April 03, 2013
The Washington Post, which relied on David Lereah, the chief economist of the National Association of Realtors, as its main and often only source on the housing market, remains seriously confused about housing. An article on efforts by the Obama administration to push banks to increase lending implied that the situation of the bubble years were normal.
It told readers:
“Before the crisis, about 40 percent of home buyers were first-time purchasers. That’s down to 30 percent, according to the National Association of Realtors.”
Of course in the bubble years many people were buying homes with zero or even less than zero down payments. (Many borrowers were able to borrow more than the sale price of the home.) It is bizarre that anyone would use this period as a basis of comparison. The current rate of new homebuyers is closer to the historic norm.
The piece later tells readers:
“One reason, according to policymakers [anyone with a name?], is that as young people move out of their parents’ homes and start their own households, they will be forced to rent rather than buy, meaning less construction and housing activity. Given housing’s role in building up a family’s wealth, that could have long-lasting consequences.”
Actually renting also increases the demand for housing. Units switch back and forth all the time between being rental units and ownership units (30 percent of rental units are single-family homes). As a practical matter, the main factor depressing construction right now is the fact that the country continues to have a near record vacancy rate. The vacancy rate is the same whether a family is renting or owning.
Also, people who remember back to the housing bubble years (apparently a small group among housing experts) know that homeownership is not necessarily a good way to build wealth. Many houses fall in price. While this was less likely at the troughs hit in 2009-2010, with prices for lower end homes having risen sharply in the last year in many areas, new homebuyers again risk buying into a bubble.
There is also a more general problem that in the current economy, with its weak labor market, many people cannot count on being able to stay in the same home for a substantial period of time. They may have to move to get or keep a job. Since there are substantial transactions costs associated with buying and selling a home (@ 10 percent round-trip), people who cannot expect to stay in a home for a substantial period of time are likely to end up as losers by owning.
Unfortunately the homeowners chasing “the American Dream” are the only ones who suffer in this story. The “policymakers” who push homeownership in situations where it is not appropriate do not suffer consequences from giving incredibly bad advice.
Note: Correction made to last sentence from earlier version, which had left out “not.”
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