What seemed like an ideal purchase because of low rates during the pandemic now feels like a trap for many aspiring borrowers.
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The last several weeks have seen a variety of stories cataloging the challenges of homeownership in the United States. I’ll take a look a series of these stories and put them in the larger context of the 30-year mortgage that has dominated the housing landscape since the end of World War II. The first is an article in the New York Times which, at first, might appear to be an effort to generate sympathy for a group of people that don’t need it, people who bought homes during the pandemic. But the story highlights the trap that a mortgage can become.
The headline makes the point, “They Rushed to Buy Homes During the Pandemic. Now, Some Feel Trapped.” The story uses anecdotes about people who bought when rates were low, and while those rates locked in favorable monthly payments for homes they otherwise couldn’t afford, but now leave them without many options for moving on. Life changes cannot be accommodated by a move; there just isn’t enough value in their homes and current rates and prices of other homes are too high.
“Nearly one in four homeowners regret their purchase, according to a recent survey by Intuit Credit Karma,” the Times article finds, “including 38 percent of millennials, who said they underestimated the costs of ownership, and another 40 percent who have postponed other life goals.”
The article sums up a key problem with the 30-year mortgage to financial challenges: “Add in rising costs and life changes — new partners, children, breakups — and that stability can start to feel more like confinement.”
In a world where homelessness is always gnawing at the discourse about housing, and many struggle to find enough money to pay rent every month, the plight of people who have homes, can make the monthly payment, but who have regrets about their investment might seem trivial. But unfortunately, many Americans are still seduced by the so-called American Dream, a narrative that depends on a job, marriage with two incomes, and undertaking massive debt over decades with interest paid upfront.
This is a recipe for if not a crisis, a serious housing problem. The drive to buy using long term debt means a financial market geared toward providing the debt, builders to emphasize the single-family home, and policy makers who seek to protect the investment of those single-family homeowners with policies that restrict supply, creating the inflation that increases their equity at the expense of others just entering the market. Worse, the drive for the single-family home with a long-term mortgage is built on inflation in the housing market; low supply, rising demand, and rigid zoning policies mean that fewer rental units get built, increasing rents and essentially transferring wealth from renters’ pockets into the value of single-family homes.
This will be a recurring theme in posts this month, a theme I have struck often over the last few years. Unless and until policy makers begin to invest in alternate strategies to create ownership and the transferrable wealth that comes with it, we’ll continue to see the kinds of friction in the housing market that at best leads to discomfort and at worse, distressed sales and foreclosures.