Tag Archives: homeownership

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.

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.