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| Should you buy? Many
Americans often base their decision on whether to buy or rent on how
long they will live there, but they predictably understate the chance
that they will be forced to move because of a job loss or divorce |
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 this 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 per cent 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.
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It's time we make homeownership just one alternative in a more innovative, affordable and broader housing market.
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Many people also
still rely on outdated measures in deciding whether to buy or rent.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 stabilisation programme 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.
We are a country still in the thrall of homeownership.
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 per cent of houses
on the market sold at a loss.
But in Boston, which had a
larger price correction, 45 per cent of houses sold in 1993 and 1994
sold at a loss. Worse still, 69 per cent 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 now 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.
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 programmes that aggregate ownership of
properties, especially two- to four-unit ones, in the hands of
non-profits 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 per cent 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. -- LAT-WP
The writer is executive director of the Joint Center for Housing Studies at Harvard University.