Too many Americans own their own home, writes Joshua Rosner, managing director of a research consultancy. Lots of them would be better off if they had never drunk the Kool-Aid of near-universal homeownership. And so would the public. The federal government made the mistake of allowing the housing and financial services industries to suck risky buyers into the housing market with such novel instruments as no-money-down mortgages and repayment schedules that ballooned years later. Buyers were encouraged to purchase homes they couldn't afford, had no equity in, and had little incentive to maintain.
Now that they've created this mess, politicians shouldn't be propping up borrowers and lenders with tax credits that encourage more spending, Rosner argues. And they shouldn't be pouring taxpayers’ money down a rat hole by trying to keep families in unaffordable dwellings. Many troubled borrowers should just mail back their keys and sign over title to their overpriced house to avoid foreclosure. Most lenders would be better off too, because they wouldn't have to pay the costs of foreclosing on somebody who has lost all motivation to keep up the property. The former debtors could rent, and save for something affordable.
Real estate prices have risen faster than wages for most of the last 40 years, so families thought they had to get their foot on the ladder before the first rung rose completely out of reach. Ownership jumped from its usual level of between 62 and 64 percent to almost 70 percent, Rosner says, but the market’s natural equilibrium was disturbed by the government’s attempts at social engineering.
Americans created an “economic mirage” by allowing the appreciation in home values to substitute for the return on labor in estimating their personal wealth, Rosner argues. Instead of artificially stimulating home buying, federal officials should focus on policies that increase real, not illusory, prosperity. They should concentrate on supporting wage growth. They should spend public money on “strengthening America’s economic foundation” (he suggests investing in schools to reeducate displaced workers and in highways to link rural and suburban workers to jobs), rather than helping people buy McMansions.
Homeownership is a good thing as long as it allows families to build a stake not only in their house but in their community as well, Rosner concludes. But “a home without equity is really just a rental with debt.”
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The Source: "Cleaning House" by Joshua Rosner, in The New Republic, May 7, 2008.
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