Does Homeownership Make Sense Today
The September 6, 2010 edition of Time magazine features a cover article “Rethinking Homeownership” with the subtitle “Why owning a home may no longer make economic sense.”
With such a controversial title it could be expected that the article was intended to pique the reader’s interest since homeownership, as the author concedes, has been the hallmark of success in America for at least a century. Americans have struggled, saved, and, in some cases, mortgaged their future for the proverbial suburban home with the white picket fence.
With the current economic downturn so closely tied to mortgages that exceed the value of the home, the so-called “under water” properties, some homeowners find themselves in the uncomfortable position of being unable to decide whether to continue paying on their mortgages while simultaneously believing that they can never recover their investment. It also, as the article relates, makes it difficult for homeowners in this position to move long distances to take advantage of new employment opportunities. They may be financially strapped in place.
While this is true for some mortgage holders, there are compensations that Time does not describe. More of this later.
Reviewing the history of government support for owning your own home, the article returned to statements as old as Herbert Hoover’s at the beginning of the twentieth century where the president stated that homeownership could “change the very physical, mental and moral fiber of one’s own children.” Franklin Roosevelt followed with the notion, in time of war, that a nation composed of homeowners would be “unconquerable.”
Jack Kemp in the George H.W. Bush administration stated that owning your home could “save babies, save children, save families and save America.” Historically a nation of renters was regarded as a nation of transients, people who are disadvantaged and insecure.
In order to incentivize families to buy homes, several government measures were taken. Mortgage interest and property taxes are tax deductible for those who itemize their deductions on their tax returns where several years ago interest on other consumer loans no longer received a deduction.
As part of the stimulus package new purchasers of homes were temporarily given a tax credit which, for a time, jump started housing.
Even the article admits “<n>o doubt, for many American families, buying a home is a smart choice…<I>n practice it often works out beautifully, with the mortgage paid off just before retirement, leaving a couple with a cheap place to live in old age. The point of questioning…is to take into account the trade-offs…”
The primary trade-off referenced in the article, as indicated above is inflexibility. This inflexibility is not just that homeowners are inhibited from moving to go where the jobs are but also in being forced to come up with mortgage payments that may be inflexible when employment and employment benefits like retirement and health insurance are not. Government has tried to help with this also.
Having reviewed all of this, I still have to say that there are issues that the Time article failed to address. Here are some of them.
- The question might not be whether homeownership is a good thing but whether overextension of credit is a problem. Not to date myself but there was a time, one which I recall at least from my parents’ era, when families started out with a less expensive “starter” home and then, after years of payments moved gradually to better homes as they could afford them. This allowed them to build equity and take less initial risk. Today, there seems too much of a trend to want it all immediately and this can be risky.
- Little is made of the downside of renting. Rentals are referred to primarily as apartments. As one of a family of six children, I can attest that rental housing the size of apartments would not work. Even with today’s smaller families, houses make more sense. Houses can also be rented but then no equity is built even in good times.
- Finally, as people age, if the mortgage is paid, and today this is a major “if”, then the same inflexibility that makes it difficult for people to move for employment also makes it difficult for aging homeowners to be displaced. They may be unhappy with rising property taxes but seniors do not lose their home unless they discontinue paying their taxes for a longer time than it would take to evict a tenant from regular apartment housing. Also, if a spouse needs to go to a nursing home and receives Medicaid, the house is exempt for the lifetime of both spouses. The same protection is not afforded for rentals.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.