Thursday, August 19, 2010

Home Ownership: The End of the American Dream


When reading newspapers, magazines, and online stories, it is important to remember that journalists are mostly, lazy hacks who write whatever Journolist or other co-ordinated efforts tell them to write, often pushing the Democratic Party line of the day. Journalists (hacks) basically re-write press releases and issue it as news, sometimes not even re-writing the press release. Often the two (re-issuing press releases, parroting the Democratic Party message of the day) efforts are combined. So when the Financial Times and USA Today both proudly trumpet "the end of Home Ownership" as a goal by people close to the Obama Administration, it is wise to take a look at why this goal is being pushed, and the inevitable consequences. Neither of which, predictably, is good for America. The Death of the American Dream (of home ownership) will have significant and long-lasting costs.


The Financial Times article may be found here. Money quotes include:

“The goals of housing policy should be that people are well housed, not necessarily that they are homeowners,” says Raphael Bostic, a senior official at the Department of Housing and Urban Development. Mr Bostic’s views differ from the administrations of Presidents George W. Bush and Bill Clinton, which tried to expand ownership. “We want sustainable home ownership, not just home ownership for ownership’s sake,” Mr Bostic says.

Ownership rates have already fallen from their pre-crisis peak and any further decline could be damaging for Democrats as they head into the November midterm elections. Nearly 10 per cent of borrowers are at least 90 days behind on their mortgages in the average Congressional district, more than two-and-a-half times the rate on election day 2008, according to a Deutsche Bank study. Democratic districts tend to have more troubled borrowers than Republican districts, suggesting Democrats might face greater voter anger over housing.

...

Australia, Ireland, Spain and the UK all have higher home ownership rates than America, and although those countries have suffered from the housing bubble’s collapse, none has suffered quite as much as the US. One reason is that American home buyers had greater access to cheap credit, created by a Wall Street securitisation machine that bundled mortgages, many of which were high-risk subprime debt, into bonds and sold them to investors around the world.

...

US policymakers have long upheld the benefits of home ownership, including the creation of safer, more stable communities. Studies have even shown that children of homeowners perform better in school than children of tenants. But now some researchers are starting to rethink those assumptions, arguing that a community of renters can be just as stable, so long as those renters are encouraged to stay in their properties for a long time. New York City, which has a large number of renters and also communities that are civically minded, is a prime example. “The benefits of home ownership are largely a myth,” says Dean Baker, co-director of the Center for Economic and Policy Research, a left-leaning think-tank.

...


Some government officials have started to play down the benefits of home ownership. Speaking in January at a meeting of the American Economic Association, Karen Pence, the Federal Reserve’s chief researcher for household and real estate, argued that homes were a terrible investment. Emphasising that she was speaking for herself and not on behalf of the Fed, Ms Pence said that unlike stocks and bonds, homes were an indivisible asset. “You can’t just slice off your bathroom and sell it,” she said. And because home prices are closely tied to the job market, what amounts to the largest financial asset for most people would decline in value just when they needed it most.

There is another downside to generous subsidies funnelled to homeowners, namely that the US is potentially investing too little in other important areas such as education, infrastructure and technology. At the height of the housing bubble in 2006, for instance, mortgages accounted for nearly half of all US debt issued that year, about double the historical norm, according to Haver Analytics. “We’ve over-emphasised our investment in housing and neglected to invest in education and infrastructure,” says Bill Gross, who, as the founder of Pimco, is the manager of the largest bond fund in the world. “We need to refocus on the production of ‘things’ rather than the production of financial products and houses.”

Administration officials have hinted that they plan to do just that by scaling back some support for government-backed home loans in a broad overhaul of housing finance.


USA Today's story is here. Notable quotes include:


Federal housing policy offers the wealthiest Americans billions in tax breaks without delivering much bang for the buck in increased homeownership, critics told government policymakers Tuesday.

