Downsizing the American Dream

We towed a camper behind our station wagon and there just boys, no girls or dogs, but the picture below from this story about the history of home ownership in the U.S. in the Wall Street Journal weekend edition looks a lot like our family about 40 years ago.
It really is a cultural phenomenon, our love affair with owning a home we can call our own, though recent additions to the ranks of homeowners would surely disagree with this characterization (the "love affair" part, not the "cultural phenomenon").

Anyway, it's a great weekend read...

For most Americans, until the recent past, home ownership was a dream and the pile of rent receipts was the reality. From 1900, when the census first started gathering data on home ownership, through 1940, fewer than half of all Americans owned their own homes. Home ownership rates actually fell in three of the first four decades of the 20th century. But from that point on forward (with the exception of the 1980s, when interest rates were staggeringly high), the percentage of Americans living in owner-occupied homes marched steadily upward. Today more than two-thirds of Americans own their own homes. Among whites, more than 75% are homeowners today.

Yet the story of how the dream became a reality is not one of independence, self-sufficiency, and entrepreneurial pluck. It's not the story of the inexorable march of the free market. It's a different kind of American story, of government, financial regulation, and taxation.

We are a nation of homeowners and home-speculators because of Uncle Sam.

It wasn't until government stepped into the housing market, during that extraordinary moment of the Great Depression, that tenancy began its long downward spiral. Before the Crash, government played a minuscule role in housing Americans, other than building barracks and constructing temporary housing during wartime and, in a little noticed provision in the 1913 federal tax code, allowing for the deduction of home mortgage interest payments.

Until the early 20th century, holding a mortgage came with a stigma. You were a debtor, and chronic indebtedness was a problem to be avoided like too much drinking or gambling. The four words "keep out of debt" or "pay as you go" appeared in countless advice books. As the YMCA told its young charges, "If you can't pay, don't buy. Go without. Keep on going without." Because of that, many middle-class Americans—even those with a taste for single-family houses—rented. Home Sweet Home didn't lose its sweetness because someone else held the title.

In any case, mortgages were hard to come by. Lenders typically required 50% or more of the purchase price as a down payment. Interest rates were high and terms were short, usually just three to five years. In 1920, John Taylor Boyd Jr., an expert on real-estate finance, lamented that "increasing numbers of our people are finding home ownership too burdensome to attempt." As a result, there were two kinds of homeowners in the United States: working-class folks who built their own houses because they couldn't afford mortgages and the wealthy, who usually paid for their places outright.

It really has been a dramatic transformation in less than a hundred years and it's not like the concept of "being in debt" has changed during that time.

And like many other aspects of our financial world, the most profound changes have come in just the last couple decades, all of this somehow being passed off as progress and financial market "innovation".

Fast forward to this new era...

During the wild late 1990s and the first years of the new century, the dream of home ownership turned hallucinogenic. The home financing industry—at the impetus of the Clinton and Bush administrations—engaged in the biggest promotion of home ownership in decades. Both pushed for public-private partnerships, with HUD and the government-supported financiers like Fannie Mae serving as the mostly silent partners in a rapidly metastasizing mortgage market. New tools, including the securitization of mortgages and subprime lending, made it possible for more Americans than ever to live the dream or to gamble that someone else would pay them more to make their own dream come true. Anyone could be an investor, anyone could get rich. The notion of home-as-haven, already weak, grew even more and more removed from the notion of home-as-jackpot.

Yes, and it all ends badly.

It's still hard for me to understand why, as the housing bubble was reaching its maximum state of inflation, so few people saw this as one giant catastrophe waiting to happen.

In 2005, most politicians and economists were fretting over the "affordability crisis" rather than wondering if we were headed into the next Great Depression.

Comments

[whidbey]

You seem to misconceive the scope of this affordability/debt debacle,(it will go far beyond housing), its these effects we must concentrate on. We are about to witness a cultural divide that will threaten the nation. Generation against generation even within families.

This financial catastrophe will literally undermine the western life style including the basic requirements to live: food, medicine, transportation, education, child rearing, work life and retirement, All will be diminished in the debt storm and threaten to end not just housing - but our self respect, popular concepts of self worth,and decay the notion of duty to family and nation. Resentment will rule and become the wedge breaking up society.

Watch quality of life and moral standards fall as the good life slips for coming generations. This must remind us of the decline and fall of Rome because it has that potential if Congress continues its profligate behavior.

