Home Ownership: The Ideal That Refuses to Die

Of all the Big Ideas which have been thoroughly discredited over the course of this crisis, arguably the biggest is the concept that homeownership is always and everywhere a Good Thing. As we've seen over the past couple of years, that's not at all the case: It can cause massive financial pain and suffering, and in places like Orange County and Miami there's a whole class of Smug Renters right now who somehow managed to dodge the homeownership bullet.

So you can imagine my surprise when I pulled up John McCain's lastest bailout plan and was confronted by its name: the Homeownership Resurgence Plan.

The last thing we need right now is a resurgence in homeownership. Too many people own their homes already, including a lot of families who really shouldn't. Let's start thinking in terms of affordable housing, and not in terms of home equity. But I guess I can't really expect too much along such lines from a man who has literally lost count of how many houses he owns.

(Earlier installments in this series are here, here, and here; also see Justin Fox, who charitably calls the McCain plan "half-baked".)

Comments

[Brice Timmons:]

Hmmm... my gut reaction is that this is the wrong place to lay blame, but I can see the validity of this point. Were I the central planner of the universe, I might think that home ownership was always a universal good *where it inversely correlated to mobility*.

Where persons are stable and have no tendency towards moving, home ownership seems to be an ideal situation. In this situation the utility value of the home combined with costs of moving and intangible personal value will tend to outstrip market value. Thus, there is less tendency toward speculation. Of course, how to determine this is the question.

2008 Oct 08 02:39 PM

[HARM:]

"The last thing we need right now is a resurgence in homeownership."

Uhhh.. point taken, but I think what you mean here is the ILLUSION of homeownership. If you take out a 107% LTV NINJA loan, you "own" *nothing*. In fact, you very likely owe more than the place is worth, as 16% of the country now does --and rising.

In any case, based on the personal testimonials published daily in the local RE propaganda rags (known as "newspapers"), it seems that (_gasp_) RENTING is a fate WORSE THAN DEATH for some people. Many FBs seem to feel that paying 3X rent for the same damned house is far preferable to renting and thus becoming an Untouchable / social leper.

2008 Oct 08 07:30 PM

[Paul E. Meisel:]

In a lot of markets, renting something suitable for a family with 3 teenagers and 3 dogs is just not even possible.....

2008 Oct 09 07:57 AM

[notsosmart:]

as long as people are taught that the roof over your head if you are not renting is not the atm machine it might make sense.teach people that a house is a liability & not an asset.it should be paid off as soon as possible(many interest $ saved) & no helocs,of course the financials are not interested in furthering this.they want as many loans as possible.i paid my 30 yr mortgage in 20 yrs.no helocs for me.i drive a 17 yr old car & my card debts are paid in full every month.my wife & i are retired on a very marginal almost fixed income but so far we sleep well at night.how to handle money is a big problem in this country. sad.

2008 Oct 09 10:28 AM

[Nick Gogerty:]

Home ownership saw govt. intervention on the way up and will see it on the way down....please mr. govt. stop helping the invisible hand.

2008 Oct 09 10:32 AM

[User 276148:]

If you need a house or a payday loan, seems like websites like www.fakepaycheckstubs.... can help you get any loan you apply for! Need proof of income? fake pay check stubs? fake paycheck stubs?

2008 Oct 09 10:59 AM

[Fabien Hug:]

Home ownership should be encouraged. We have some renters now in the houses where I live and it is not the same level of commitment.
However, home ownership is not a goal in itself and should not be shoved into people for ideological reasons.

2008 Oct 09 01:04 PM

[WAKEUP:]

I own my house, outight, now, having paid off a 30 year mortgage. Were it to do over, I would never have bought a house; it's been a never-ending battle, involving everything and everybody from maintenance people and maintenance bills, neighborhood groups who want to install "rules" for all homeowners, rising property insurance premiums, skyrocketing property taxes (please don't start, about how property taxes will fall -- they won't), battles over escrow accounts, etc. I recently worked up a very conservative estimate of what the financial results would have been if I had rented comparable housing, and invested the difference in any of several small businesses that I have run, over the years. Result: I would be AT LEAST $100,000 better off, net worth-wise, without the house.

2008 Oct 09 02:16 PM

[JRBH:]

Mr. Salmon's article reflects the equity marketeers bias against real estate. Every dollar in a home is a dollar lost to Wall Street. It is this very dilemma that led us to the mortgage backed security instruments that have cause the current malestrom.
Mr. Salmon also fails to understand that the greatness that is America is private ownership of property. Private property is the the singular necessary component of wealth creation. In addition home ownership tends to create community. Unlike Europe where for centuries land was owned only by the nobility and worked by serfs America from its first settling has been a land of freeholders.
John McCain's bailout offer is best described as loony. That said the old world model of a nation of tenants is not conducive to either liberty or self reliance. As long as average Americans can own property, primarily their own home we will not follow Europe into the fever swamps of collectivism.

2008 Oct 09 02:45 PM

[JasonC:]

More idiocy from the resident bear idiot.

A spade is a spade.

