Safe as Houses?

Bradford Plumer has got a really thought-provoking post up questioning whether home-ownership really is the royal road to financial stability it has been touted as. The appeal of owning your own home is powerful. Part and parcel of the American dream. Perhaps as a result, a lot of resources are diverted to encourage home-ownership, without enough thought given to whether those measures go beyond increasing the number of Americans who owns homes and actually creates wealth for them.

The Bush administration, like its predecessor, has made a point of offering subsidized mortgages to low-income and especially minority families, which is a great idea in theory...[b]ut so long as homes remain unaffordable for 80 percent of all renters, including 21 million renters who couldn't get mortgages under even the loosest of underwriting standards, these sorts of policies will only go so far.

Lower-income families that can afford homes, meanwhile, often end up with units in need of costly repairs or are located in poor neighborhoods plagued by crime and unemployment. Not the best way to create wealth, obviously, or reduce the inequality and segregation[...] In Baltimore a few years ago, reporters discovered that homes basically falling apart were being "patched up" and sold to low-income families at inflated prices. In the South, 40 percent of low-income home-buyers were steered into trailer parks on leased land. Not to mention the fact that extending homeowner credit to low-income and/or minority neighborhoods usually opens the door to predatory lenders to walk on in.

Plus, it's not even clear that owning a home is always a fantastic wealth-enhancing strategy for low-income families. It's true that the median wealth of low-income homeowners is 12 times that of renters with similar incomes, and most of that comes from the home. But renters and owners tend to be very different people to begin with, at different stages of the life cycle, in different financial situations. How "good" of an investment owning a home is often depends on when an owner enters the market, how long it holds the property, local market conditions, etc. On the downside, some low-income families who buy a home can quickly find themselves assailed with all sorts of costs—insurance costs, property taxes, utility bills—and often borrow against the equity of their home in a financial pinch, erasing any wealth...It's troubling, for instance, that the percent of mortgage loans that end in foreclosure have risen from 1.24 in the 1990s to 1.46 these days—a potential sign that people are being steered into homes before they're ready. A truly progressive housing policy, perhaps, would increase the stock of affordable housing and help out low-income renters until they're ready to own a home. What we have now looks more like a policy primarily intended to benefit lenders—who, these days, depend on sub-prime loans to low-income families to maintain their profits—while slashing rental-assistance programs like Section 8.

It is conventional wisdom in America that your house is your family's most important asset. But in many respects the family home functions more as a liability, in the sense that it routinely causes cash outflows -- insurance, maintainance, tax, and mortgage. Yes, you are building equity with those outflows, as opposed to rent, and properties do appreciate in value. But you cannot completely realize that appreciation without selling, and thus obviating a large part of what made a owning a family home so attractive in the first place (its permanence), and if you choose to access that equity through a second mortgage, are you not basically paying over the odds to access your own savings?

Of course, if the the averaged monthly costs of buying and running a house is the same as the monthly costs of renting the same house and all that is preventing the purchase is the ability of the purchaser to put together a lump sum, then making mortgages more accessable to those purchasers makes sense. But what we're hearing more and more from professional investors in real estate is that it is no longer profitable to buy to rent because houses prices have gone through the roof, and they are buying purely to speculate on appreciation. If it's not profitable for professional managers to buy to rent, is it profitable for individual families to buy in order to avoid having to rent?

And I haven't even mentioned the B-word.