2009 Aug 16 07:26 PM

[Henry Buttal]

Perhaps Thomas Sugrues' book will be better than his article, as he grossly neglects a number of economic factors that led to an increase in home ownership from the late 50's on.

That was the rise of the professional home builder companies, like Fox & Jacobs, who began to use standardization and mass production to bring quality housing to a greater number of Americans. Thus, it was capitalism that actually improved the opportunity for home ownership, even in the face of a huge rise in population and immigration. In the last fifty years, think how many new communities have sprung up, and with them new municipal facilities and schools.

It was only in the last 10 years when ANYONE, thanks in large part to the policies of the United States Government (pick those reps you want to blame), could get approved for a house substantially larger and better equipped than ever before, with little or no money down. Irrespective of whether they could actually afford it.

Capitalism keyed the rise, and the politicos ignorance of economics and the realities of income distribution cause the fall.

2009 Aug 16 07:49 PM

[Mauiwalt]

The lust for "something for nothing" is heard in the present call for American socialized medicine and it is ignored as the cause of the big American housing and dot com collapse. A culture that promotes a boastful return on no effort whether in: the stock market, housing market or in a government run lottery or on a child's report card is headed for disaster. Natural law will extract its full penalty. Each of us that know the pain of breaking natural law should speak out against any undermining of the public debate by those that seek to ignore or replace natural law within our culture. Hard work produces goods and services that are as good as gold; all other quick rich schemes or income transfers are just a way to steal someone's effort, ideas or property.

2009 Aug 16 09:52 PM

[j-dub]

Thank you very much for the brief history lesson.
You seem to allude to a great depression at the end the article.
May I ask if that is where you think we, as a nation, are headed?
If so, do you believe we have any chance to avoid it?
Thank you, if you reply

2009 Aug 16 10:20 PM

[TeresaE]

Hard work also produces more things for our government to tax and regulate.

EVERY thing discourages work and encourages something for nothing.

I'm just sure it will turn out ok as we choose between electricity and food. Yeah, sure it will.


On Aug 16 09:52 PM Mauiwalt wrote:

> The lust for "something for nothing" is heard in the present call
> for American socialized medicine and it is ignored as the cause of
> the big American housing and dot com collapse. A culture that promotes
> a boastful return on no effort whether in: the stock market, housing
> market or in a government run lottery or on a child's report card
> is headed for disaster. Natural law will extract its full penalty.
> Each of us that know the pain of breaking natural law should speak
> out against any undermining of the public debate by those that seek
> to ignore or replace natural law within our culture. Hard work produces
> goods and services that are as good as gold; all other quick rich
> schemes or income transfers are just a way to steal someone's effort,
> ideas or property.

2009 Aug 17 09:51 AM

[TeresaE]

December 2006, NBC Today studios New York.

Barbara Cochrain (probably spelled wrong, and I don't care), Today's resident real estate "expert" (she is now their "job expert") was in full insanity mode.

Matt asked why the market was reversing, why sales were dropping, why in some markets prices were falling.

With a big smile, and backed my that idiot financial "expert" from the National Board of Realtors, she said, and I quote,

"this downturn is just a blip. there is NO WHERE for real estate to go but up."

So, if you listened to ANY of the experts, they set your ass up for failure.

Sure, buy a house you can't afford on an ARM. When the ARM comes due you can just roll it over to 30 year and probably even get yourself a check.

As always, when the government and the rich tell you it is good for you, the results show something very different.

2009 Aug 17 09:56 AM

[Zmartmoney]

The Fed-led easy money bubble greed of housing has screwed the pooch for a generation of would-be homeowners. If we ever get past this without a depression, it will be God's mercy, not man's intellect. We're too stupid to stop doing bad things to ourselves. It just goes to show that reading, writin', and 'rithmetic don't really get taught anymore. Our education system specializes in "Training." We train burger flippers and insurance salespersons (...?), and just about anything else - we just don't educate them. If we did, the people of this country would have already descended on Washington to rout the whole bunch out of there. Instead, we're waiting around for our "free" healthcare. If you are one of those persons, you are the problem we're talking about here.

Mauiwalt hit the nail on the head with:
"A culture that promotes a boastful return on no effort whether in: the stock market, housing market or in a government run lottery or on a child's report card is headed for disaster."

2009 Aug 17 03:14 PM