For roughly 65% of Americans, owning a home means you've realized the American Dream. Everyone has a vision of living on that picturesque tree-lined street with quaint homes and neatly manicured lawns. That's what my generation, at least, was taught to aspire to, and there's nothing at all wrong with that. If you have a young family (or nowadays grandkids living with you), or have a constant stream of out-of-town friends who come to visit, or if you just want bragging rights among your circle of friends, then by all means enjoy your American Dream home.
But frankly, home ownership isn't what it used to be. Things change, people change, and circumstances change. We were told owning a home brought with it huge tax benefits, and it still does....for about a third of us. Sixty five percent of us own homes, and of those, half either have mortgages with so little balance left (or no mortgage at all) they miss out on the tax break.
Many people naively think when they get their house paid for they'll be living virtually free. Hardly! In my area just the property taxes and homeowners insurance can easily be $1,000 a month on a middle class home. Speaking of....yes, you can make a handsome profit due to appreciation, at least on paper, but the tax collector wants his money RIGHT NOW! Rapidly increasing taxes are forcing some homeowners out of the homes they've lived in for decades.
Then there are the maintenance and repair costs. Yikes! Here in North Texas we used to have one damaging hail storm every seven years, on average. Now we're having them yearly, including one just last night that will keep insurance adjusters and roofers busy for the next year. Homes still need painting, and HVAC systems and water heaters and appliances still need to be repaired/replaced. Carpets need to be cleaned and/or replaced, too, and wood floors need refinishing.
And of course there's the lawn maintenance. *cringe* And here in termite country, those little bastards will eat your house out from under you if you don't stay ahead of 'em. Oh, and "updating". Remember that old fuzzy wallpaper? Ewww. Even if those old harvest gold appliances still work, they went out of style back in the Nixon administration. Get out your wallet.
Even though my credit is primo and the banks say I can easily qualify for a modest home loan, I'm just not feeling it. Years ago we parked ourselves in a nice apartment while I looked for a small lot to build a new home on. It didn't take long to realize renting was actually, for me/us, a good alternative to owning. I've had good neighbors (an OB/GYN, a respiratory therapist, a Realtor, etc), my car is in a secure, gated, concrete parking garage and safe from the weather (hail), and the mechanical units are somebody else's maintenance problem. And every few years when a newer, nicer community opens up, I'm free to move.
True, my rent goes up a bit yearly, but no more than my taxes would go up if I owned. I feel no need to build a home to accommodate my furniture (I have no family heirlooms), I don't need a 3rd or 4th or 5th bedroom, and I jettisoned my ego years ago.
There will always be quality builders and Realtors to cater to the 65% who want to be homeowners, but there's a lot to be said for nice upscale apartments, too. The empty nester, downsized lifestyle is actually pretty sweet. :)
S
As we've already established in my last post, the financiers (da banks) had been given the government go-ahead to essentially do whatever they wanted, with the regulators asleep at the wheel. Here's where the plot thickens:
For years prospective homebuyers went to a mortgage originator in their area for a loan, typically a small independent storefront operation or a bank or Savings and Loan. The loan was made to a credit-worthy buyer, the loan company made a fee for their service rendered, and the loan was sold to Fannie Mae or Freddie Mac. (These were government spin-off companies who had implied government backing.) Fannie/Freddie would in turn pay back the local mortgage originator who would loan it again, make another fee, and sell it, too, to Fannie/Freddie, on and on. Fannie/Freddie would bundle these and sell them to investors world-wide who were anxious to own rock-solid investments in the can't-lose American housing market.
By the early 90's there arose a scheme by Fannie/Freddie and the politicians (of BOTH parties) to expand the number of people who owned a piece of "The American Dream". The financiers made money off the deal, and the politicians gained votes back home, claiming they were the ones who were bettering peoples lives. Now given a regulatory green-light, the banks wanted in too. (Fannie/Freddie had limits on the dollar value of the homes they could buy. The banks didn't.) The word went out to the loan originators to make more loans and the banks would buy them. Before long all credit-worthy people who wanted a house had a house, so they lowered the qualifications for credit, income, etc to bring more buyers in. The loan originators pretty much looked the other way on everything because they made lots of up-front money to get loans signed and on to the banks. They didn't care if the loans were no good because by the time the buyers defaulted they were way down the line and were somebody else's problem.
