Homes are about people, and that’s why I love to help people find their home.
WHEN it comes to owning a home, few people in the world pursue the dream with as much vigor, desire or penny-pinching thrift as Americans.
Even though the national home-ownership rate has been dropping since 1980 and millions have been squeezed out of the housing market, a higher percentage of people in the United States still own their own homes than in most other industrialized nations. In many ways, owning a home has become the norm for Americans, with 64 percent of households already members of the club and most of the rest of the population anxiously trying to get in.
No single reason adequately explains why so many people pursue this goal, but today, probably more than ever before, the essential motivation is an economic one: The housing they live in has become, for most households, a solid investment. Today’s buyers are pursuing that goal with the avidity of of Wall Street arbitragers, and their houses have become not so much good places to raise families – although that still is important – as the bases from which to raise fortunes.
”Stabilty and security, those used to be the key factors,” said Marc A. Weiss, an urban planner with the Lincoln Institute of Land Policy, an independent, non-profit research and educational institute in Cambridge, Mass. ”Now there’s more anxiety in terms of investment value.”
Mr. Weiss, who is writing a history of home ownership called ”Own Your Own Home,” to be published next year, explained that for previous generations, comparative housing costs also were carefully weighed by potential buyers. Owning could be comparable to renting, or sometimes be an even better deal. ”But the primary motivation,” he said, ”was not ‘what do we do with our capital.’ ”
Attitudes have changed for a number of reasons. Inflation spiraled through the 1970’s, while house prices appreciated like runaway trains in parts of the country (especially the Northeast and West). And a run on available units that started when the bulk of the postwar baby-boom generation entered the housing market has helped to drive up prices even further.
Through all of that it became increasingly clear that a family’s physical shelter could be its financial shelter as well.
The Federal Government’s policies encouraging home ownership have not abated. Owners continue to be allowed to deduct their mortgage interest as well as their local property taxes from their Federal income taxes.
Profits on the sale of a house or apartment go untaxed so long as the seller simply buys another home of equal or greater value within two years, thus helping a family to avoid taxes while building equity.
People who are 55 or older get a one-time exemption on the first $125,000 of capital gains should they decide to buy a smaller, less expensive house or to move into a rental apartment. And the appreciated value remains untaxed when property is passed along to the next generation within a family.
Under the recent tax-code revisions, deductions attached to owning a house were not changed and now they represent the largest group of tax breaks available to most individuals. A house also ends up being a continuing capital resource; owners can take out equity loans based on the built-up value in their homes, and the interest on those loans in many instances also is tax deductible.
For most families, a house is the centerpiece and predominant part of the household wealth. A recent analysis by the Chicago Title & Trust Company shows that home ownership, as an investment, contines to be a good deal. Even with modest inflation of 5 percent a year, a typical house will be worth more at the end of a 30-year mortgage than the purchase price plus all interest, taxes and insurance combined.
The Chicago Title study figured a house purchased for $133,400 in 1987 would be worth $549,100 in the year 2015. If prices were to increase over that period by the same average 8.1 percent annual rate of the last decade, that same $133,400 would be worth $1.18 million in 2015.
Calculations like these can turn buyers’ heads from the hearth to the pocket. But there also have been societal changes as well to affect how Americans feel about owning a house.
IN an increasingly mobile society, home ownership no longer anchors people to the land as it once did. Buyers, especially those just entering the market, move almost as often as renters, buying a house, holding it for a few years, then selling it at a profit and buying something bigger. No longer are buyers tied to 30-year mortgages; risky adjustable rate loans have become more popular because in many instances the holders sell the house and pay off the loan before its term is up.
This revolving door has left some neighborhoods reeling. Owners come and go so rapidly, driving up prices with each transaction, that a block of single-family houses can be as transient as an apartment-building floor and residents end up not being able to afford the house in which they live.
This cycle is especially true in fringe neighborhoods balancing on the edge of gentrification. When Charles Watts and Helen Haynes bought their three-bedroom, Victorian-style house in Dorchester, Mass., a changing section of Boston, last June, the previous owner had been there just two years. Only one house on the block had been owned by the same person longer than two years.
Mr. Watts, a 24-year-old administrative assistant at the Lincoln Institute of Land Policy, and his wife Helen, also 24 and a freelance illustrator, knew they needed more space when they moved to Dorchester from a Providence, R.I., apartment, and they savored the idea of the privacy of their own home and the tranquillity of a residential neighborhood.
”But the financial considerations, building equity and stuff, had more emotional implications for us,” Mr. Watts said.
Renting the two-bedroom apartment they needed – one bedroom was to serve as an office – would have cost the young couple at least $850, a lot of money paid out and never seen again.
”The issue was,” Mr. Watts said, ”do we leave the money in Treasury bills or take a gamble on this house.”
While they would be able to swing the monthly mortgage payments, Mr. Watts and Ms. Haynes would have had trouble rounding up a sufficient down payment without a $30,000 gift from Mr. Watts’s parents. So many other young buyers have had to rely on the same source for help in making their down payments that the practice has come to be known as the new G.I. Bill – the initials in this instance standing for good in-laws.
