Like myths, this old dream will never die

Who cares about financial crises of historic proportions, a feeble and ravaged real estate market or all-time low consumer confidence levels? Americans don’t seem to when it comes to their sweet tooth for homeownership.

 

90% of Americans hold firm in the belief that homeownership remains an immovable cornerstone of the American Dream, according to a New York Times/CBS News poll of 979 Americans in June 2011. When it came to choosing which Americans need the most help at this time, more said support should be given to individuals beleaguered by housing woes rather than those distressed by unemployment. (The poll did not gather enough data to provide results for California.)

Poll results were not uniform across the board. Respondents produced mixed replies on the question of the government’s present and future role in the housing market. 45% want the government to step up their role in the housing recovery while 16% are opposed to more government involvement, 53% believe the government has a responsibility to financially assist those unable to make mortgage payments and 36% approve of the Obama administration’s current housing policies while 45% disapprove.

Meanwhile the American stance on the home mortgage tax deduction is a different story. Very few in the poll expressed any eager laissez-faire attitude towards the 30-year old instituted government subsidy. For middle-class America, getting rid of the subsidy is as good as slashing their American Dream. [For more information on how U.S. tax policies favor homeownership, see the June 2011 first tuesday article, Subsidizing the American dream.]

While the sentiment for homeownership holds on, the confidence in it is faltering. 49% polled view homeownership as a safe and reliable investment but 45% see it as a risky bet in light of the consistent downward trend of home prices and sales volume since mid-2010 (a pattern even more glaringly painful given the stock market has managed to improve). Half of respondents – of which 25% were negative equity homeowners – reported the housing crisis has had a negative effect on other areas of their lives, including interfering with long-term plans and the ability to relocate in order to accept better job opportunities.

One last remarkable – but not surprising – statistic to note is who Americans blame for the housing crash. 42% blamed lenders for the housing crash while 29% blamed regulators. These figures are near exactly reversed from where they stood in early 2008 when 40% blamed regulators and 28% blamed lenders. Only a minority blamed borrowers.

The poll left some issues unanswered, revealing debates Americans are wrestling with and will continue to argue over in the coming years, such as how much down payment should be required of potential homebuyers, if lending standards should be restricted or expanded, whether strategic defaults are justified and if real estate will ever recover its once coveted reputation as a reliable investment.

first tuesday take: Obviously the public who responded to this poll have much to learn from Economics 101. Amazingly, they felt job creation was less important than government assistance for homeowners. Yet the opposite is true. If we had jobs and half the unemployment, the homeownership plight as we know it would be history, even without any direct government help for the homeowner.

That fundamental knowledge of economics is exactly what presently drives the Federal Reserve (the Fed) and government response to the travails of homeownership – build up jobs and the homeownership foreclosure situation will soon become a non-issue if people still want to own. Unfortunately Congress will not act on its duty to be the nation’s employer of last resort when the private sector fails to employ.

Though the New York Times/CBS News poll did not gather enough data to provide results for California, other recent polls confirm Californians voice similar opinions, and in fact, are much more invested in the issue since statewide California has over 2,500,000 negative equity homes  – 30% of all single family residences (SFRs) in California. [For more information on how Californians responded to the concept of homeownership in light of the economic downtown, see the April 2011 first tuesday article, Americans dream for a home on unstable ground.]

We already know Americans love their homes. Whose brain doesn’t now generate the image of a four-bedroom house, green lawn, white picket fence, two children and a dog when someone utters “American Dream”? The image, while tarnished, is especially clear and prevalent in California where the quintessential suburban home is in overwhelmingly large supply and too frequently vacant, courtesy of the Millennium Boom and financial crisis. [For more information on the rise and fall of suburbia in California, see the July 2011 first tuesday article, From the city to suburbia then back; for more information about what makes a financial crisis, see the July 2011 first tuesday article, The rocky roads: recession and financial crisis.]

What we need to come to terms with is deciding which is more important: a home as a debt-incurring luxury item, or a home as essential space for shelter? [For more information about the luxury vs. necessity debate, see the October 2010 first tuesday article, Is homeownership a luxury or a necessity?]

California underwater homeowners must ask themselves, is homeownership a material fancy, or is it a crucial life necessity with price and mortgage amounts subject to reasonableness formulas? The way you answer the question (and SFR agents and brokers must counsel and give advice in this financial discussion) determines which stance you will take on all of the housing issues – down payments, subsidies, lending standards, pricing, zoning, the American Dream and all.

RE: “Tighter Lending Crimps Housing” from the Wall Street Journal