New Feudalism: Does Home Ownership Have a Future?

iStock_000003349402XSmall.jpg

In mid August, as we were beginning to feel a pulse in the nation’s housing market, an academician and housing expert from the University of Pennsylvania named Thomas J. Sugrue wrote an article in the Wall Street Journal proposing that, for many people, the new American Dream should be renting.

Sugrue is writing a book on the history of real estate in America, a tome I cannot wait to read because it will apparently illustrate how epic events in our nation’s history have shaped and molded our real estate market, hence our lives. He quotes builder William Levitt, considered the father of affordable suburban mass housing, saying “no man who owns his own house and lot can be a Communist.”

That was said during the Cold War and McCarthy era: Levitt was marketing his wares, playing off the public’s fears like any good salesman. And for many politicians – from Herbert Hoover to Bill Clinton and George W. Bush – expanding ownership of homes remained critical to the nation’s identity.
But is all this changing? The Obama Administration seems at best ambivalent about homeownership. It seems determined to put more resources into rental housing while promulgating policies that may coerce Americans out of the suburban single family homes and back into dense, multifamily urban housing.

This would mark a major change in what we usually consider the American dream. Enabling home ownership is like crack cocaine for politicians: the impetus for the Great Recession of 2008 may well have been formed on the day President Bill Clinton launched National Homeownership Day in 1995. And I remember sitting terrified in front of the television post 9/11 when President George W. Bush reassured us that America was strong and would recover. Our housing market is strong, he said, a theme that would echo throughout his presidency. Seeing two by fours go up and mortar flying gave Americans a sense of calm, of rebuilding.

The attacks of 9/11 almost brought down our economy. The housing market helped prop it up.

Most of us still love our homes. Sugrue quotes a Pew survey that faintly echoes the national health care debate: nine out of ten homeowners view their homes as a comfort in their lives. He seems to argue we should change everything for ten percent. To be sure, as he suggests, for some home ownership has become a source of panic and despair: 53,000 people packing a Save the Dream fair at Atlanta’s World Congress Center. Georgia’s housing market has been hit hard – 338,411 homes went into foreclosure in May and June, 2009.

But it’s not just Georgia. Since the second quarter of 2006, housing values across the nation have plummeted to values roughly equivalent to post 9/11. We are not immune even here in Texas, with one of the nation’s strongest large state economies: our prices are soft, down anywhere from five to 20%, and buyers want deals. Go north to Little Elm; you might think you are in Atlanta. Homes may not be selling for thirty cents on the dollar as they are in Phoenix, but a house in the trophy community of University Park listed for $999,000 recently, sold in the mid $800s. The owner of a Preston Hollow mansion not too far from George W. Bush turned down a $38 million dollar offer two years ago, insulted. He recently sold his nine-plus acre property for $28 million.

And just one week ago I spoke with an Allen, Texas home builder who told me that current tough love lending standards were keeping a lot of people out of the jumbo market – that is, halting them from buying million dollar homes. When you have to put down 30%, he said, that’s $300,000 on a million dollar home. If homes are not appreciating, he said, smart people say, why do we want to tie up that much money in our homestead?

Yet we have been here before. Half of all U.S. mortgages were in default during The Great Depression, although it’s true far fewer people owned homes. This is when Herbert Hoover and Franklin Roosevelt created government programs to help save homeowners from foreclosure. I remember my grandmother telling me how Mr. Roosevelt saved her home in 1932 – she voted Democratic in every election because of it until the day she died in 1966. In 1938, Fannie Mae was created to buy mortgages on the secondary market, an effort to stimulate credit.

After World War II, when the government made home loans accessible for thousands of GIs returning from the wars, home ownership rates climbed like the staircases in a suburban colonial. Now more than two-thirds of Americans own their homes.

The government’s role in shaping this industry has been pretty explicit. Government programs gave us those first FHA loans that got many of us on the housing track, out to the suburbs, allowing people to leave more congested, and often dangerous, inner cities. Government is the hand that keeps the mortgage industry in motion, like a giant conveyor belt of money. But the hand might be pushing us where we shouldn’t go.

This is certainly true for many in the communities traditionally underserved in the housing market. The government tried to fix this through creation of the Department of Housing and Urban Development, and by pushing Fannie Mae to underwrite loans to “riskier” buyers. The result: in 2006, Sugrue writes, almost 53% of blacks and more than 47% of Hispanics got sub-prime mortgages.

Those were the loans that were packaged to spread the risk, and sold off as securities. Very lucrative for banks, who always make out like bandits either way, our federal government stood in the background as a silent backer. An appraiser I interviewed recently told me that Fannie Mae will now be ordering appraisals on loans before they buy them.

You mean, I said, they weren’t doing this before?

