Pols to Blame in Growing Mortgage Crisis?
Is home ownership not for everyone? As the subprime market continues its unraveling, that’s the conclusion some are drawing. We wouldn’t encourage people to buy risky stocks, so why do we encourage low-income families to invest in this risky asset, especially in tight markets? asks Stuart S. Rosenthal, an econ prof at Syracuse University. Clearly…
Is home ownership not for everyone? As the subprime market continues its unraveling, that’s the conclusion some are drawing. We wouldn’t encourage people to buy risky stocks, so why do we encourage low-income families to invest in this risky asset, especially in tight markets? asks Stuart S. Rosenthal, an econ prof at Syracuse University. Clearly we went too far, said Joseph E. Gyourko, a professor of real estate and finance at the Wharton School of the University of Pennsylvania. It’s not the case that high homeownership is always good. Of course, the idea of home ownership is about as American as apple pie, with even such lefties as FDR pronouncing that A nation of homeowners is unconquerable. So while much of the blame for the growing crisis among lower-income homeowners can be placed on the lax standards of mortgage companies, critics are increasingly pointing a finger at government policy that is, many say, too biased towards home ownership. In addition to getting poorer people in over their heads, the unintended consequences include encouraging better-off people to buy bigger houses than they need and even restricting mobility of the workforce. Do you think the government should adopt a housing-neutral policy?
Mortgage Trouble Clouds Homeownership Dream [NY Times]
Amen Brenda, amen supergirl. Our national household savings rate is now in negative territory for the first time since the Great Depression. How can that possibly mean anything but trouble?
And yeah, “middle class” is in the eye of the beholder. At this point, I don’t even know if I’d call NYC policeman and teachers “middle class”, they don’t make nearly enough to be able to afford to raise a family in the city comfortably. When I think “middle class”, I think the suburban family with a minivan and a Ford Taurus in the driveway. But that standard of living isn’t “middle class” in NYC, it’s well-nigh unatainable.
As to whether the government should bail out the lenders or the borrowers: this is shaping up to be a huge crisis. Our government has been gradually subsidizing big business more and more in this country (think WalMart or drug companies) at the expense of the people who elected them in the first place. The gap between rich and poor keeps growing and growing, with more and more people dropping off the edge to join the ranks of “the poor”. The middle class has voted itself out of existence, basically.
I don’t think our elected representatives are going to all of a sudden change tack and bail out the defaulting subprime borrowers. I think they’ll stick to their pro-corporate guns and bail out the lenders. What a mess.
Brenda:
Interesting comments. As you know, we are a credit-fueled society. Even the middle-class lives above its means. We are told to spend, not save. Even if we saved, what could we afford?
I wonder what would happen to this society if the credit-bubble ever burst…
I definitely see a trend towards a bifurcated city of very rich/very poor, but it will be disguised for a long time by the fact that today’s functionally rich folks self-describe as “middle class.” Folks who send their kids to Berkeley-Carroll but do their own cooking on weekends may “feel” middle-class, but the actual middle class is the folks who walk their kids to school (and cook them dinner) every weekday–and I suspect these are the people, many of them immigrants, who let a combination of hope and inexperience suck them into the housing market over their heads. They’re the ones who also get snookered into 2-hour commutes from crappy condos in the Poconos etc. When the market drives them out (along with our teachers, rookie cops, struggling artists, etc.) the city will be much the “poorer” in every sense of the word. What’s amazing to me is the endless supply of rich folks with an appetite for places like Bushwick…or maybe they all just have rich parents like the ones in the Times article.
There is something very speculative about owning a home for any new buyer who has not participated in the spectacular increase in property values in many places in the US or for anyone who needs to increase the size of their home, when prices are so out of wack to income — not just low income people with shaky credit. Against the fear of possibility of being permanently priced out of home ownership and rolling the dice with very high mortgage payments, people weigh the many benefits of home ownership. About the sub prime lending practices, this obviously has hurt the unsophisticated borrower and the lender consequences have been mitigated by the securitization of the underlying mortgage pools. It’s starting to come to a head now that investors are no longer interested in investing in defaulting mortgages – surprise – and bigger questions are being asked. I would say that these lending practices are predatory and should be treated as such.
