A few years ago, a bunch of economists got behind the notion that the U.S. housing crash would free Americans from their obsession with home ownership. The emergence of a "rentership society" would spawn a virtuous cycle of urban renewal as a newly nomadic population threw off the shackles of 30-year mortgages and roof repairs for carefree apartment living closer to the city core. Instead of spending on shiny appliances, Americans could save more and easily move on if a better job came up elsewhere.
It made sense on paper. The 1950s model of buying a house in suburbia seemed as outdated as the concept of a job for life. In the new economy, technology promised to constantly create and destroy jobs and companies. Workers needed to be mobile and reduce their overhead accordingly.
It isn't working out that way. Americans are more tied down than ever. Millions still hold mortgages worth more than their houses, so selling and moving to where the jobs are is not an option. And those who have been shut out of the housing market are itching to buy as newly emboldened banks take on more risk.
U.S. housing is back. And the single-family, detached home in suburbia is still the preferred vehicle to the American dream. Last fall, former deputy treasury secretary Roger Altman predicted that the U.S. economy was poised for a strong recovery and that "the housing boom will be its biggest driver." If there were still a few skeptics then, they're silent now.
A housing rebound was always inevitable, given that prices plummeted more than 30 per cent nationally after 2006. But it is far from certain that a housing-led recovery is the best thing for Americans or the global economy. The 2008 financial crash was brought on by an excessive dependence on housing. In its wake, world leaders promised a "rebalancing" of the global economy to reduce American reliance on housing and imports (such as shiny appliances), while getting China and Germany to stimulate domestic consumption.
Pretty much the opposite is happening, although it shouldn't surprise anyone. Americans have considered home ownership a birthright at least since the New Deal, when president Franklin Roosevelt, who got the mortgage subsidization ball rolling, declared: "A nation of homeowners, of people who own a real share in their land, is unconquerable."
Seven decades later, president George W. Bush signed the American Dream Downpayment Act subsidizing first-time buyers. "It is in our national interest that more people own their own home," he said. "After all, if you own your own home, you have a vital stake in the future of our country."
We all know how that turned out.
The 2010 financial reform legislation known as Dodd-Frank was supposed to stop mortgage lenders from preying on the poor with deceptively attractive loan terms. But politicians aren't liking the side effects. The Washington Post recently reported that the Obama administration is putting pressure on banks to make home loans to Americans with weaker credit scores, most of whom are minorities.
Blacks and and Hispanics were more likely than white Americans to lose their houses during the crash. Fully 73.6 per cent of whites owned their home in 2012, compared to 44.5 per cent of African-Americans and 45 per cent of Hispanics. Ownership rates peaked in 2005 at 76 per cent among whites and 50 per cent among blacks and Hispanics.
"Even with mortgage rates near a 50-year low, too many families with solid credit who want to buy a home are being rejected," President Barack Obama said in his February State of the Union address. "That's holding our entire economy back. We need to fix it."
Wall Street is game. Dodd-Frank aimed to curb excessive risk-taking by forcing investment firms that bundle mortgages to sell as securities to retain a 5-per-cent stake in the loans. With skin in the game, firms need pay more attention to loan quality. But Wall Street is lobbying to quash the rule. "Enlisting the aid of several affordable-housing advocates," former regulator Sheila Bair and ex-congressman Barney Frank recently warned, "they have argued that making securitizers retain risk will lead to higher mortgage rates, hurting low-income families."
Americans are a long way from the insanity of the last housing boom, but just far enough removed for many to have forgotten its consequences.
Konrad Yakabuski