"We aren't getting our money's worth," Mark Zandi, chief economist of Moody's Analytics, said at a government conference on reforming housing policy.
The government spent $230 billion last year to promote homeownership through tax breaks and spending programs. The biggest chunk — $80 billion — went toward the mortgage interest deduction, according to the Congressional Budget Office.


Michael Stegman, housing policy specialist at the MacArthur Foundation, said the mortgage tax break goes primarily to the wealthiest households. A study this year by the Tax Policy Center of the Brookings Institution and the Urban Institute noted that the mortgage deduction was worth just $91 a year to families earning less than $40,000 — and $5,459 a year to those making more than $250,000.
The government, seeking to overhaul the housing market after the collapse of mortgage giants Fannie Mae and Freddie Mac, is unlikely to touch the politically sacrosanct deduction anytime soon.
But analysts suggested that the government's debt — $8.8 trillion and growing — meant that housing subsidies might one day face the knife. "We can't afford it," Zandi said.
The U.S. homeownership rate (66.9%) is about the same as Canada's and is lower than Australia, Ireland, Spain and Britain's even though "these countries provide far less government support for homeownership," Michael Lea of San Diego State University wrote this year.

Treasury Secretary Timothy Geithner told the conference "there's no clear consensus yet" on reforming the way mortgages are financed. He promised "fundamental change" in the way Fannie and Freddie do business: They used an implicit government guarantee to borrow cheap money and make big bets in the housing market. When their gamble went bad, taxpayers picked up the tab.


Messages, co-ordinated from government officials and Democratic think tanks, and government dependent ratings agencies (Moody's like the others is dependent on the good-will of the Obama Administration not launch investigations into how they rated junk CDOs that went bust in the 2008 melt-down, and regulations that could put them out of business)?

Message 1: People should not own houses, because every place can be turned into rent-controlled New York City, on the Upper East Side.

Message 2: Mortgage deductions are bad for the budget, and Europe doesn't have them [America must ALWAYS copy Europe in every little detail.]

Message 3: Owning a house is no better and actually "worse" than renting in creating stable and prosperous communities.

Message 4: The financial crash was caused by home owners borrowing too much money, and therefore economic stability requires far less home ownership.

Message 5: Only "rich people" benefit from home mortgage deductions, let's eliminate home ownership as a goal for most Americans.

Message 6: Homes are a terrible investment.

Message 7: We invest too much in housing, and not enough in education and infrastructure (and sub-rosa, welfare spending and Democratic pork).

Taken altogether, the co-ordinated propaganda message dutifully spewed out by the Press means only one thing:

Obama plans to end mortgage deductions. He also plans to end Fannie and Freddie guarantees for home loans (something Barney Frank now backs, a switch from his position just a few months ago).

Why?

Because the Obama Administration is running out of money for its ambitious program of "transfer the wealth." The primary objective of Barack Obama and the people around him is to transfer money from ordinary (mostly White) Americans to the pockets of intermediaries like Rev. Wright, Louis Farrakhan, ACORN, Jessie Jackson, Bill Ayers, Civil Rights attorneys, Shirley Sherrod, and the like on behalf of Black and Hispanic residents and citizens.

Looking ahead to the fall mid-term elections, a Republican House (likely) and fewer Democratic Senators (likely) will mean that Obama's ambitious program to transfer that wealth will be constrained in the areas of "cap and tax" and "green" idiocy, and even using the EPA to do so by executive order can be problematic, given the House's ability to probe all sorts of financial dealings and sweetheart deals that are likely to be given out to favored Democratic constituencies. The Value Added Tax, a favorite of Obama's (because it hits Whites with middle class consumption patterns hardest, and is what Europe does), seems dead on arrival.

In addition, Fannie and Freddie are falling apart. There are trillions "off the books" in liabilities, there is essentially no private market for mortgages any more, even those with good credit histories, well established, with solid earnings records and little risk. Given the uncertain condition of the world economy, and the US failure to provide any employment gains against what Vice President Joe Biden calls the permanent loss of more than 8 million jobs, this is understandable.