About NYC, the tax abatements are one example of a government/public crap shoot. When those expire, the entire tax structure of NYC real estate will have to be reevaluated and restructured, because it’s broken now and inequitable now. This could have an dampening effect on property values overall. The insane prices of the past few years have encouraged a staggering amount of development which will also have to be absorbed by the market. One hopes that we collectively manage this transition well but it is scary for everybody. As far as the restricting the mobility of the workforce, yes indeedy. If you are sitting on something that has gone down and you have to sell at a lower price losing your equity, you can be sure that will restrict your mobility. Or in terms of the sharp differentials in the upmove in different parts of the country, people can’t move from Houston or the Midwest to NYC. (A couple of years out of NYC and I missed a nice chunk of the market upmove). Some colleagues can’t return to similiar lives in the NYC area and are staying put in Houston, Midwest, etc. Similarly, businesses here in NYC who want to recruit are hamstrung by the staggering real estate prices, since they cannot recruit prospective employees for the same reasons.
Brenda, good points. Only the very rich can afford to live comfortably in NYC. We had a million to spend (including renos) and could only afford a house in a very borderline neighborhood in Brooklyn. The schools are so bad here we’ll definitely eventually move to the suburbs. If we were to buy a house in a Brooklyn neighborhood that truly matches all our criteria, we’d need a minimum of $1.8 million. Brenda points out a great idea for mayors of towns upstate or on L.I. – if these mayors can revitalize their old downtowns and the older houses located walking distance inside the downtown (like Maplewood NJ did) those towns will be very appealing to all those fleeing NYC. Because those from NYC want to walk to cafes and shops and have a sense of community. I have thought for a long time it’s the sprawling subdivisions that will suffer. There’s too much inventory, and they’re not appealing to younger homeowners. But NYC properties will continue to sell and go up and up. And cool little towns near big cities, like Maplewood NJ will do well, too.
c’mon, these are not average joes trying to pay off their mortgage, these are people that thought they could borrow and pay more than they could afford and the brokers totally told them everything they wanted to hear. buying a house is not like buying soap, use your head and exercise caution, if you dont understand the fine print get someone that can translate for you. these people didn’t think how the rate adjustment would affect them later, because like most americans they are “living in the moment”
Re: petebklyn: Sure, the law requires reassessment, but my statement is not at all inaccurate or misleading. I handle property tax appeals in upstate NY, so I know whereof I speak. The law requires that reassessments be done on an equitable basis for ALL properties, so all are bearing their fair share of tax. In theory, it does not permit reassessment through illegal practices such as sales chasing, which discriminates against more recent purchasers. Under the law (and the Office of Real Property of NYS has an excellent website setting forth that law) assessments are supposed to be done FOR ALL PROPERTIES by comping with “recent sales in the immediate vicinity.” But what frequently happens upstate is that reassessment of recently sold properties may be done on that (correct)basis – while the houses next door to them, which may be larger and in better condition, are NOT reassessed that way. So a recent purchaser who buys a fixer-upper with an assessment of $75,000 may be hit two weeks after closing with quadruple that assessment – while the larger and nicer property next door stays at, say, $65,000. Believe me, I know what I’m talking about. I encountered one community in which (in a purported “revaluation” of all property in the town)all houses sold in the past three years were comp’d with recent sales in the immediate vicinity – while those that had not were all comp’d with the same three burned out gutted properties – on the other side of town, regardless of C of O. This is easy to do by just plugging a cutoff date into a computer program in the assessor’s office – and it’s blatantly illegal. But since ORPS doesn’t have enforcement authority in NYS, you’re talking about Article 78 litigation in State Court – essentially, a civil rights class action based on statistical evidence. A verdict in favor of the homeowners in this type of Article 78 litigation was recently upheld by an appeals court in Canaan, NY. And I believe there are more of these litigations coming.
Brenda, I think your comments are sharp and on-point. It’s too bad that not enough people worry about the growing distance between the rich and poor, and what can happen to our society as a result. Sadly, with what’s gone on with housing and consumption in the past few years, and the rising materialism in our society, that this is not going to be a phenonmenon limited to NYC, but is something that will become a problem for the whole US.
Brenda I am interested in your comment that increasing income inequality , ‘of the very rich and the very poor’ was directly responsible for the great urban decline of the Seventies.. Care to expand? Because as you say in your post there is clearly a problem with NY (Manhattan in particular, but increasingly Brooklyn ) becoming a place where you have to be extremely wealthy to buy a house/apartment.. Do you believe things are setting up for a repeat of the Seventies ?