But elsewhere, in shrinking and stagnant cities across the country, the story will be quite different. Nelson calls what’s coming the “great senior sell-off.” It’ll start sometime later this decade (Nelson is defining baby boomers as those people born between 1946 and 1964). And he predicts that it could cause our next real housing crisis.

“Ok, if there’s 1.5 to 2 million homes coming on the market every year at the end of this decade from senior households selling off,” Nelson asks, “who’s behind them to buy? My guess is not enough.”…

A vast majority of today’s households with children still want such houses, Nelson says. But about a quarter of them want something else, like condos and urban townhouses. That demand “used to be almost zero percent, and if it’s now 25 percent,” Nelson says, “that’s a small share of the market but a huge shift in the market.” And this is half of the reason why many baby boomers may not find buyers for their homes. “Even if the numbers matched,” Nelson says, “the preferences don’t.”

Demographics will further complicate this picture. We’re moving toward a future in America when minorities will become the majority. But given entrenched educational achievement gaps, particularly for the fast-growing Hispanic population, Nelson fears that the U.S. is not doing a good job educating the “new majority” to make the kinds of incomes that will be required to buy the homes we’ve already built.

A number of commentators have argued we may be on the verge of this with younger generations have less interest in owning a home. I haven’t seen an argument about the demographic angle before but it is also intriguing.

The article also hints that this phenomenon might not be evenly spread across the United States. What happens to exurban locations as Baby Boomers and others desire more urban locations? What happens to communities with bigger homes that people no longer want? While these sorts of problems in the United States have been localized in places like Detroit, this could become a bigger issue.

This may be a larger problem involving more people than Baby Boomers. What if a county or society makes a rapid switch away from homeownership and toward renting? What happens to that existing housing stock?

You can get a no-money-down mortgage – if you are really wealthy and put your investments up as collateral

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No-money-down mortgages have been blamed for helping bring about the recent economic crisis but they can still be obtained – if you have the assets to obtain one.

It’s 100% financing—the same strategy that pushed many homeowners into foreclosure during the housing bust. Banks say these loans are safer: They’re almost exclusively being offered to clients with sizable assets, and they often require two forms of collateral—the house and a portion of the client’s investment portfolio in lieu of a traditional cash down payment.

In most cases, borrowers end up with one loan and one monthly payment. Depending on the lender and the borrower, roughly 60% to 80% of the loan can be pegged to the home’s value while the remaining 20% to 40% can be secured by investments. On a $2 million primary residence, for instance, the borrower could get a $2 million loan, which would require a pledge of assets in an investment portfolio to cover what could have been, say, a $500,000 down payment. The pledged assets can remain fully invested, earning returns as normal, without disrupting the client’s investment goals.

While these affluent clients may be flush with cash, this strategy allows them to get into a home without tying up funds or making withdrawals from interest-earning accounts. And given the market’s gains combined with low borrowing rates in recent years, some banks say clients are pursuing 100% financing as an arbitrage play—where the return on their investments is bigger than the rate they pay on the loan, which can be as low as 2.5%. Some institutions offer only adjustable rates with these loans, which could become more expensive if rates rise. In most cases, the investment account must be held by the same institution that’s providing the loan.

These loans also provide tax benefits. Since borrowers don’t have to liquidate their investment portfolios to get financing, they can avoid the capital-gains tax. And in some cases, they can still tap into the mortgage-interest deduction. (Borrowers can usually deduct interest payments on up to $1 million of mortgage debt.)

Theoretically, this is how no-money-down mortgages could work since only signing up wealthier clients helps limit the losses a bank might incur if they default on the mortgage. Yet, it also sounds like another financial option that is only available to the wealthy who might even be able to make money by taking out a non-money-down mortgage. In other words, is this something that only helps the rich get richer (and possibly bigger houses)?

When banks say these loans are safer, how much safer? I suspect part of the safety of these mortgages is that there are relatively few new ones being offered to wealthy Americans. It would be interesting to hear about some cases where this has worked out well or not worked out as planned.

PulteGroup says majority of Americans want equal size or bigger homes

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A spokeswoman for PulteGroup says data they collected shows a majority of American homeowners want equal size or bigger homes in the future:

Across all demographics, the millennials (age 28 and younger), Generation Xers (born from the early 1960s through the early ’80s) and baby boomers (born 1946 through the early ’60s) said they want their next house to be the same size or larger. An overwhelming majority, 84 percent of homeowners ages 18 to 59, said they don’t intend to downsize.Larger homes are what people dream of. People told us they yearn for large spaces, for large backyards and big patio spaces. Large closets. A nice master suite. They yearn for large kitchens, oversized mudrooms. No, I don’t think the McMansion is dead. People want that square footage…

They want to maximize the use of every nook and cranny. They expressed a strong desire for homes that are designed in such a way as to make them feel organized. They want smart use of the space. Take those bigger mudrooms, for example. They’ve come to be called the owner’s entry, off the garage, and though they may contain the laundry equipment, they’re also places to stay organized — they’re drop zones for the laptop or the kids’ backpacks and all that other stuff we carry in through the garage…

Only 28 percent of those ages 55 to 59 said they want their next home to be smaller.