House *prices* got too high, house ownership is too low. There are too many houses built in the bubble standing vacant, and that means lost real services from capital, and risks total loss of said capital if the stand abandoned and go to seed. We need prices lower so people can afford mortgages at normal terms and stay current on them. There is nothing wrong with the ideal of homeownership. Never has been or will be. There was something wrong in house prices such that only 20% of the population could afford the median house. It was a bubble, it will be smashed. Then people can stay current on payments again, on lower principle values.

The only question along the way is whether we let the house price whipsaw destroy the banking system. Answer, no we shouldn't.

2008 Oct 09 03:50 PM

[rm:]

[The last thing we need right now is a resurgence in homeownership. ]

The last thing we need is either one of these candidates.

One thinks he's Santa Claus, and the other one doesn't know how to run a campaign, which disqualifies both.

2008 Oct 09 05:57 PM

[henarl:]

The point about the lender actually owning the house rather than the occupant is valid for a big percentage of home "owners". However, someone who feels that he "owns" his house will probably do a better job of maintaining and improving it. This will be better for his neighbors and the community as a whole. Those few home owners who have paid entirely for their homes (probably either the rich or the elderly) will also have more peace of mind against rent raises or eviction. This peace of mind and pride of ownership is the reward for the higher costs of ownership against renting. However, your home should never be considered as an "investment" to profit from. That is speculating.

2008 Oct 09 07:19 PM

[WAKEUP:]

TO henarl: Want to buy a very nice home, in very good neighborhood, at 20% less than its appraisal value? I've got one for you, if you have such heartfelt yearnings for home ownership. Then you can start down that very long road to paying off the mortgage (unless you're wealthy, of course, in which case you should welcome such an attractive deal.)

2008 Oct 09 09:33 PM

[Harry T:]

While this is definitely true, people have been succumbed into believing that by owning a house they will live a richer more fulfilling life.

My own parents were immigrants that came to this country 20+ years ago and have worked hard at their jobs in order to purchase a home and are still making their payments on this home. In fact, the payments may not be finished on the home until past their retirement age, yet they strive to make their payments in order to buy a home.

This ideology has been passed down to me, and while I am a renter now, I do strive to own a home one day, whether it means that I will continue to make the payments for my parents when they can no longer generate income and take over the home or go out and purchase a home of my own one day. Because isn't that what the selling point is? To be a homeowner means you can do to your home what you cannot do to another person's home. You can feel safe and comforting knowing that the landlord will not decide to sell the house one day, and also know that if you're not renting from an apartment you won't be subject to random inspections for "quality control".

I don't think that the fundamentals of home ownership are flawed. But the whole concept of lending money to people who cannot afford a home or cannot afford the home they wish to purchase is flawed. Many families are probably able to purchase a home, but a home cannot be a vehicle of investment, it isn't an ATM that can be used on a whim, and a home doesn't have future value until it is sold. So while there was a sellers market the past decade, it had to have been made clear a very important fact that a product whether it is a home, a car, a laptop, or canned tuna is only worth the price that someone else will pay for it. In those terms buying a home as an investment make absolutely no sense.

But there are those homeowners out there who wanted to buy a home and pay off the mortgage and live there, thing is some people got too euphoric about the kind of home they could buy when the money was flowing and bought up or out of their pay grade.

2008 Oct 10 01:44 AM

[Happy Renter:]

Agree with "not so smart" and "Harm" above. Husband and I have been renting a nice place for $1600 per month here in expensive eastern MA for some time. We got out of our owned house two years ago, and are amused by all the realtors who keep spinning variations of the "great time to buy" theme. Have even lost a friend over it. She is a realtor, and told us we were not loyal friends if we did not use her and buy, as she "really needed the money" and it "was so obviously a good move for us to buy".

POINT: Maybe home ownership is not so bad, but it matters what constitutes a "Home". Most of my friends who are in trouble over a mortgage they cannot handle bought GIGANTIC, new, bells and whistles homes. Granite, two-story foyer, huge windows, vaulted ceilings etc. The small ranches and capes of yesteryear are considered "cramped" and unfit. One friend who grew up in a modest cape recently laughed at me when I told her we were looking at homes that were ~2100 sq. ft. She said, "How could you possibly fit a family of four in there?" We had to get out of our 2000 sq/ ft. split because it was soooooo small." Funny how I never heard her mention that about her house growing up.

When I see the wide tracks of homes outside of Denver, I see how large they are, and how people have become to expect luxury as a right. Three bathrooms is not a right. Nor is granite or every child having their own bedroom.

2008 Oct 10 12:45 PM

[D. McHattie:]

Henarl, the belief that owners are somehow more responsible neighbours is NOT substantiated by fact. You are parrotting a myth that has been thoroughly discredited countless times by serious, impartial empirical research.

As a renter, I am actually more conscientious about the maintenance of my home because it is not me that is responsible for it. If the paint starts to peel or shingles come loose or there is anything wrong in any way you can bet I'm on the phone with my landlord to have it repaired. Homeowners, because they have to do the repairs themselves or pay for it themselves can be very slow to act.