At the same time the bankers were hiring brilliant mathematicians to play with the numbers. Instead of packaging and selling 100 homes to investors, why not slice each home loan into a thousand pieces, then sell each investor 1% of 10,000 houses from all over the country? Investors love diversification. It also made it easier to slip in some of those sub-prime loans (buyers with poorer quality credit). Actually a lot of those sub-prime loans. Heck, why not bundle home loans with some commercial business loans, too. More diversification...yea! Everything was bundled with everything...the banks became very creative! Foreign banks saw what was going on and jumped in, too. Ireland, the UK, and Spain among others had large property bubbles also. Things just took off.
But to make this work investors wanted assurance that these extremely difficult to understand CDO's (Collateralized Debt Obligations, the homes being the collateral) were as safe as they sounded. The banks took each new bundle (called a tranche) they put together to the rating agencies, primarily Standard and Poors, Moody's, and Fitch, and had them look them over. Problem was, this was a new concept and there was no historical data to refer to, so the raters made up new, and as it turned out flawed, mathematical formulas. They forgot to include the possibility the value of homes might actually go down. Oops! And there was massive conflict of interest, too. The ratings agencies were paid by the banks whose CDO's they were rating (standard practice), and there were lots of CDO's. With millions of dollars in fees on the line, the raters pretty much said whatever the banks wanted them to say. Virtually everything was rated "investment grade".
We now have irrefutable evidence that the bankers knew they were peddling investments destined to fail. But as they were making hundreds of BILLIONS of dollars in fees for their banks and hundreds of millions of dollars in commissions for themselves, they weren't about to stop. Greed rules! Eventually homeowners began defaulting in droves, things began to fall apart, and investors stopped buying new CDO's. Banks were caught holding hundreds of billions of dollars worth of flawed (fraudlent?) loans not yet sliced, diced, repackaged, and sold off. Many were broke and were forced by the government almost at gunpoint to merge with other banks that were only slightly better off themselves. To shore things up the government stepped in and "loaned" them hundreds of billions of taxpayer dollars to tide them over. The mess is still being unwound today.
There was taxpayer outrage of course, so Congress feigned innocence and vowed to slap down the bad 'ol bankers (but of course they still take their calls and their campaign contributions). Investigations were done, new laws have been written, and the bankers are working their lobbyists overtime right now to shoot the new laws full of loopholes. Not a lot has actually changed. Crazy speculation is still going on as evidenced by the failure of MF Global last year and JP Morgan Chase's loss of billions of dollars just last month. We never seem to learn.
S
As always, factual constructive criticism would be appreciated. If I've erred on something please speak up.
Over lunch recently my brother and I were discussing current events, mainly the budget deficit and the cuts being contemplated to reduce it. We agreed that Big Business had a stranglehold on Congress, getting pretty much what they wanted in the way of tax breaks, special deductions, regulatory loopholes, etc. We should do away with things such as subsidies to very profitable companies who could easily fund their own R&D on what was likely to be even more highly profitable technologies, subsidies to agribusiness, and so forth.
But then I said (and remember, bro and I are custom homebuilders) the government should begin phasing out the home mortgage interest deduction. Whoa! It was like somebody farted in church. "How dare you! That's MY deduction", he said. "Why would anyone own a house if they didn't get their deduction?" I asked if, when he got his last house paid for, he suddenly didn't want it anymore? *silence*
And that's the problem. Everyone wants everyone else to give up their special breaks, but they don't want to give up their own.
Back to my example: [I believe] the US is the only industrialized nation who still offers a home mortgage interest deduction. The idea was to promote home ownership, but I contend it's now "the American Dream" and doesn't need promoting any longer. In fact, you'd be surprised how many homes sold today are purchased with cash. By paying cash buyers don't get a tax write-off, but they're buying anyway.
Australia phased out their similar deduction years ago and ownership remained steady at around 65%, the same as it is here. Remember several decades ago when the interest deduction on auto loans and consumer loans was phased out? Did we stop buying cars without the interest deduction? Of course not. Did we stop using our credit cards because we couldn't write off the interest we paid MasterCard any longer? Hahaha. Hardly!
It's going to be painful, but we ALL need to wean ourselves off of our special deductions and start paying enough in to cover what we're paying out. Sorry rich folks, but that means you, too.
S