But there is another reason behind the "Death of the American Dream" to turn Americans into a nation of renters. It is simple racial animus, on the part of Obama, and his Chicago cronies (like Valerie Jarrett) who are Black, and class animus against ordinary middle class White Americans, by the rich, White elites that form the backbone of Obama's supporters and administration.

Rose Fitzgerald Kennedy was supposed to have said, upon learning to her horror that the cars in the private chapel on her estate belonged to the servants, "What's the point of being rich if ordinary people can have nice things too?"

This is the primary motivating factor behind the instinctive push for ending home ownership for most Americans, and turning them into a nation of transient renters.

It is true, that as Steve Sailer, and others have noted, expanding home ownership to those with no chance of paying back the mortgages, was insane and spread the defaults globally. Offering a strawberry picker who made $14,000 a year a $670,000 mortgage, as "The Big Short" author Michael Lewis ("Moneyball," "Liars Poker") notes, was bound to go bad. Massive reforms on how CDOs (collateralized debt obligations) were rated, sold, and "cloned" were, and are needed. That mortgages were securitized and sold to investors wanting streams of cash, was not in itself a bad thing. That the mortgages were mostly junk, bound to fail, and sold as investment (near riskless) grade is something straightforward to address. Much of the blame falls on lazy, and greedy investors who failed to do their due diligence.

Moreover, the decline in home ownership rates (as the Financial Times chart makes clear) is due to not the absence of easy credit, but the decline in real wages. As noted by Citizen.org, US wages have stagnated since the 1970's, largely as the result of foreign wage competition. "In 1973, the average hourly wage for American workers, in today's dollars, was $17.26 while in 2007 it was up less than 1 percent to $1742. Over the same period, US workers average productivity nearly doubled." In the 1980's, the competition from first Mexico, then China, drove down wages of blue collar workers. In the 1990's and onwards, competition from outsourcing drove down the wages of white collar workers, along with job losses as manufacturing moved to China or Vietnam. That Boeing has an assembly plant in Vietnam for the wings of the new Dreamliner, is indicative how far manufacturers will chase cheap labor, and as noted in the Financial Times:


Mr Johansson, the head of the European Roundtable of Industrialists (ERT) and also chief executive of truckmaker Volvo, told the Financial Times that public debate was focusing on the wrong issue.

"We have much too much discussion about labour costs. What we really need to be concerned about is that we have the right skills and education."
...
He added: "We have too few young people all in all, and too few young people going into engineering. We are beginning to see real competition coming from India and China in, for example, highly-qualified engineers."

The view of the ERT is highly significant because it is made up of business leaders in charge of companies with revenues of €1,600bn ($1,980bn) and 6.5m employees.

He railed against the idea that Europe can live off knowledge only and keep research and development while letting manufacturing drift to lower-cost countries.
"There needs to be a political debate: how can we compete?
"It is a false model that we can live off knowledge and have manufacturing elsewhere. Over time manufacturing and R&D go hand in hand."


America, even more than Europe, has not been able to keep income rising. Cheap credit, and falling prices for electronic goods, primarily computers, and new gadgets like IPods, IPads, IPhones, and the like provided the illusion of growing income, which was based on credit and fairly cheap imported Chinese goods, also including textiles and shoes, and the like. Dub it the "Wal-Mart model of prosperity." Which was illusory.

For big ticket items, like homes and cars, America remained mired in low or static income growth, as energy costs rose and desirable places to live increased in value (due to mass immigration of poor, Mexicans, making previously nice, pleasant, middle class places into barrios ridden with crime).

America has a housing problem. But it is really just an extension of low wage growth, and mass immigration. Middle class Americans traditionally own homes in their later middle ages as a retirement place. They aim to have no more mortgage payments, and own their homes free and clear, so they can adjust to much lower retirement (and fixed) incomes when they do retire. Thus the pattern of Americans is to move around, chasing jobs, until the final job near retirement allows a free-and-clear title to a middle class home, in a neighborhood unlikely to change anytime soon (for the worse). Young people will take a risk on gentrification, older folks closer to retirement seek to cash out equity when they move to their final home, and pay off their mortgage.

