No one-size-fits-all answer when it comes to whether to buy a house
There's reason to doubt whether widespread and expanding homeownership will be the foundation of the economy again, especially on par with the bubble years.
Special to The Seattle Times
I was on a panel last week at Town Hall Seattle to mark the launch of journalist Jane Hodges' new book "Rent vs. Own: A real estate reality check for navigating booms, busts and bad advice." When asked for a show of hands, more than half the audience was renting.
Admittedly, this was a city crowd. But I couldn't help thinking that it still represented the reset happening in American living arrangements.
Of course, some demand will always exist for owning a single-family house. And amid desperate searching for green shoots in the worst housing slump since the Great Depression, some positive indicators are real. For example, try to find a house to buy in a desirable Seattle neighborhood. As always, location matters — probably more than ever.
But there's reason to doubt whether widespread and expanding homeownership will be the foundation of the economy again, especially on par with the bubble years.
Urban scholar Richard Florida put it this way: "We've reached the limits of what George W. Bush used to call the 'ownership society.' Owning your own home made sense when people could hope to hold a job for most or all of their lives.
But in an economy that revolves around mobility and flexibility, a house that can't be sold becomes an economic trap, preventing people from moving freely to economic opportunity."
Indeed, more jobs than ever are contract and temp positions, even for highly skilled professionals. As the Town Hall panel agreed, it doesn't make financial sense to buy unless you're going to stay for 10 years. The era where prices appreciated at very high rates every year is over.
Millions of Americans are still unemployed, and most of the jobs being created aren't high paying. Wage growth has been stagnant for years, a phenomenon cloaked by the effect of the housing bubble on household wealth. Now, even though interest rates are very low, many would-be buyers can't qualify for a mortgage. The era of no-doc liar loans is over.
Another impediment is the trillion dollars in student-loan debt. Many college graduates are entering a job market where they start at low pay and may never enjoy the upward-earnings trajectory of their parents' generation. Consumer debt is high overall, further holding back potential buyers.
Meanwhile, although foreclosures eased while banks were settling the robo-signing scandal, they are likely to head upward again. RealtyTrac reports that new foreclosures fell nearly 4 percent nationwide in March compared with February. In the first quarter, foreclosure filings fell 16 percent compared with the same period in 2011.
But according to RealtyTrac Chief Executive Brandon Moore, "The low foreclosure numbers in the first quarter are not an indication that the massive reservoir of distressed properties built up over the past few years has somehow miraculously evaporated."
Instead, foreclosure starts are ticking up again. Also, Obama administration efforts to keep people in their homes continue to fall short. "The dam may not burst in the next 30 to 45 days, but it will eventually burst, and everyone downstream should be prepared for that to happen — both in terms of new foreclosure activity and new short-sale activity."
Those losing their houses won't be buying anytime soon. Investors may buy the houses left behind, but most properties will likely end up as rentals for years.
In addition, decades of government support for homeownership are constrained. The mortgage deduction won't be eliminated in an election year, but it might be gradually phased out.
Fannie Mae and Freddie Mac are more in the cross hairs. Both were allowed to operate for years without adequate capital to cover losses.
They arrived late to the subprime party but dived in to compete for the big profits Wall Street was reaping.
When the bubble burst, they required a government rescue. The Obama administration has discussed winding the two down.
Fannie and Freddie were key to government efforts by both parties over decades to widen homeownership. Accounting for 60 percent of the mortgage market, the two were intended to lower rates and make buying a home more affordable.
After the bust, even that laudable goal is being questioned. One critic is economist Dambisa Moyo, who argues that many people could get a better return in stocks or other investments if it weren't for government distorting incentives toward homeownership.
Tastes are changing, too. Many young people don't want the post-World War II, car-dependent suburban lifestyle. They want the energy and convenience of cities. Most of these will be renters, at least for a time. Empty nest baby boomers are also picking cities, although more of them have the capability to buy.
The Great Recession hit suburbia hard, especially in overbuilt areas. It may have destroyed the appeal of exurbia, where a big house can't make up for long commutes, lack of job centers and no walkable neighborhoods. Quality urban cores are doing well, and are the scene of a boom in apartment construction.
So rent or own? It's an individual decision. But as a society, we need to consume and borrow less. Reality is forcing this on us whether we like it or not. One big place it will be felt is where we live.
You may reach Jon Talton at firstname.lastname@example.org.
On Twitter @jontalton.
About Jon Talton
Jon Talton comments on economic trends and turning points, putting them into context with people, place and the environment in the Pacific Northwest