home ownership?

[Lany Freelove Cassandra]

A comment in the OWS thread just kind of hit me the wrong way. "Canada didn't push home ownership the way the US did" (or something close to that)

Maybe I am being a little bit dense (I am medicated today), but I don't understand those saying home ownership is a bad thing. (not talking about debt)

Everyone has to live somewhere, yes? So more people should rent? But someone has to own that home right? It seems to me that with fewer people owning a lot more property, this would create an even greater disparity of wealth. yes?

Now the market going crazy and prices skyrocketing and the bad loans are a different subject. I am just talking about the idea of home ownership as a way of decreasing wealth disparity. That this, in and of itself, is not a bad thing. I just think it was gone about in a dangerous way.

So does home ownership help spread the wealth (or decrease the disparity of it)?

Is there a better way to go about it?

[Mlle. Zabzie]

I do think there is a bit of fetishism in America (and probably in other Western cultures, though I can't speak to it) about owning real property (the name itself is evocative). I think it's buried deep in the national (sub)consciousness that land ownership is an important part of being (a) prosperous and (B) an active member of society. That is, there was a time when, say, voting, was tied to land ownership. Events in American history about such as the settlement of Oklahoma (which has all kinds of other problems, but let's leave them aside) or the constant push west in search of affordable land show how deeply land ownership has sunk into the national narrative about itself. I think we also still think of ourselves, sometimes, as an agrarian society where, of course, land ownership is paramount.

But I don't think there's anything wrong with home ownership, per se. I just think it has been fetishized.

[Fez]

Well land, even more then the houses built on them, is the one thing that will always have worth and so long as there is population growth will eventually increase in value. That makes it a good investment for everyone and therefore yes is a way to spread wealth. As for the houses on the land; so long as basically everything that happened in the lead-up to 2007 doesn't happen, it is worthwhile for many people to own houses, if they want to. (I don't).

Incidentally this is also why a land value tax is so attractive. You can't hide land or what's around it, you can't move it oversees, and you can't abandon it.

Oh and there may have been encouragement to own in the US but it didn't do much. The US housing rate, pre-recession, was 68.8%. By comparison in Canada it was 68.4%, in Australia it was 69.8%, and in the UK it was 70%.

[Tormund Ukrainesbane]

Homeownership is neither good or bad.

Government distortion of the market is bad and leads to unintended consequences, like bubbles that burst and crash the world economy. Massive subsidies (both direct subsidies by way of mortgage interest deduction, and indirect subsidies such as FNMA/FHLMC backing) have conspired to put homes into the hands of people who could not afford them in a market system. This distorts pricing and encourages malinvestment.

Housing costs should (still!) be much lower than they are, but aren't because demand is (still!) being artificially inflated via Wall St/Washington collusion.

You don't even want to know how many millions of dollars of foreclosed real estate the banks (and via Fannie/Freddie, the Federal Government) are sitting on but not selling to keep the market high.

[buy one get one free]

I do think there is a bit of fetishism in America (and probably in other Western cultures, though I can't speak to it) about owning real property (the name itself is evocative).

Why, land is the only thing in the world worth workin' for, worth fightin' for, worth dyin' for, because it's the only thing that lasts.

[TerraPrime]

I think in the context you speak of, Lany, the idea is not that owning homes is wrong or bad, but that people whose income:debt ratio probably should have stopped them from being able to afford a home, if not for government programs that act as guarantees for these people. This created a mortgage market that artificially hid the risks of these loans, and in combination of the Wall Street sectors earning huge amounts of profit from derivitizing these mortgages, led to the housing bubble.

As for the concept itself, I'd say that it is equally alive and well in Hong Kong and now, China. The ability to own property is quite desirable. In Hong Kong, at least, where real estate is almost an extravagance, owning property can become a lifelong dream. My aunt and her husband, for instance, worked for 35 years to own a condo, and that has been their life goals (in addition to send my cousins overseas for college). I'd say that's a very similar attitude as some that I had encountered in the U.S.

If you want a quintessential U.S. obsession, try cars and guns.

[Tammy]

I agree, I don't think that it's necessarily that people who want to own homes is viewed as a bad thing, but those who can't afford to own homes shouldn't.

Some people don't understand the financial obligation in owning a home, and others bought homes far outside their means in an attempt to have the biggest and the best out there. Add in an artificially inflated value market and that's a cause for disaster.

My sister bought a home a few years ago, and while she can afford said home she wasn't prepared for everything beyond her mortgage: the insurance, the taxes, the air conditioner and dish washer that had to be replaced and so on and so forth.

