For many decades following World War II, the conventional wisdom in the United States was that buying a home was almost always better than renting. It was a matter of simple math. If your mortgage, taxes and insurance payment would be less than your rent, go for it. Part of every payment would be building equity, and investing in real estate was a can’t-miss proposition. The only constraint on home ownership was the need for a substantial down payment and good enough credit to get a mortgage. For several generations of Americans, buying a home was a celebration of their arrival into the middle class and a guarantee that they and their children would not slip down the economic ladder. Home equity provided a cash lifeline for unexpected expenses, college tuition and retirement.
Several significant changes in the last 20 years disrupted this model. The first was a pattern of increased mobility both by businesses seeking lower costs or new markets, and employees seeking better living standards or job prospects. In an increasingly mobile economy, the purchase versus rent calculation had to be adjusted to account for the need to be able to pull up stakes and relocate quickly. This did not have a significant impact immediately, because the difference in time to get out of a rental lease and to sell a property was not that great, especially during the real estate booms of the 1990s and 2000s, when houses sold as soon as they were put on the market.
Another change was the arrival of wage stagnation for the middle class and those who aspired to join it. In the 1960s, 1970s and into the 1980s, wages grew at a pace equal to or above mortgage interest rates. That meant that over time, fixed-mortgage payments required an ever decreasing percentage of homeowners’ incomes. The impact of flat and declining wages was not immediately felt, however, because mortgage rates dropped at the same time. That allowed homeowners to reduce their monthly mortgage payment by refinancing, which provided an alternate way for mortgages to continue to decrease in proportion to income.
The last and determining change was the simultaneous deregulation of financial markets and loosening of mortgage requirements that led to the housing bubble. Banks were “freed” to become real estate speculators and Americans were able for the first time to buy a home with little or no money down and only a cursory examination of their ability to pay. When the housing bubble burst, it left many people underwater in their mortgages and unable to sell their houses. That meant they couldn’t move to find a new or better job – or buy the house of someone else who was looking to sell and retire or relocate. For too many, the inability to sell their house in a depressed economy led to foreclosure and ruined credit.
Even after a degree of economic recovery and a modest revival of the housing market, many working people are discovering that the American Dream of home ownership has been replaced by the necessary reality of renting rather than buying. Some need to retain the mobility to change jobs and cities on short notice. Others are committed to staying in the area where they live but can’t meet severely tightened mortgage requirements. Still others haven’t seen a raise in years while absorbing higher fuel and food costs that leave them unable to save for a down payment.
So everything is different now. Except for one thing. Home ownership is still the best way for most families to assure themselves and their children of a secure future. Nothing has changed the basic calculus that favors paying a mortgage over rent. When someone pays their mortgage, they’re not just earning the right to stay on the premises for another month. The portion of their mortgage that goes to principal is a savings account, emergency reserve and retirement fund. The portion that goes to pay interest is tax deductible (unlike rent), which reduces their bill or increases their refund in April. Home ownership remains the best investment that most Americans will ever make. Sure, the stock market has been booming, but you can’t curl up with your children and pets in front of a nice warm fire on the floor of the stock exchange. Not without getting arrested, anyway.
That’s why Habitat for Humanity does what we do. We build houses, sure. But what we’re really about is strengthening families and communities through home ownership. Nothing does more to launch working families into the middle class than owning their own home. And nothing does more to keep middle class families from slipping into poverty during hard times. We offer zero-interest loans and the opportunity for prospective homeowners to restore their credit while they put in their sweat equity and save up to pay closing costs. We partner with the City of Wilmington, North Carolina Housing Finance Agency, and HUD to provide down payment assistance. Thousands of volunteers join together to lay floors, raise walls and cover roofs. With our partners, we make home ownership possible for families who otherwise would have no choice but to rent.
We are proud to be able to make home ownership a reality for 12 to 15 families a year in the Wilmington area. But there are thousands more hard-working, ambitious families who are shut out from the opportunity to secure their own and their children’s futures. Home ownership should be the American Dream. That it no longer is within reach for so many of our families should be cause for concern and a call to action.
Our community needs sensible financial and mortgage regulations that make home ownership possible for hard-working families while protecting them from becoming pawns in financial shenanigans that more closely resemble casino games and Ponzi schemes than real estate investments. We need employers who are owners in the community and not renters: companies that pay a living wage and put down roots here, so that their employees can do the same. We need banks that take chances with families, not with credit default swap derivatives. We need government, community organizations and private developers that work together to find ways to increase the production of affordable housing – for rental and ownership.
We need to wake up and get to work, if we’re to keep the American Dream alive.
Steve Spain is the Executive Director of Cape Fear Habitat for Humanity. Over the last 25 years, CFHFH has provided first-time homeownership opportunities to more than 150 families and currently builds a dozen new houses a year. To explore volunteer or sponsorship opportunities or to learn more about Cape Fear Habitat for Humanity’s programs, visit www.capefearhabitat.org. Contact Mr. Spain at [email protected]. Like CFHFH on Facebook: www.facebook.com/capefearhabitat.
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