The National Association of Home Builders was quick this week to post a smackdown of Time Magazine’s September 6 cover story, “Rethinking Homeownership: Why Owning a Home May No Longer Make Economic Sense” (aka “The Case Against Homeownership”).
The article, by Barbara Kiviat, a longtime economics and business reporter for the magazine, acknowledges the importance of the housing market as an economic staple, but also suggests that homeownership has been idealized to the point that it drives unrealistic economic policies; avaricious behavior among homeowners, lenders, and the creators of investment products; and slow but steady degradation of neighborhoods devoted to the rental market.
“If there were a time to start weaning America off the idea that homeownership cures all our ills, now — after the worst housing crash in 75 years — would be it,” Kiviat writes.
Actually, the weaning seems pretty well underway. Plunging home values – and the virtually nonexistent lending requirements that prevailed until about two years ago – have distanced many people from the homes they formerly owned, in many cases through foreclosure. But NAHB went after a couple of the story’s core contentions – that the economic underpinnings of homeownership have eroded to the point where, for most people, renting may be the better option, and the federal government’s investment in homeownership through tax incentives and support for Fannie Mae and Freddie Mac should be modified in favor of other causes.
“Homeownership is not the monster under the bed here. It is the bulwark of our society,” responded NAHB Chairman Bob Jones. “Homeownership provides shelter and stability to tens of millions of Americans and their families as well as to countless communities and neighborhoods. Real estate taxes on owned homes are a prime component in local government budgets. Homeownership is by far the single largest creator of wealth for Americans. And, over the long term, real estate has consistently appreciated, even through periodic adjustments in local markets in response to economic conditions.”
A perspective on the search for market stability
The worthiness of homeownership as a personal and policy goal aside, the real concern remains the behavior of the market. On Wednesday, New York Times business columnist David Leonhardt drew on historical data to evaluate the bearishness of housing and the prospects for market stability.
Leonhardt presents two takes on the situation: one says that housing prices generally rise no faster than inflation, except for the period between 1970 and 2000, when prices kept pace with growth in household income; the other says that home prices almost kept pace with income growth, even in the three decades preceding 1970, when interest rates were low and the government introduced tax incentives for homeownership.
If the first view of the market is correct, then housing prices still have a long way to drop – some 30% – before they’re in line with the inflation curve and finally stabilize. If the second view is correct, housing prices might drop a little further but are almost back down to a level that puts them in line with the household income curve, which is to say the housing bubble has all but deflated and, if consumer confidence can be restored, prices will soon creep up again.
Leonhardt favors the latter take, noting that pre-1970 sales records and Census Bureau records indicate that home-price increases did indeed track closer to income levels than inflation. One of the biggest factors propelling home value increases over the past 70 years: rising land prices, reflecting the growing importance of the “location, location, location” real estate mantra.
“Sometime soon, prices should begin rising again,” Leonhardt writes. “They may not quite keep up with incomes, but they will probably outpace the price of food and clothing.”
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Conservatives these days oppose any government spending based on "we're just passing this debt on to the next generation, our children and grandchildren. What's the difference in what we have done in the last forty years with housing prices, each generation paying more and more for a basic commodity? And that commodity is now aging and energy inefficient. The government has spent money, such as the economic stimulus programs, gambling that when the economy recovers, they will be able to recapture those funds through increased economic activity and the taxes that will hopefully follow a recovery. Housing markets gamble that everyone will keep making more and more money to buy bigger and bigger houses, or smaller and more green. More green will be a trade off (price-wise) for space.
Fine Homebuilding, along with the rest of the country, touted over the top home improvements on it's pages the last dozen years, that have now given us an embarassement of riches in the midst of the worst housing market in my lifetime. I am 60 years old. Detroit did the same thing. Now monster trucks and monster homes sit unsold across the country.
Sustainability isn't just about energy or material consumption, it's also about economics. It has become apparent that our "live high on credit" lifestyle is also not sustainable. Did we really need to run the economy into the ditch to remember the lessons of our parents and grandparents? Getrichquickitis and convenience have made us a country of dullards at the poker table. Using our houses as chips on that table was a really bad idea.
Conservatives blame liberals for the mess at Fanny and Freddie saying that some were allowed to purchase homes that they really weren't qualified for. Liberals fire back that predatory lenders took their commissions and tents and stole back into the night. Now flocks of foreclosures have come home to roost. At the real heart of this mess is whole concept of credit.
After contemplating this tarbaby for the last year or so, I think I have maybe have a glimmer of hope for an old idea whose time may have come, cooperative housing corporations. If you don't know anything about housing co-ops, get online and check it out. It's a way that working people can began to build equity without the credit gymnastics of a mortgage and with only a little more credit information than would be necessary to rent. In the event of a default, no foreclosure and much less time than for a landlord to legally evict a deadbeat tenant. No closing costs, title search and title insurance are some reasons that this model is more sustainable. Better interest rates, utility rates, and corporate purchasing power for insurance, cable and for some, even food. This is probably a better way to deal with Senior housing, handicapped housing, disabled veterans housing and any number of other groups. Co-ops can be tailored in any number of ways.