Please read the article at the website that I have listed above - it was published by Fannie Mae way back in 1999 and debunks the longstanding and false ideology that homeowners are better neighbours, better citizens, better people, despite the countless government handouts we have given to homeowners throughout the years.

2008 Oct 10 01:12 PM

[jetsby10:]

Happy Renter, sounds like you had a pretty crappy friend. She would have been more justified just asking you to borrow $5000 rather than asking you to buy a friggin overpriced house so she can get a commission for doing nothing.

2008 Oct 10 01:29 PM

[john1:]

We need more patriots. Citizens need to stop asking how the government is representing them personally, and instead remember that TRUE patriots live to help their government. Remember the saying "ask not what your country can do for you, but what YOU can do for your country"? So whining, and go out and support Mr. Paulson - a TRUE patriot, who is trying to rescue our country from the forces of evil - and help Mr. Paulson by purchasing all the stock you can; stock in patriotic wholesome companies.

2008 Oct 10 01:33 PM

[bigbuilder13:]

Ownership of real property, a home or anything else, is simply a tool to meet a need. Needs differ and budgets differ. Renting and ownership have their place. The excessive emphasis on ownership was driven by the vested interests in selling real estate. This was enhanced by the recent history of easy money from appreciation. Finally, many people satisfy their ego needs by displaying wealth. Fancy houses were a way to do that.

All has now changed. We squandered trillions on "investments" that really were consumption. Now our capital is idle in assets that consume $$ and do not produce income (unless you rent out the spare bedrooms). That capital is lost. Now we must rebuild our capital in a productive way. To do that we must cut back.

Sadly, the politicians will say where we invest in the future. They will justify directing $$ into the sectors managed by those who give campaign contributions. But they will have a good cover story. And some call this a "free market".

2008 Oct 10 06:12 PM

[idiot:]

why don't we simply rebuild our manufacturing base?

2008 Oct 10 08:29 PM

[idiot:]

why don't we simply rebuild our manufacturing base?

2008 Oct 10 08:29 PM

[idiot:]

Why don't we just rebuild our manufacturing base?

2008 Oct 10 08:29 PM

[sickofthehype:]

Owning your home and making it the way you want is a great thing, don't knock it. But 'owning' a 100% financed gigantic tract home made in a month, is a joke.

Back in the day people raised families in 1,300 sf homes, but now people think they need 3,800 sf instead. I had the big home and can say - it's a joke - the bills are high, the furniture is expensive, and it's nothing we 'need'.

I now live in a 1,900 sf ranch home built in the 50's. Nice mature trees, brick construction, reclaimed hardwoods, and it's perfect. Two years ago I 'got back to the basics' and downsized to a more urban setting where my house is smaller, my commute is 1 mile to work, and my location is condusive to walking to restaurants, shops, etc.

Not that I am the oh-wise one here, but I think most of us need to re-think what we truly 'need'.

2008 Oct 11 07:28 PM

[from execut...:]

I agree with the poster above (user80210). The dream home I moved into with the thoughts of how lucky I was to own such a house had quickly lost it's appeal after the first few exhorbitant mortgage payments left my bank account. I was lucky enough to sell my home at close to what I bought it the year prior and found a sweet little trailer that I bought outright. It is comfortable and low stress. I know that my case was one of extremes, and most people won't go from a half million dollar home to a trailer, but I am glad I have. In this market, I can now sit with money in the bank and a smile on my face here in my cozy home, instead of being in the enormous, though gorgeous, house that brought with it the fear of forclosure after my business took a nose-dive. My two youngest children share a room and are closer for it. It's all about a change of perspective. My family is growing closer with values similar to those of yesteryear. Simplicity revisited.

I don't think it is a question of home ownership being the wrong time so much as taking a look at what we can REALLY afford. This market has been a reality check for so many of us. We need to reign in our spending again and stop being so materialistic. It is damaging society as a whole and we are now seeing the effects of buying beyond our means.

2008 Oct 14 02:05 AM

[SD_Rod:]

Actually, what we really need to do is to stop relying on mortgages. Mortgages are an outdated concept that was created at a time when people had a single reliable job for their entire lifetime. Then, mortgages made sense because you had income security. For most people, that is not the case these days. People end up changing jobs and even changing careers several times over their lifetimes. And it is not at all uncommon to have long periods of unemployment. Well under such circumstances, a mortgage is a SCAM! Not only is there a reasonable likelihood that you will be forced to sell your home, but under present day circumstances, it is highly likely that you will lose every single cent you put into it! In my mind, that constitutes fraud by the lending industry! I strongly urge people to stop taking out mortgages until such time that the lending industry comes up with a product that provides some protection to the consumer during periods of job loss or other financial stress. Better yet, save up the money to buy a home outright. If everybody did that, the prices of homes would by necessity become much more affordable ... and the mortgage industry would be out of business. More importantly, it would eliminate a lot of these boom and bust cycles that the bankers use to extract wealth from people.

2008 Oct 18 12:05 AM

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2008 Nov 02 07:30 PM