A lot of people are so stuck in this idea that they have to buy a home, that they don't prepare for these things or buy a home within their means so that they can take care of these things, and then the trouble starts hitting. It doesn't help that some unscrupulous sellers were promising these unlucky and uninformed buyers that their interest was only going to decrease and therefore the cost of their monthly mortgage wouldn't start skyrocketing when they knew perfectly well it would.

I think that owning a home is still considered an important value, but I think many people are scared away from the recent issues that it will take a while before more people start to invest once again.

[Swordfish]

Indeed. The core principle is that owning a home as a stable residence is still desirable if you engage in the decision with prudence.

buying a home as an INVESTMENT? Generally a bad idea.

Buying a home (or any other multi hundred thousand dollar item) that you can't afford? Always a bad idea.

[Just a peasant]

Boston is still too expensive for me to buy anywhere near the city. 4 times my income will not buy me anything but a shed. I will be a renter for some time.

I would love to own a home. I guess that generally owning a home is seen as a good thing. Not owning a home = failure in some way but I see it as I did not buy something way overpriced to be in trouble now and am better off.

[Swordfish]

Another plus (potentially) to long term home ownership is that you more or less lock in your housing costs.

of course, in order to benefit from that, you have to be buying a residence that you plan to stay in for the long term.

[Fez]

Another plus (potentially) to long term home ownership is that you more or less lock in your housing costs.

of course, in order to benefit from that, you have to be buying a residence that you plan to stay in for the long term.

That only works if there is a property tax cap though. Otherwise you never know what might happen. Particularly if your school district is suffering from state and federal education cuts.

[Former Lord of Winterfell]

A comment in the OWS thread just kind of hit me the wrong way. "Canada didn't push home ownership the way the US did" (or something close to that)

Oh crap. I did it again, did I?

Maybe I am being a little bit dense (I am medicated today), but I don't understand those saying home ownership is a bad thing. (not talking about debt)

For the government to push home ownership via cheaper than market rate loans is a bad thing, for all the reasons Tormund said. Including making homes more expensive, btw.

However, owning a home you can afford is a great thing.

Now the market going crazy and prices skyrocketing and the bad loans are a different subject. I am just talking about the idea of home ownership as a way of decreasing wealth disparity. That this, in and of itself, is not a bad thing. I just think it was gone about in a dangerous way.

I guess I'd say that there isn't any way for the government to push it that isn't dangerous. People will still build houses, and other people will still buy them, even if the government isn't subsidizing loans.

[Shryke]

I think in the context you speak of, Lany, the idea is not that owning homes is wrong or bad, but that people whose income:debt ratio probably should have stopped them from being able to afford a home, if not for government programs that act as guarantees for these people. This created a mortgage market that artificially hid the risks of these loans, and in combination of the Wall Street sectors earning huge amounts of profit from derivitizing these mortgages, led to the housing bubble.

To bring this up from the OWS thread: No

The private sector created the bubble by lowering lending standards in a desperate attempt to sell more mortgage . They offloaded the risk on to each other which is the whole reason the US is in the shit right now.

And because they needed more mortgages to pass on as financial products (and to make commission/bonuses), they lowered their standards. Which further inflates prices, making the shitty loans they are already handing out even bigger to pay for the now inflated price of housing.

Again, Fannie/Freddie non-conforming loans did and are doing pretty well. http://www.ritholtz.com/blog/2011/07/why-wallison-is-wrong-about-the-genesis-of-the-u-s-housing-crisis/

Anyone telling you Fannie/Freddie caused the housing bubble is full of shit.

Anyway, housing is a pretty good investment for the average person as long as you think of it as a long-term one. And as long as you make sure the people giving other people the money they need to buy those houses aren't able to divest themselves of the risk.

[CloudFlare]

You don't even want to know how many billions of dollars of foreclosed real estate the banks (and via Fannie/Freddie, the Federal Government) are sitting on but not selling to keep the market high.

FTFY.

[Swordfish]

That only works if there is a property tax cap though. Otherwise you never know what might happen. Particularly if your school district is suffering from state and federal education cuts.

True.

Although i believe most places do have caps on increases.

[CloudFlare]

So does home ownership help spread the wealth (or decrease the disparity of it)?

Is there a better way to go about it?

Home ownership generally increases wealth for those who are prudent. In the olden days(pre-1995 or so) you slowly built equity with each monthly payment. There are trade offs though. You have to be able to make your payment each month, you're locked into your locale, you have other responsibilities(HOA, upkeep, fees, taxes) and you need to have the resources to be able to withstand a hit to your income.

During the bubble, a lot of loans got made to people who didn't have the ability to meet these requirements. The problems got papered over due to the rising prices, but as soon as that stopped, the shit hit the fan.