Then there’s the former sub-prime mortgage lender, now turned real estate agent. You, I scolded, how could you approve a school teacher for a loan on a $400,000 house? Shame on you. Well, he told me, if I would have denied her the loan, she could have come back at me for discrimination, or she would have just gone to someone else. So I made the loan and took my commission.

Yet for all this, I am bullish on home ownership. I think it gives homeowners a sense of security, a blanket of protection that may or may not be a mirage. Economists, who see the world in a “cash nexus”, do not understand this; planners, believing they know a better way, don’t realize that a rental apartment in a dense development does not usually provide our peaceful havens from the cruel world like a single family home or a townhouse that we have a stake in.

Homeownership may be precarious, but it does provide a greater sense of permanency for families and communities. Home ownership also stimulates the economy. Consumers never buy as much as they do the first few days in a new home – countless trips to Lowes, Home Depot, Bed, Bath & Beyond, the Container Store. A tenant or landlord may buy for their place, but perhaps never with the care and fervor that comes with homeownership. Apartments are built with, at the most, 30 year life spans. I’ve seen enough Section 8 housing to tell you – you don’t want to live in them at the end of their life-cycle. Apartments are considered temporary, places for people who are in transition or not really sure they are going to stay, one reason why they drive higher crime rates.

Homes are more permanent. Children thrive with structure and feel more secure coming home to a familiar place day after day. Children who live in homes score higher on standardized tests. They may eventually move from one home to another, but will always come back to it and show a friend – that is the house where I grew up.

Home ownership also forges financial security. Mortgages are like forced savings accounts. Pay your mortgage and in 30 years you’ll have an asset that could cushion your retirement. Either you will own your home outright, or you will have equity to supplement your income when you sell and downsize. The problems came when we started using our homes as slot machines or banks. Home equity lines of credit were illegal in Texas until 1997 as a consumer protection, and the banking industry led the charge to loosen that law with a constitutional amendment. In Texas, the total of all mortgage debt on your home (including HELOCs) is limited to 80% of the home’s fair market value, among other stipulations.

What we need now is not to move against homeownership but return to more basic fundamentals that seemed to work just fine for 50-plus years. The cost of a house should reflect more of people’s ability to pay. But do we want to be a nation of renters? My bet is no.

Candace Evans is the Editor of DallasDirt, a Dallas-based real estate blog for D Magazine Media Partners.



















Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.

new construction homes

This country has a bit of a love affair with new construction homes. The past few years have been marked by a construction boom of unmeasurable proportions. All across the country developments are springing up in any available space that developers can find and cities and towns are expanding at a rapid rate. With all the construction that is happening people assume that they should be able to get themselves a great deal on a new home without utilizing any sort of representation. Sometimes this is the case but on the average those who utilize the skills of a realtor to purchase their new construction home get better deals and are happier with their purchase when everything is said and done.
Bathroom Remodels

Owning a home is a dream

Owning a home is a dream that most of us still would like to keep alive. Yes are times when renting a home is more conveinent and affordable but owning a home is still be ultimate thing. I would like to read that book being written by Mr. Sugrue probably I would have a change of opinion too.

Micheal
Lake Conroe Real Estate

Sugrue quotes a Pew survey

Sugrue quotes a Pew survey that faintly echoes the national health care debate: nine out of ten homeowners view their homes as a comfort in their lives. Thanks.

The question of home

The question of home ownership aside, it is difficult to see how average working people can increase their savings rate when wage growth has been stagnant for three decades.

The ability to have dual

The ability to have dual incomes allow families to live in far more substantial homes than ever before, and have the luxury of coming home and arriving at a symbol of their hard work - the significant home being the reward - the American Dream of being successful at what you do.

Homes are more permanent.

Homes are more permanent. Children thrive with structure and feel more secure coming home to a familiar place day after day. Children who live in homes score higher on standardized tests. They may eventually move from one home to another, but will always come back to it and show a friend – that is the house where I grew up.

Hi

a dense development does not usually provide our peaceful havens from the cruel world like a single family home or a townhouse that we have a stake in.

I'm not really sure what

I'm not really sure what you're advocating for in this article. You seem to decry the ill-conceived government programs that subsidize homeownership on one hand, but on the other believe that since homeownership carries positive externalities that those programs should stay in place? Perhaps something could be done to curb the excesses of certain programs - i.e., the increasingly shoddy underwriting at FNMA and FHLC during the frothiest phase of the bubble. But during the boomtimes we saw how the integrity of checks and balances - not just GSE underwriting but appraiser independence, rating agency independence, and financial oversight on investment banks and their products - eroded as everyone got caught up in the easy money game. So the problem cannot be solved through some hand-waving over "returning to fundamentals". It's a difficult issue that requires us to look at the basic structure of the US homebuilding and mortgage industries, including all the special tax treatments, subsidies, regulations, and the developer-municipality relationship.

