Homeownership is a big part of the American self-image. That accounts for the unusual support the U.S. government provides homeowners. This includes subsidies of about $150 billion a year in federal income-tax deductions for mortgage interest and property taxes. Additionally, the U.S. employs huge programs to keep interest rates low by reducing the risks that mortgage lenders take on. Many countries have higher rates of homeownership; few underwrite it to the same extent.
The U.S. homeownership rate in 2016 stood at 63.5 percent, where it was two decades ago, after reaching a record annual peak of 69.1 percent in 2005. The financial crisis provoked cautious reconsideration of the social benefits of homeownership. If 5 million people could lose their homes through foreclosure (with 6.3 million stuck with homes worth less than their mortgages) in five years, the new thinking goes, maybe a lot of them would have been better off renting. Now fewer people have a choice. The tight U.S. credit market for homebuyers is preventing many renters from taking advantage of the recovery. Prices have also risen almost to where they were at the peak. Before becoming U.S. Treasury secretary, Steven Mnuchin said it was a priority for President Donald Trump to end government control of Fannie Mae and Freddie Mac, which are the largest providers of mortgage funds. Mnuchin hasn't yet said what he wants Fannie and Freddie to become, though in his confirmation hearing he said he wanted to find a way to protect taxpayers while also keeping capital flowing to the mortgage market, which is what Fannie and Freddie largely do. In April 2017, Trump said he would offer a tax-reform package that would keep the federal tax break for interest paid on mortgages but eliminate one for payment of state and local taxes, including property taxes. This would raise the cost of homeownership for some. In one of his first moves as president, Trump reversed a decision by President Barack Obama to cut federal mortgage-insurance premiums to make it easier for first-time and lower-income homebuyers.
The homeownership rate in the U.S. is neither unusually high nor low by international standards. There are poorer countries with more homeowners and richer ones with fewer. Almost all Bulgarians and Lithuanians own their homes, while only 42 percent of Germans and even fewer Swiss do. Contrary to conventional wisdom, high homeownership does not appear to be a sign of economic health. Owning a home limits the ability of job seekers to move, adds to commute times and hampers business formation because of zoning restrictions and NIMBYism — the not-in-my-back-yard attitude homeowners often strike. Former Soviet-bloc countries tend to have high rates because they simply handed over their public housing to residents when communism collapsed. The biggest gains in U.S. homeownership came in the two decades after the Great Depression as transportation from job centers to suburbs improved and buyers took advantage of the new 30-year mortgage and Veterans Administration-insured mortgage created by the GI Bill. The homeownership rate climbed 18 percentage points from 1940 to 1960, when it reached 61.9 percent.
While the crash showed how risky buying a home can be, the housing industry and consumer advocates say homeownership can put families on a path to financial stability by forcing savings, providing a place to retire and allowing for appreciation over time. It also makes for involved citizens, higher property values and lower crime, they say. Contrariwise, the stock market has historically been a better way to build a nest egg.
The Reference Shelf
- Bloomberg News articles on the drop in U.S. homeownership, especially among blacks.
- Bloomberg charts showing homeownership rates in U.S. cities and states, and the ratio of real estate loans to total loans in 25 countries.
- An American Enterprise Institute researcher argues, in testimony for the U.S. Congress, that the U.S. would be better off without government-sponsored housing-finance agencies.
- State-by-State Historical Tables of Homeownership from the U.S. Census
First published Nov. 5, 2013
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Paula Dwyer at email@example.com