Edit: As for spreading the wealth, I'd like to see a tighter labor market, particularly on the bottom, to increase wages.

[litechick]

Why, land is the only thing in the world worth workin' for, worth fightin' for, worth dyin' for, because it's the only thing that lasts.

No Pa! Don't jump the fence! [screams]

[Tormund Ukrainesbane]

Anyone telling you Fannie/Freddie caused the housing bubble is full of shit.

Or ya, know, it's something they have intimate experience with because they do it every day, and are doing it even as they type this (although my conference call with Fannie isn't til tomorrow and Freddie isn't 'til the day after). My company has hardly written a loan in the last 5 years that wasn't sold to Fannie/Freddie before the ink was even dry. I can assure you the same is true for the other large banks as well. Think on this. We knew Fannie/Freddie would buy them. Where was our risk? It was non-existent. Fannie/Freddie in their turn knew that the Feds would cover their losses, should they get any ($160 billion and counting!).

Anyway, housing is a pretty good investment for the average person as long as you think of it as a long-term one. And as long as you make sure the people giving other people the money they need to buy those houses aren't able to divest themselves of the risk.

No it isn't. The total borrowing cost of a $150,000 mortgage @ 5.0% over 360 months is about $300,000. The bank is making double their investment off you. Not counting, taxes, insurance, and maintenance. Those are terrible numbers to invest under, what's you're return? After 30 years and $300,000 (more like $450K when you include ins/tax/maint) you end up with a house worth...$200,000? Maybe $250,000?

[The Anti-Targ]

IMO what's important from a wealth point of view is not living in the home you own. If the house you own is a business (i.e. you rent it out) then the expenses and the interest you pay are tax deductable.

Owning the house you live in is not a recipe for wealth creation or reducing the wealth disparity. My very good friend became a millionaire starting out with $4000. He did it by educating himself about the share market and learning as much as he could about the companies in which he was considering investing. Over the last 15 years he owned a house for all of about 10 months (under duress from his wife). He will live in his own home one day, but he'll pay cash and own it freehold from day 1. That's the way to do it: create your wealth outside of home ownership and only buy your home when you can afford to do it without getting into debt. He still sees that as an unwise money pit, but it appeases the wife which is an investment with a lot of value all its own. Investment advisers all pretty much say the same thing: if you want to grow your wealth don't buy your own home, invest elswhere, but make sure you invest wisely and with knowledge (i.e. don't invest blindly in managed investment schemes run by investment companies like IGN, those sorts of managed funds often have worse returns than home ownership); if you do want to buy your own home, just realise that you are not really doing so as an investment strategy. I had $16,000 saved up at one point. Unfortunately I blew it all on stuff and getting prepared to buy my own house. I am not a millionnaire and I'm living under the yoke of a mortgage. I'm only lately coming into sharemarket investment so it's going to take until I retire to really build up a sizeable portfolio.

As an asset it is one lowest for generating returns. It is a non-productive asset, i.e. you don't make anything with it, unlike owning a farm or market garden. And the interest you pay over the life of your mortgage negates a huge proprotion of the capital gain. You are better off finding a cheaper place to rent and invest the difference in productive assets that give you a better return.

There are positive elements to owning the house you live in, but they are not financial.

Almost no one gets wealthy through the sweat of their own brow. The only way to really get wealthy is through making money off the sweat of other people's brows. That means buying assets that gain returns from other people's hard work: buying your own business and employing people; investing in company shares; owning rental properties (other people working and paying you rent). or to put it more euphamistically: take the money you earn and put it out to work through productive investment.

[Swordfish]

Or ya, know, it's something they have intimate experience with because they do it every day, and are doing it even as they type this (although my conference call with Fannie isn't til tomorrow and Freddie isn't 'til the day after). My company has hardly written a loan in the last 5 years that wasn't sold to Fannie/Freddie before the ink was even dry. I can assure you the same is true for the other large banks as well. Think on this. We knew Fannie/Freddie would buy them. Where was our risk? It was non-existent. Fannie/Freddie in their turn knew that the Feds would cover their losses, should they get any ($160 billion and counting!). No it isn't. The total borrowing cost of a $150,000 mortgage @ 5.0% over 360 months is about $300,000. The bank is making double their investment off you. Not counting, taxes, insurance, and maintenance. Those are terrible numbers to invest under, what's you're return? After 30 years and $300,000 (more like $450K when you include ins/tax/maint) you end up with a house worth...$200,000? Maybe $250,000?

True. But you would have been paying rent that whole time anyway, and there is the mortgage deduction, so it's not QUITE that simple of an equation.