Obama does have levers available to him, either through lame-duck legislation, after the November elections, but before a new Congress is seated, or through regulation. He can if he wishes end mortgage deductions, to raise more money that can be distributed to his supporters. ACORN, Jessie Jackson, Louis Farrakhan (and the Nation of Islam), perhaps the Annenberg Challenge and Bill Ayers, or the Gates Foundation, with Ayer's brother. [The Gates Foundation, by the way, explicitly excludes White children from scholarships, only non-Whites need apply.] He can instruct Tim Geithner, Treasury Secretary, to have Fannie and Freddie stop purchasing home mortgages, or slow that down, creating far fewer home purchases, and using the money for say, ACORN initiatives or salaries for local government employees through Federal Block Grants.

These are all very attractive prospects to Obama, and the Rose Fitzgerald Kennedy folks in the Media, Think-Tanks, Democratic politics, and the like.

It will however, come with a cost. Rentals are places that impose significant downward pressures on White middle class families. Pet ownership is forbidden in most of them. Rentals are in areas with bad schools, mostly non-White majority. The surest way, as Steve Sailer noted, to turn White kids into non-White hating adults, is to have them beaten up every day by non-Whites. Which is guaranteed in non-White majority school districts. White middle class people, accustomed to owning their own homes, will suddenly and irrevocably be placed in fairly squalid rentals, with much lower living standards (no more backyard barbecues, no more dogs or cats as pets, no more small garden, no more sunning themselves in the backyard in private, no more living in relative privacy). The neighborhood is likely to be considerably downscale, transient, and fairly non-White. [Few places in America resemble NYC's Upper East Side.]

This as America is filled with empty spaces, simply begging for spread-out houses, particularly away from the water-constrained coasts, and Chicago/NYC style water constrained metropolises. There is no particular reason for say, the Dallas-Fort Worth area not to build out, other than keeping Whites cheek and jowl with non-Whites.

And this is a dangerous and irrevocable step. As Whites lose guilt over segregation and slavery, a development already well underway, they are likely to resent terribly being pushed into non-White majority areas with the "crime tax" imposed upon them, and demand vigorous, non-PC, and non "disparate impact" or "racial profiling" concerned policing. In other words, move the White majority into rental housing in non-White areas, and they will reliably demand that police crack down hard, without any concern over racial profiling, on non-Whites.

America's social peace has been bought by private home ownership, by Whites realistically fearing non-White crime and retaliation (for past wrongs), living in safe, removed, mostly White suburbs. Move Whites out of safe, removed, White-majority suburbs, in large numbers, and they will fight. If not to return to the suburbs, to move non-Whites out of the rental areas.

Something similar has already happened in Britain. As noted by the Daily Mail, the English Defense League has grown from a few members to several thousand members in just a year. Over 10,000 were predicted at the Bradford match (likely to be banned). Yes, of course the EDL is made up of mostly White soccer hooligans. But the issue is simple: who does Britain belong to? Muslim "conquerors" who came to "take over" or the natives (who have nowhere else to go). Of course England's destiny is violent (and quite possibly a Muslim take-over). The EDL members may be yobs, but they are trapped. They don't have the income or education to flee to Switzerland, or the south of France's rural areas, or other places English folks from the Upper classes are escaping to. Thus, a running street fight that never ends.

America is much bigger. It can, probably, absorb (though not without huge costs including social and political) some portion of the illegal aliens and their descendants already present in the US. That of course supposes a vast physical separation by virtue of middle class, safe suburbs providing a safety valve for social discontent as Whites are made a minority in their own nation, for no reason anyone explained. Obama's obvious plan to turn most aspiring home owners into renters is likely to produce the US version of the EDL. With the end of White Guilt, the result is likely to be a simple, and ugly battle over turf "ownership."

The nation is in the best of hands.

9 comments:

Astute Commenters said...

