Not Everyone Deserves to Own a Home

September 30th, 2008 categories: Home Buyers, Real Estate Market

Amidst all the coverage on the bailout bill, I can’t help but think about what got us here in the first place.

I don’t want to discuss the legislative or regulatory failures because there are plenty of people out there doing a much better job than I ever could. Read Barron’s A Memo Found in the Street for example.

I think the crisis is much simpler than that and a direct result of the flawed belief that everyone deserves to own a home and certainly the flawed practices by government and businesses to promote the heck out of homeownership as the attainment of the American Dream.

Prior to 2008, Realtors, mortgage lenders and elected officials alike (see Business Week’s article on the Clinton administration’s National Homeownership Strategy) reveled in the glory of record homeownership levels - 69% at the peak in 2004-2006 - and made every attempt to make homeownership easier via 100% downpayment programs, tax breaks and lax lending standards (see Wall Street Journal article from 2005 Mortgage Lenders Loosen Standards - note that they mention Countrywide and Washington Mutual). I, too, am guilty of the above.

The chart below is courtesy of Hoover Institution:

I won’t deny that homeownership is very fulfilling and can be financially rewarding.

A Joint Center on Housing Studies report in 2001 reviews studies that show that homeownership has many positive effects on society but also predicts that making homeownership more accessible may have the unintended consequences of increased rates of foreclosure which would be more detrimental to society.

“Public policy that encourages homeownership has often been justified by claims that it has a variety of benefits both to both individuals and to society. Considerable, although not irrefutable, evidence exists for several of those claims. Given these benefits, there is justification for public policies that encourage and support homeownership.

The research on the impacts of homeownership also suggests that these benefits may not accrue to all homeowners. The possibility of these negative impacts suggests that those involved in promoting homeownership should be careful not to oversell homeownership, particularly among those who are less likely to be successful homeowners.

Recent public policy has been focused on making homeownership available to lower-income families. Although this is clearly an important and worthy goal, not everyone is capable of becoming a successful homeowner. Homeownership counseling may help lower-income homebuyers be successful homeowners, but at this point there is very little research evidence on this topic. Caution should be exercised in encouraging homeownership among those with a relatively low probability of success. Encouraging persons to buy homes that they end up losing would do them a great disservice.”

But the reality is that many people aren’t financially, physically or emotionally capable or responsible enough to own real estate.

Merriam-Webster’s Online Dictionary defines the word “deserve” as follows:

“to be worthy, fit, or suitable for some reward or requital”

It’s time that we return to the belief that homeownership is a reward for hard work.

Rather than making it easier for people to buy homes by lowering the bar, how about we try to help people reach the bar by promoting saving for a downpayment, promoting good credit behavior, or talking about alternate entries to the market such as buying a multi-family.

For related posts:

It’s Those Mortgage Guidelines, Stupid

The New Housing Bill’s Impact on Home Buyers

Just How Did We Get Into This Mortgage Mess?