One reason for this is that they have a lot of stuff, and they don’t want to let go of all that stuff. And stuff has to have a place to go. In our Del Webb properties (for residents 55 and older), we’ve installed fixed stairways from the garage into the attic, instead of the rope that pulls down stairs to the attic, because it’s safer for the homeowners — they want that unused attic space for their stuff. We call it a storage loft.

Summary: Americans want big yet organized homes, partly to hold all of their stuff. Of course, matching the dream for the big home to economic realities might be more difficult.

I’m also a bit curious about the demographics of this study. Is it a nationally representative sample?

Real estate firm survey: younger Americans still want to own a home

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Even though a number of commentators have suggested younger Americans are not as interested in homeownership, a recent survey conducted by “Better Homes & Garden real estate brand” suggests this may not be the case:

Nearly all of them said they were willing to adjust their lifestyles to save for a home. Sixty-two percent said they’d eat out less. Forty percent said they’d work a second job. And 23 percent said they’d move back home with their parents to save money — they’re being strategic about saving money to own a home.

They also said that all of the media coverage of the housing crisis has taught them the importance of doing their research and planning, and they think they’re more knowledgeable about the process than their parents were at their age. But they want to be ready to own — 69 percent said that someone is ready to buy if they can maintain their lifestyle (while owning), and 61 percent agreed that the “readiness indicator” is if they have a secure job.

And even if these younger adults do want to own a home, the real estate industry has to be ready to appeal to this group:

Well, as an industry and certainly as a brand, we’d have to step up our campaign to show young buyers the importance of real estate as a long-term investment and lifestyle.

On a related note, something else also drove us to do this survey: the big disconnect in the average age of a first-time buyer (36), versus the average age of a real estate agent (56). This younger generation of buyers’ habits are different — they’re comfortable using technology, especially mobile devices, to buy and track everything, and agents need to learn this.

Several things are interesting here. First, it appears a good number of younger Americans do want a home but they are also more aware of what it will take to make it happen. If homeownership is such a big investment, younger Americans want to do their homework to know what they are getting into. This could mean that fewer people in this group will buy a home until they find a more “perfect” situation which might decrease the homeownership rate but it could also mean that those who buy a home are more committed.

Second, it is suggested that the real estate industry needs to stay relevant in the era of the Internet. Traditionally, real estate agents are necessary people in the middle who have expertise that the average homeowner would not have. But, potential homebuyers have much more information at their fingertips and if more people are selling their own homes, the real estate industry needs to continually show what extra value it offers. Also, this article hints at the aging of real estate agents: is this a desirable job for young people to pursue? If you look at a table of occupational prestige in the United States, real estate agent is at the bottom.

I wonder if the story for younger Americans and homeownership will be a bifurcated one based on socioeconomic status. Those with higher education and good jobs will continue to buy homes. Those who don’t have college degrees and/or struggle to find a good job may not have the option to do so.

Response to economic crisis: Irish government cutting support of homeownership

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A conference on housing in Ireland suggests the Irish government is reversing course and will no longer be supporting homeownership:

STATE SUPPORT for the principle of home ownership is at an end after almost 100 years, a national housing conference has heard.

Encouraging people to buy their homes had been seen by the State as a social good, as well as an economic one, but there was now a definite shift in policy, UCD sociology professor Tony Fahey said.

Tenant purchase schemes were dying out and local authorities were no longer offering loans to private buyers. The policy now is households need to be assisted by the State if they can’t afford to rent, not if they can’t afford to buy.

“It had been an article of faith for almost 100 years that home ownership was a social good and should be supported by the State . . . The historic roll the State played in putting up capital for housing won’t be repeated.”

Americans tend to think we are a nation of homeowners but there are several countries that have higher rates of homeownership. Ireland is one such country:

The highest home ownership is in Romania (96pc), followed by Lithuania (91pc), Hungary (89pc), Slovakia (89pc), Estonia (87pc), Latvia (87pc), Bulgaria (87pc), Norway (85pc), Iceland (84pc), Spain (83pc), Slovenia (81pc), Malta (79pc), Czech Republic (77pc) and Greece (76pc).

Ireland comes in at 73.7pc, while 70pc of people in the UK own their own homes.

Irish home ownership levels have dropped from a high of 79pc in the 1990s to just short of 74pc at the start of this century, according to a new book on the economy, ‘Sins Of The Father’ by Conor McCabe.

Ireland is now facing the consequences of a burst housing bubble in the last few years.

While Ireland is facing their own issues, I wonder if the US government might make a similar shift or at least pull back from supporting homeownership through public policy and government rhetoric. Thus far, it doesn’t look like this has happened much. But, if the mortgage interest deduction disappears and/or younger Americans continued to avoid buying homes, perhaps things could change quite a bit here as well.

However, even if the policies changed, this doesn’t necessarily mean the cultural value of homeownership will change quickly.