I'll also make a few other points:
It's a non-sequitur to say that Fannie's loosened underwriting standards led to 53% of blacks and 47% of latinos getting subprime loans. The relevant statistic is what percentage of those groups got subprime loans from fannie and freddie, and were foreclosed on.

Do you actually believe the subprime lender who told you he would be sued for discrimination if he denied the teacher a loan? As a former CRE lender, he is, frankly, full of it.

If you think that home furnishing spending stimulates the economy then you don't really understand the fungibility of money. If people weren't spending on granite countertops they would be spending their money on other things, or, better yet, saving it for retirement. It's not clear how home improvement spending is a higher and better use of resources than many other conceivable uses. Historically, as Robert Shiller has shown, homes are a bad investment if you expect any price appreciation. You're much better off putting your nest egg in a diversified basket of stocks and bonds. The ability of homeowners to use their equity as a retirement asset is a product of the recent bubble.

I think its very skewed (and insulting to apartment builders to boot) to take section 8 homes as representative of the potential quality of rental housing. I lived in a beautiful 1920s apartment in Baltimore with hardwood floors, intricate moldings and french doors. There is no reason that rental units can't be just as well-made as detached homes. In practice, maybe the reason for the inferiority of more recent rental stock is that government subsidies have ensured that most people with means choose its alternative. Plus, have you seen the shoddy quality of so many suburban homes? Drywall and particle board, through and through.

As for children living in homes scoring higher on standardized test scores, I guarantee that if you control for household income the housing tenure has no significant effect on educational outcomes. And when you cite the sentimental "refuge value" of homeownership, you are just substituting your own personal biases into the analysis, much as you accuse economists and planners of doing.

Buy vs. Rent

My first home cost me $14,500 in 1970, and at the time I had to get a raise to $3 an hour to qualify for the loan. Five years later my next home cost over twice that, but I also made double the income. As home values raised, so did salaries. In the 50's and 60's women stayed home to raise the kids. Today, not only do most wives work, but some make more than the husbands. The ability to have dual incomes allow families to live in far more substancial homes than ever before, and have the luxury of coming home and arriving at a symbol of their hard work - the significant home being the reward - the American Dream of being successful at what you do.

Until recently (the past decade) homes pretty much went up as earning power did... we entered dangerous territory when prices rose far above inflationary rates. The crash in the long run will be a good thing keeping home prices where they should have been to begin with.

Here is what the politicians and the planners simply don't get - you take away that American Dream of what a family can achieve and lower their expectations... why work hard to come home to Unit 607 in that 6 story mid-rise - if that is all that can be achieved... owned or rented.

Yes the suburbs are wasteful from a transportation standpoint, but even that is temporary - with the new Vehicle efficiency standards being mandated and the advent of new technologies (Volt, Fisker, Aptera, etc) pollution and energy concerns will fade away, leaving only commute time being a problem...

Just thoughts...

In addition

She also forgot to mention that the reason certain groups were underserved in the housing market, had nothing to do with credit but a historical truth which is the "great Levitt family" refused to sell to blacks! So while their efforts may have given some Americans a boost towards generations of home ownership the same was not extended to minorities.

Good writing, but

you ignored the reduced mobility factor that home ownership causes.
If everyone in Michigan were a renter, then many fewer people would be trapped there.

But, I will certainly agree with: "the basis [of the] Great Recession of 2008 may well have been formed on the day President Bill Clinton launched National Homeownership Day in 1995"

Dave Barnes
+1.303.744.9024
http://www.MarketingTactics.com

hi

Apartments are considered temporary, places for people who are in transition or not really sure they are going to stay, one reason why they drive higher crime rates.

hai

So I basically think in terms of risk management-which is why I harp on that so much in this category (not that anyone really notices, I'm just a bit player here who occasionally annoys other participants with my remarks) Now I'm just one person, so what I do and think might not matter to anyone outside of the people who depend on me-and if I didn't have family to take care of I might be a greedy, selfish individual who didn't care about anyone but myself. I'd like to think I wouldn't be, but who knows. What you or any other individual thinks or does might not truly matter in the greater scheme of things either...but collectively, we all have an impact on one another, right down to the individual level. For example, it doesn't matter much if one person drives a 12 mpg SUV-or 100 people do, for that matter...or even a thousand. If they can afford it, be my guest. But if enough people squander resources by massaging their egos by thinking encasing themselves in two and a half tons of metal and plastic makes them more powerful or cooler, that is a huge waste and if it raises the cost of gas at the pump where it cuts into my lifestyle, I get p****d.