"The nation is in the best of hands"

Vox Day shows why. Barack Obama's IQ is ~116

"Due to affirmative action, however, one must reduce that [LSAT] score by at least 186 points. ... Thus, giving Obama the benefit of the doubt drops his score to 1104, which is equivalent to an IQ of 116."

That's using the Harvard average LSAT as a base for the affirmative action bonus.

Here's corroborating evidence, with a hard (non-speculative) ceiling on Obama's IQ.

"UPDATE II - Obama graduated from my mother's alma mater, where everyone takes the various college prep tests. He was not a National Merit Scholar, a National Merit Semifinalist or an Outstanding Participant. This indicates a ceiling on his SAT percentile at 96.9, which indicates a maximum possible SAT score of 1230 and maximum IQ of 129."

Which explains this comment from Caroline at Dirty Harry's Place in 2008.

"...intelligence always reveals itself. As a skilled athlete reveals his athletic skill in simple things like moving gracefully to pick up a dropped napkin or catching a falling pencil before it hits the floor, etc., an intelligent person reveals his intelligence in equally telltale signs as well - the most obvious are his ability to quote effortlessly from great works, or great thinkers, etc. Obama has NEVER done that!"

Caroline's comment is worth reading in its entirety.

Φ said...

I don't know if Obama intends to bring about the Death of the American Dream. But I submit that his tools are not equal to the task.

1. Ending the home mortgage deduction may make the beltway wonks' short lists, but there is no political energy behind it. The most Obama can hope for is phasing it out for "the rich", i.e. couples making more than $250K, or whatever the magic number is, or capping the deductible interest.

2. Even if Obama or some future president does end the home mortgage deduction, it will not end home ownership. Plenty of people buy houses whose interest payments aren't larger than the standard deduction. Usually, it takes a mortgage plus substantial charitable giving to justify itemizing, so I would predict a larger marginal impact on charitable giving if the deduction ends.

3. Closing down the GSEs entirely might have a bigger impact, but I'm not sure how much. I'm vaguely aware that government intervention a couple of generations ago made the 30yr fixed 20%-down mortgage the industry standard, but I'm not sure what current mechanisms keep that standard in place. That X% of mortages are federally insured still leaves a lot of mortgages that aren't insured, but somehow the market issues them anyway.

It's pretty clear from your graphs that homeownership rates above 64% are unsustainable. Your quoted articles seem to indicate that the policy community is adapting itself to this reality.

rickl said...

I wouldn't be upset over a phase-out of the mortgage deduction, as long as it was accompanied by an overhaul and simplification of the tax code. It's a government subsidy, after all, and subsidies always cause distortions in the market.

Much of the housing bubble and subsequent collapse was caused by government policies. For decades, the standard was a 30-year mortgage with 20% down. Banks would evaluate an applicant's assets and work history before deciding whether or not to lend. This ensured that only mature, responsible people could get a mortgage.

But in the 1970s liberal activists declared that this policy amounted to "racism" and passed the Community Reinvestment Act. This required banks to lend to people who were not creditworthy. The law was given more teeth in the 1990s by the Clinton-Reno Justice Department. The banks were not blameless, either. Once they found out they could bundle their mortgages and sell them to investors, they went hog-wild and reduced standards even further, offering zero-down and interest-only mortgages. If you could fog a mirror, you "qualified". Of course, the banks made money hand over fist, since once they bundled and sold the mortgage, defaults were no longer their problem.

The increased demand spurred a building boom, and the newer houses became larger and more elaborate than the previous generation of houses, giving us the "McMansion". Traditionally, a 5000 square foot house was only affordable to the upper middle class, at least. But at zero down, heck, anybody could afford one! Prices skyrocketed, and people who tried to play by the old rules (i.e., saving for a down payment) were priced out of the market.

