The Deadman Night Rider

A forum for evening students of the SMU Dedman School of Law and other outlaws..

Wednesday, September 24, 2008

I hope you really, really, really like houses

Because you're about to own even more of them--and overpay for them, at that. I'm sure the investment bankers thank you.

Hopefully, one positive outcome of this whole mess would be an end to the fetishization of home ownership. Hell, that's why we have a Freddie Mac and a Fannie Mae to begin with--to broaden access to buying houses. Part of the problem, though, is that the system is a relic from an economy that doesn't exist any more.

The thirty-year mortgage is a product of a time when a family (one where only one spouse usually worked, by the way) bought a house in their late twenties/early thirties, paid on the note over their working lives, then paid it off just as they were getting ready for retirement. To say that this is now the exception rather than the rule is an understatement. Given how many times the average person will change jobs, locations, and even marriage partners during their lifetimes, most people should only be thinking about buying a home now in their fifties, by which time a much shorter note--say 15 years--is more appropriate. As a matter of public policy, we've recognized this trend with portability of retirement plans and even, to an extent, health insurance. But,we'll probably never see the death of the publicly-backed thirty-year note.

Because the one truly empirical conclusion that the mortgage meltdown yields is that people are dumb, dumb, dumb when it comes to this area--they'll pay way too much for a house, spend 50%+ of their monthly income on housing, commit to usurious rates of interest, and so on. And we have tons of programs at every level of government to help them do it.

So, I'm not holding my breath. I'm most interested to see what happens when (and if) lenders try to impose stricter standards, since we've heard alot of tsk-tsking this week about how this all started when we stopped requiring down payments, etc. My guess is that any attempt at discipline will be short-lived. I don't think most Americans have it in them to save over five years of so to accumulate enough for any sizeable down payments, unless they start to raid 401(k) plans. And just wait for more news stories about how home ownership levels have dropped back to 1990 levels--especially for minority households. Plus, folks like DR Horton and Keller have a backlog of unsold homes they need to move--and getting tetchy about figures on the loan app doesn't put butts behind picket fences. I don't envy the job of loan officers for the next few years (especially since mortgages will probably be subject to being stripped down in Chapter 13 bankruptcies--but more on that later).

Houses, baby. We wanted 'em, we got 'em.


Anonymous Anonymous said...

"I don't think most Americans have it in them to save over five years of so to accumulate enough for any sizeable down payments..."

Yoy may be right in your assessment of American's ability to save but it is already the case they must save for a down payment.

In our family, we spent four years paying off a 30 year mortgage by saving anywhere and everywhere we could. It was amazing how quickly cutting out the little things added up to big dollars.

6:57 AM  
Blogger rattlerd said...

You're exactly right, and it was this sort of behavior that the idea of home ownership was always supposed to foster. But somewhere along the line, we substituted having the physical thing--the house--for the financial discipline. Now we all get to pay for it.

7:24 AM  

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