IN the end, Mr. Watts and Ms. Haynes put a $60,000 down payment on the $155,000 house, which left them with monthly payments of $860, roughly the same as their projected rent. But now they have office space, a basement, attic and even a small garden, as well as their foundation for financial security. Their first night in the new house, Mr. Watts said, he and his wife celebrated their good fortune by eating potato salad in bed and watching TV.
Mr. Watts said he is still anxious about owning a home. Is the neighborhood going to continue improving, or will the drug problems a few blocks over infiltrate his block as well? What happens if his wife gets a job offer in Alaska? Will they be able to afford going out to dinner?
He and his wife are among the lucky few of their age group able to jump on the home ownership bandwagon. For many other young people – along with, increasingly, the poor – the wagon is quickly receding and leaving them behind.
According to figures from the Joint Center for Housing Studies of Harvard University, the overall decline in home ownership rates has been slight compared to the new reality for young people. For all households, the ownership rate dropped to 64 percent in 1987 from the 50-year-peak of 65.6 percent in 1980, a slight but significant decline because it came during a sustained housing recovery.
However, those changes bear much less importance than the subsets for age groups. Here the record shows what young people have had to confront as they have tried to attain the same standards of living as their parents. From age 24 to 39, there has been a dramatic 7 to 8 percentage point drop in home-ownership rates. What this means, according to the Harvard study, is that 2 million households that would have been able to buy a house or apartment in 1980 cannot afford to do so today.
”People are struggling real hard to get in,” said William C. Apgar, Jr., the author, with H. James Brown, of the Harvard housing study. Mr. Apgar explained that while rapidly rising dwelling prices help those who already own by expanding their equity investment, it severely restricts first-time buyers. Those shut out remain renters, driving up rents and short-circuiting their chances of saving enough for a down payment. But that does not keep them from trying to get their dream house.
The reality today is that many couples may have to wait longer than they expected to buy that first home, building up job security and personal savings until the numbers work.
Michael T. Cranwell, a 35-year-old captain with the Union City, N.J., Fire Department, and his 29-year-old-wife Imma are just now timidly testing the waters of home ownership. Expecting their first child in November, they are just about to close on a two-bedroom, expanded Cape Cod in Hackensack costing $155,000. On paper, they have figured they will be able to afford the house, and the baby, and the loss of one salary. But they remain anxious.
”I get knots in my stomach thinking about the money here,” said Mr. Cranwell. Like Mr. Watts in Dorchester, Mr. Cranwell had to rely on his family to help with the down payment. In his case, his mother and father in-law contributed $10,000 toward the $25,000 down payment. The Cranwells monthly mortgage payment will be $1,214, about double the rent they paid for their one-bedroom apartment.
Mr. Cranwell figures that to afford the house, his wife will have to return to her job as an assistant in a New York City physician’s office after the baby comes, even though they both would prefer that she not have to travel that far. But they are willing to make the sacrifices required.
”It makes me feel real married,” Mr. Cranwell said about buying a house. ”It’s a good move, a foot in the door. But it’s a little scary. I’ll have to learn how to use a hammer better than I do. Hopefully, one year from now I’ll be able to say I made one good deal.”
History suggests that ought to be the case. According to one study, 42 percent of all household wealth in the United States is in owner-occupied housing. ”Compared to the stock market,” said Mr. Apgar of Harvard, ”home-ownership wealth is enormous.”
DANA AND MICHAEL ALLENSWORTH of Broward County, Fla., have already decided that for them, homeownership is the key to financial security. Mrs. Allensworth, 26, and her 24-year-old husband both work for the same aviation company in Fort Lauderdale. For the first two-and-a-half years of their marriage they rented an apartment, but searched for the right house to invest in.
Last March they found what they were looking for – a three-bedroom, two-bath single family house in the sprawling Weston development under construction about 15 miles west of Fort Lauderdale. The house cost $91,999, but the Allensworths were able to get a mortgage with only 10 percent down. Their monthly mortgage payment is $843, about twice what they had paid in rent.
”You have to sacrifice a little to get somewhere, I think,” Mrs. Allensworth said. ”Half the people our age are still going to the beach. I’m past that now. I’m looking forward to buying more houses.”
For most of this century, home ownership has been supported and encouraged by the policies of the Federal Government, to an extent, some scholars suggest, unparalleled in the world. Mortgage-interest deductions amount to a subsidy of $40 billion to $60 billion, and now after the income-tax reform, interest deductions were left untouched as virtually the only major deduction left.
But even though that deduction unquestionably plays in many decisions to buy rather than rent, it does not explain the national infatuation with owning. According to the Congressional Budget Office, 53 percent of all homeowners last year took the standard deduction rather than itemizing mortgage interest on their tax returns.
Many of those people had already paid off their mortgages. But for others, the standard deduction was the better choice.
What this says is that while Government policy has facilitated home ownership something more is at play. More than just a symbol of having arrived in the middle class, living in your own home has become part of the American psyche.
”The thing has been pushed, ideologically, almost as a basic American fantasy,” said Susan Saegert, a professor of environmental psychology at the Graduate Center of the City University of New York.
Home ownership ”fed right into the ethos of the United States from the beginning,” Professor Saegert said. ”It has become an aspect of being an American.”