Home ownership is not for everybody. It demands a certain level of maturity, stability, and responsibility. Young people tend to be more rootless and adventure-seeking, often changing jobs on a whim. For lower-income people, it can be a serious burden. They may be able to afford the monthly mortgage payment, but then they will find themselves living paycheck to paycheck, unable to save. What do they do when faced with an unexpected expense like a leaky roof or a broken-down water heater? With the increase in home prices, this became an increasing problem for middle-income people as well.

In many cases, lower-income people are better off renting, especially during a time of economic downturn. If they're laid off, it's easier for them to pull up stakes and go where the jobs are. A lower-income homeowner who is laid off may suddenly find himself trapped in a house he can no longer afford and can't sell.

The above is a quick thumbnail sketch, and I don't claim to have covered every aspect of the subject. I recommend Karl Denninger's Market Ticker blog. He covers these and other issues with much greater knowledge and depth than I can muster.

Whiskey said...

The real threat is ending the GSE's, the Fanny/Freddie combo which is responsible for guaranteeing about 90% of the current mortgages in the market today.

Which are both insolvent, require about 3-4 trillion over the next few years just to shore up their "off-books" but real liabilities, and keep the system going.

Yeah the mortgage deduction will make a marginal cost to homeownership, but the GSEs being essentially wound down and abolished due to budgetary crunches (and the desire to use the money elsewhere) would kill the US home mortgage market. A few upscale folks would still be able to buy, but most would not, for now in the US the market is totally dependent on Fannie/Freddie.

That to me is a huge social change. Since home ownership is the ticket to decent schools, the like, for the White middle class. True, the percentage of Whites in America relates to the ceiling of home ownership (65% or so). But changing the ethnic composition of America by deporting masses of illegals is likely to be an issue at play, if Obama/Dems cannot "drown" the White middle class in mass illegal immigration.

IF (it looks increasingly true) the situation is decades or more of Japanese style stagnation, the quickest way to job recovery is mass deportation of illegal aliens and anchor baby folks. The logic behind every heist movie where the thieves figure the money goes farther the fewer get the cut. Human nature. Deporting Anchor Babies was "untouchable" before the recession. Now its openly spoken.

rickl said...

Whiskey, I have no doubt that the Marxists currently running the government would like to wipe out home ownership, just as they seem hell-bent on destroying the private sector.

But on the other hand, home ownership doesn't depend on GSEs (Government-Sponsored Enterprises). I didn't address them in my previous comment, but here is yet another example of government interfering in the free market and causing distortions. I admit that I don't know a whole lot about them, but here is a Wikipedia article that gives some historical background. Turns out that Fannie was created during the New Deal (the gift that keeps on giving). I'd say they should have been ended a long time ago, and the fact that they weren't just makes us that much more addicted to them today, so that getting rid of them will cause some serious hardship. Much like Social Security: Anyone with two functioning neurons knows that it's a Ponzi scheme, but any politician who says so will have his head handed to him in the next election.

Home ownership existed before the GSEs, and it will exist after them, assuming we can get rid of the Marxists as well. The wildly inflated home prices of the last 20-30 years will have to come back down to historic levels, so that average working people will be able to afford them using traditional mortgages with sizable down payments.

The McMansions I mentioned earlier will only be affordable to the upper middle class, but people of more modest means will be able to afford smaller homes, just as they did in the past. The main reason the McMansions of the 1990s and 2000s were built in the first place was because of the wildly distorted housing market. In a free market with less government interference, more mid-size and smaller homes would have been built instead, for the middle-class and working-class segments of the market.

My family has always been solidly middle class, and I remember growing up in a house with one bathroom. None of us felt deprived. When we moved in 1969 and my dad bought a house with 2 1/2 baths, it seemed like insane luxury to me. To make a long story short, he left it to me and that's where I'm living now. It's 2400 square feet, and it looks puny compared to the houses in the newer developments that have sprung up around here in recent years. But it's more than big enough for me, and I could certainly make do with a smaller house if need be.

rickl said...
This comment has been removed by the author.
Nietzsche said...

Spot on, the smart whites formed communities based on home ownership a long time ago. These places are impossible for "minorities" to enter.

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