Future of homeownership

Time magazine had in its September 6th issue a great feature on home ownership. Basically, it questions the long-standing wisdom of promoting home ownership.

Since the housing boom of the 1920s, there has been this assumption that a higher homeownership rate would be good thing. Sure, it promotes stability and gives citizens a vested interest in their neighborhoods, plus all those other good statistics, but there are a few negative effects.

That "stability" can turn into "calcification." People who've lost their jobs have a harder time moving to other cities because their stuck with mortgage payments. Essentially, that stability comes at the price of flexibility.

One of the problems with this most recent recession was that the percentage of homes that were owner-occupied was at an all-time high of 69.2%; a number that high is fine when you can expect to live in the same are with the same job for 30 years, but it's a liability when you're moving around every five years.

The conventional wisdom was "to buy as big a home as you could afford." You'd buy a house when you're young and then as you had kids you could grow into it.

But the costs of home ownership in this kind of economy makes it almost as bad as renting -- by the time you build up a bit of equity, you've got to sell the house, in the process losing a big chunk -- if not all -- of the equity you've saved up. In my family, it's happened to my parents and to my sister.

So what's the solution?

In the future, I expect that the financially smart will be taking a step back. Instead of getting bigger houses, they'll as small a place as they get away with. Rather than stretching their budgets and being "house poor," they'll get half as much as what they can afford and make twice the payments.

Consider this: by sending your mortgage holder double payments, a thirty-year mortgage is paid off in only ten years.

And rather than selling properties in a move, I expect that people will convert their homes into rentals rather than take a loss in a sale. Of course, no matter what happens, I don't think we're going to see the same kinds of excesses we saw in the past ten years.

At least, that's my prediction.