Robert Kuttner: Don't Blame the Dream of Home Ownership

[Jim__]

I think everyone on DU knows this, but Robert Kuttner corrects some RW bullshit printed in the Times:

Here is a fable that is making the rounds. It is a collection of half-truths and outright lies:

The financial meltdown was the result of too many people pursuing the American Dream of home ownership. People who couldn't really afford to be homeowners became speculators. Government added to the damage with cheap mortgages, misguided laws such as the Community Reinvestment Act, and overgrown government-sponsored agencies like Fannie Mae and Freddie Mac.

This stuff is a staple of rightwing talk shows. In a moment, I will rebut each element of this storyline, but first I want to single out a wildly misleading piece by the New York Times financial columnist Joe Nocera. The piece, which ran in Saturday's business section, was titled "Wake-Up Time for a Dream."

The dream -- surprise -- is home ownership. It is depressing that a rightwing theme has invaded the mainstream Times.

more ...

[Tansy_Gold]

1. I haven't even read all of it and I'll still Rec it.

Home ownership is one of the best hedges against poverty, which is one of the reasons why the RW has used that "dream" to destroy it.

A friend of mine's son was laid off two years ago, with two teen-agers and a fat mortgage. Fortunately, it was a good mortgage -- 30 year fixed rate -- on a house bought 10 years before, so without bubble-inflated price. their number one strategy for surviving the economic collapse that hit their family was HANG ONTO THE HOUSE. The mortgage (PITI) payment consumed nearly half the wife's net income (hs math teacher) but they had not lived extravagantly and were able to pare their budget sufficiently to come through it. They have fewer "things" -- FAR fewer "things" -- but they have their home, their son is starting college (state university, tuition waiver scholarship) in the fall, and the husband has decided to go into business partnership with their 14-year-old daughter. She netted almost $5,000 last year on a "hobby."

They have not missed a mortgage payment.




TG

[Myrina]

2. Dream the dream but accept that you'll probably never achieve it ...

... because according to the mean-spirited, you don't make enough money which means you're lazy which means you don't DESERVE to own a home. Regardless of whether or not you actually do play by all the rules and work your ass off for an employer who fucks you sideways and a (most often local) gov't that taxes the snot out of you. It's still your own personal shortcoming and therefore keep dreaming because until you have a credit score of 850 and $50k in the bank, that house ain't gonna happen and every time a mortgage does fail, you a- nd others like you - will get blamed.

America in the 21st Century. Nice. :(

[whatchamacallit]

3. Good piece. Thanks. (nt)

[ParkieDem]

4. I don't disagree with Kuttner.

The "American Dream" didn't cause the financial crisis. What caused it was a lack of leadership by policymakers all around.

Our policymakers, for various reasons, wanted to encourage the "American Dream" at all costs. No doubt home ownership is a hedge against poverty, and is a very, very worthwhile and desirable objective. But should we be encouraging home ownership at significantly inflated house prices? Is home ownership worth it if a family uses 2/3 of their income to make a mortgage payment?

When house prices started to rise well beyond inflation, the Fed should have reacted by raising interest rates in a gradual, calculated manner. Fannie Mae and Freddie Mac should have resisted insuring loans for properties whose values were clearly overinflated. Banks should not have been making "liar loans." Bond insurers and rating agencies should not have insured or rated securities that were obviously not credit-worthy.

Instead, everyone jumped on for the ride. The Fed thought its job was to foster economic growth, not price stability. Fannie Mae and Freddie Mac were interested in raising the value of their mortgage portfolios (substantially). Banks were, too, and didn't mind the rush of home equity loans that accompanied the bubble. State and local governments loved the large increases in property tax revenues. And homeowners didn't mind, because their "on paper" wealth was going up, up, up.

We should still encourage home ownership. No doubt about that. But we should seriously examine a financial system that causes the price of a 2000 square-foot house to be half a million dollars at a time when our middle class is shrinking.

[ParkieDem]

5. To follow up ...

I fear that what happened with house prices is similar to what has happened with college tuition.

Back in the 80s, I guess, the middle-class mantra that became ingrained was "you HAVE to go to college!" No ifs, ands or buts. What happened? Rapid tuition inflation, which is still occurring. Colleges have taken advantage of this attitude, knowing that people will purchase their product no matter the cost. The more financial aid is available, the more excuses colleges have to raise tuition.

The same thing could be going on in the housing market. I'm afraid we have ingrained this idea that "you HAVE to own a house! You CAN'T rent!" So, people think they are going to be forced to wear Scarlet "As" if they don't own their home, and are willing to take on large amounts of debt to get there.