Tuesday, April 16, 2013
Another housing boom? N-o-o-o!
Housing starts are now inching up. Mortgages are easier to obtain. Even the "piggyback loan" has returned. That lets you take two mortgages at the same time and get around having to buy mortgage insurance when borrowing more than 80 percent of a home's value.
"Housing Is Back!" hollers the cover of Money magazine.
And time to lock up friends and relatives with short memories. While we're at it, let's lock up the government and its compulsion to push homeownership.
Note that Fannie Mae and Freddie Mac still subsidize the financial industry with taxpayer-backed guarantees on mortgages -- in the name of turning more Americans into homebuyers, of course. The housing meltdown exposed their systemic flaws, leaving you-know-who to bail them out.
Last year, the liberal-leaning Urban Institute came out with a truly awful plan to help struggling young people buy a home. It would expand the federal government's Housing Choice voucher program to include homebuyers.
Housing Choice now gives low-income people vouchers to help them pay rent. It's a good program. But handing out vouchers to buy homes?
The Urban Institute explains: The housing bust caused many first-time buyers to lose their homes. It also created a potentially good market for new homebuyers.
"In many ways," its report says, "this represents the worst of all worlds for these families: a 'buy high, sell low, but don't buy low' prescription ..."
But if you can now buy low, and still can't afford a home, perhaps you should be renting.
The authors, not without reason, point to an unfairness: Big housing subsidies, such as the mortgage interest deduction, favor the upper incomes. They are correct. Over half this benefit goes to households making at least $100,000.
So let's phase out the mortgage-interest deduction. One foolish government subsidy should not beget another.
Also off-base is the authors' claim that by not owning homes, young people are hurting their ability to accumulate wealth. True, paying off a mortgage is a form of forced savings. Also true, this monthly task could redirect family income that might otherwise be frittered on fun.
Housing isn't the only place to put one's savings, however. A study from the Federal Reserve Bank of Kansas City found that for 10-year occupancies started during most of the 1980s, renting and investing generally built more wealth than homeownership. That would definitely apply to the housing bubble years. Stocks are now hitting new highs, while most home prices remain below their 2006 peak.
Whether homeownership is a good investment, of course, depends on when you start. And who can predict real estate values over the long term? For too many Americans of modest means, the home has become the only investment. It's never a good idea to put all one's capital in the same place. As they say, diversify, diversify.
Yale economist and real estate specialist Robert Shiller has done his own calculations. In this country, houses historically appreciate at about 1 percent over inflation. A simple investment in the Standard & Poor's 500 surpasses inflation by over 6 points.
In good times and bad, the soundest investment advice must be heard over the bullhorns of the American Dream marketing machine. "They're not making land anymore," the promoters still say. Well, they weren't making land in 2008.
The emotional pull of homeownership is undeniable. The question remains, how much is freedom to choose one's doorknobs worth to us?
With the weather warming up and puppies bouncing outdoors, dreams of owning a house -- or owning a bigger one -- are uniting with dreams of lots more money. In most cases, the choice is really one or the other.
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