By Eric S. Belsky, Special to Los Angeles Times, 11/16/2009
http://www.statesman.com/opinion/content/editorial/stories/2009/11/16/1116belsky_edit.html

Here's a radical notion: Let's rethink the cult of homeownership in America.

Why, a sensible person might ask, do we need to do this when millions of homeowners faced foreclosure in the last year alone, and an estimated 15 million more own homes worth less than their mortgages?

Clearly, one might conclude, the bloom is already off the homeownership rose.

The answer is simple. Even in the middle of the collapse, when people were asked about their expectations for house price appreciation over the next year, the answers shock.

Zillow.com reports that at the end of 2008, with prices falling, 70 percent of those surveyed said they did not think their house price would decline over the next six months, and more than a quarter expected it to actually increase.

About the photo: Sales incentives buried in the mortgage could amount to mortgage fraud. ("Do you want a FREE Mercedes S-class with that house? How about we pay off all of your credit cards?") Such incentives artificially inflate appraised home prices, and those prices are used as "comps" when appraising other property. So not only is the buyer hurt, but so are the neighbors and ultimately the economy. See YouTube video.

Many people still rely on outdated measures in deciding whether to buy or rent. For example, they often base the decision to own on how long they will be in a home. But people predictably understate the chance that they will be forced to move because of a job loss, divorce, death of a spouse or disability. Furthermore, the focus of efforts under the federal national stabilization program to deal with foreclosures is to recycle them back into the hands of homeowners or, in the case of small, multi-unit apartment buildings, resident landlord/owners.

The U.S. is a country that is still in the thrall of homeownership.

HOT: Even after the economic crisis, our Government still promotes homeownership with incentives that include a homebuyer tax credit, mortgage interest deduction, zero-down and low interest loans, seller-paid closing costs, and taxpayer-backed loan guarantees. The banks don't much care if buyers have little skin in the game and might default if they get in trouble, because the loans are guaranteed and Wall Street can still sell mortgage-based derivatives with little to no regulatory oversight.

Nearly a decade ago, a colleague and I edited a book about the promotion of low-income homeownership, with the subtitle "Examining the Unexamined Goal." Study after study pointed out the risks of homeownership. One used repeat sales data to look at what properties bought from 1982 through 1999 sold for in Boston, Denver, Philadelphia and Chicago. In Chicago — which never had much price fluctuation, even in 1995, its worst year — only 9 percent of houses on the market sold at a loss. But in Boston, which had a larger price correction, 45 percent of houses sold in 1993 and 1994 sold at a loss. Worse still, 69 percent of houses in Denver sold in 1988 and 1989 sold at a loss.

In places such as Los Angeles, which was not part of the study but where house prices cycle a great deal, high percentages of owners during periods of decline have had to hand the keys back to their lenders to get out of underwater mortgages, or fork over a lot of cash at the closing table when they sold.

Ironically, to some people, owning may make more sense today than when housing markets were booming. After all, chances are greater that people will buy at or near the bottom.

But should Americans assume that homeownership is always the right choice?

We should spend as much time thinking about how public policy can encourage intelligent housing choices as we have thinking about how it can encourage intelligent mortgage choices. The choice to own or rent comes first.

HOT: It's hard to know if today's low home prices make this a good buying opportunity or if an echo-bubble will cause prices to fall more. That aside, people at risk of losing their job or who are already unemployed should consider the flexibility of renting and easily moving to exploit job opportunities elsewhere. Those few people who have secure jobs in steady industries with enough money for a down payment, however, may want to buy while interest rates are at historic lows as a hedge against inflation. But know that sellers have already added an $8,000 premium to the selling price because of the federal tax credit.

Let's assume that the way to get out from underneath the weight of foreclosures is to not let speculators and homeowners at risk of falling behind again roll the dice.

Let's instead consider programs that aggregate ownership of properties, especially two- to four-unit ones, in the hands of nonprofits that can rent them out. These small complexes are estimated to account for up to two in five foreclosures. It might make more sense to get these properties into the hands of nonprofits that own many properties, so that a single rental vacancy constitutes the loss of only a small fraction of rental income. By contrast, one vacancy could constitute up to 100 percent of the rental income needed to make the mortgage payment for a resident/owner of a single small property, making that a less stable investment.

It's time we make homeownership just one alternative in a more innovative, affordable and broader housing market.

Belsky is executive director of the Joint Center for Housing Studies at Harvard University.

READER COMMENTS:

Homeowners of Texas wrote:
Thanks for the article. Homebuilders, realtors and mortgage companies pushed Congress to pass an extension to the tax credit "to help the economy," but they’re just lining their own pockets at taxpayer expense. Sales gimmicks like free trips, cars or furniture that sweeten the deal and get buried into the mortgage amount to mortgage fraud and hurt everyone but the seller. They artificially inflate the property’s real value – and the value of “comparable” homes in the neighborhood. That’s the message of this video: http://www.youtube.com/watch?v=c5AFMXRdDyc.

wake up peeeeple wrote:
Because owning a home is being treated as some sort of God-given, constitutional right there are people buying houses that have no business owning one. Some of these people are so irresponsible that they have no business owning so much as a cat or a dog. As a small-time slumlord I should know, I used to rent houses to some of them.

Paddleshad wrote:
Home ownership is not a "right"... I am looking at the two foreclosures across the street from me here in San Antonio. Both owned by illegials who never had jobs! We all bought in 2006 and now, thanks to them, our home is worth $23,000 less that we paid for it. We bought with a fixed-rate, within our means, and pay early every month. The problem is that none of these so-called helpful gov't programs do anything for us. We haven't lived in the house five years and already know we need to sell in the spring for a job move. How can you sell if you need $40,000 cash to close??? I think next year will be a catastrophe in housing; people will always pick a job over a home. Folks will mail in keys.

TexBob wrote:
Get government out of the home ownership. Chris Dodd and Barney Frank along with corrupt ACORN are the cause of this since they forced banks to give loans to people who should have never bought a house.

HOT: Don't blame ACORN. Banks weren't FORCED to give loans, although many took the incentives that conservative banks ignored. It was the builders, realtors and mortgage bankers that promoted homeownership. They are the ones that pushed Congress to repeal of the Glass-Steagall Act and allow builders to own mortgage companies or banks to sell derivatives. And they were the same ones to push for a homebuyer tax credit.