By: Sadie Dingfelder
April 10, 2010
Since 2007, Americans have suffered through the worst economic conditions since the Great Depression. The real estate market collapsed, banks failed and unemployment became commonplace. As many people who lived through the privation of the 1930s developed lifelong frugality, we, too, may emerge from the recession with our beliefs about real estate and personal finance permanently transformed.
"Our attitudes, particularly toward homeownership and housing, are changing, and they are changing quickly," said Richard Florida, an urban studies professor at the University of Toronto, who explores the phenomenon in his book "The Great Reset," which will be released April 27 by HarperCollins.
In fact, the number of people who think that homes are safe investments has fallen 13 percentage points (to about 70 percent) in the past seven years, according to a poll released this week by Fannie Mae, a mortgage finance company that has operated under federal conservatorship since 2008. A survey by the National Foundation for Credit Counseling last year had dovetailing results, with about half of respondents saying that home ownership is not a realistic way to build wealth. And the American homeownership rate is on the decline, from a high of 69 percent in 2004 to 67 percent in 2009, according to the Census Bureau.
Florida is among a growing number of researchers who think that these are signs that the United States is becoming a nation of renters, and that the shift could be good for our pocketbooks, the e conomy and even our happiness. It's a radical idea, one that goes against nearly a century of tax policy, not to mention the fact that owning a home has long been central to middle-class American identity.
According to Florida, every time the country experiences a great financial upheaval, the way we house people changes. In the 1870s, following the hardships of the Civil War era, Americans moved from farms to cities in droves. In the 1950s, during the postwar baby boom, we populated suburbs and reenergized the economy by purchasing houses, appliances, cars and fuel. Now, he said, people are moving back to cities and renting rather than buying homes. That will free them up to spend money on things other than mortgages and gas, he said.
"To grow a new economy that is going to allow . . . people to buy new experiential goods, to consume more art, culture and leisure, and buy all these new technologies, we are going to have to enable people to spend less money on housing," Florida hypothesized.
Kara Arsenault, 29, may exemplify this trend. Although she and her husband could buy a home in the suburbs, they opted to rent in the city.
"We have been casually looking at places, but essentially for the neighborhoods we'd be really excited to live in, the houses that are for sale right now, we can't afford," she said. Arsenault said she loves living on U Street because she is surrounded by dozens of restaurants, theaters and music venues.
"We both have pretty busy work hours, my husband particularly, so the time we have to hang out together is pretty precious," she said. "We decided right now we want to spend that time going out to dinner and going hiking and enjoying D.C., rather than fixing up a house."
Though she has seen interest in homeownership decline in recent years, Marian Seigel, president of Housing Counseling Services, a D.C. nonprofit group, thinks it's a short-term trend.
"People are going back to buying a home as a place to live and a savings mechanism, perhaps," she said. "But ultimately, people are prone to making the same mistakes and . . . I wouldn't be surprised to see mass hysteria around home-buying happen again."
That said, Seigel hopes that today's more cautious attitudes toward homeownership persist. Instead of seeing homes as a surefire path to financial independence, today's home buyers have a greater appreciation of the downsides, including the commitment to maintenance and mortgage payments, the loss of flexibility, and the potential for loss of value.
Cautious certainly describes first-time home buyer Lucia Olivera, 32, who purchased an Arlington condo in January for $50,000 less than the previous owners paid.
"How do I know it's not going to continue to go down?" she said. "I was very worried. . . . I read everything that I could find; I killed people with questions."
Even if her property value climbs, Olivera worries about how she would make her mortgage payments should she lose her job -- a fear that has been fueled by high unemployment rates nationwide. To allay those concerns, she has been squirreling away money and furnishing her place with hand-me-downs. Until she has enough savings to cover several months of mortgage payments, she said, she will continue to decorate her walls with pictures from calendars and use lawn furniture in her dining room.
"I really hate this couch," Olivera said, while perched on blue floral cushions. "But what can you do?"
While the uncertainties of the job market have made Olivera a scrupulous saver, they have given Brittany Bauccio, 25, many reasons to rent.
"If tomorrow I get laid off, okay, I am responsible for a month's rent and nothing else," she said. "The thing that scares me about owning is that, okay, well, I am responsible for a mortgage, and if I didn't have a job for three months, the money is getting tacked against me; it could destroy my credit."
That's a wise perspective, said Florida, because in addition to the financial responsibility, owning a home greatly reduces unemployed people's ability to move and find jobs. He points to the work of British economist Andrew Oswald, who argues that high rates of homeownership in the United States and Europe lead to higher rates of unemployment. "Part of the difficulty is not that unemployed people are themselves the home owners; it is that unemployed men and women cannot move into the right places," Oswald wrote 1999. "High home ownership levels block young people's ability to enter an area to find a job."
To buffer themselves against market volatility, homeowners are also taking long-term view of their purchases, said Leah Harris, a real estate agent with Long and Foster in the District. "People buying today are not looking to make a quick turnaround," she said.
Consider new homeowners Adie and Margot Tomer. The Tomers, both 28, bought a two-story townhouse in the Atlas District near H Street NE in March and plan to live there for at least 10 years.
"We are looking at this house as a home . . . it's where we are going to live, where we are going to have a family," Margot Tomer said. "Yes, it's a financial investment, and hopefully when we sell, it will be profitable. . . . But that's something that is so much out of your control."
These financially conservative attitudes may well stick with today's home buyers for the rest of their lives, said David Sleeth-Keppler, a psychologist who tracks consumer sentiment for the survey company Strategic Business Insights. That's especially true for people who came of age after the real estate crash, as beliefs tend to become more calcified while people are in their 20s, he said. People in their 30s and 40s, who grew up while home prices seemed to be on an endless climb, are more likely to return to flipping houses if another boom occurs, he said.
In addition to underscoring the volatility of the housing market, the crash seems to have undermined Americans' trust in financial professionals, Sleeth-Keppler has found. In a telephone survey taken in summer 2008, just before the stock market crash, 27 percent of respondents said they distrusted full-service stockbrokers, and 18 percent said they distrusted financial planners. A survey in February 2009, after the crash, showed that level of distrust jumping to 47 percent for stockbrokers, and 31 percent for financial advisers.
But while Americans' belief in financial institutions may be forever damaged, our dream of home ownership is probably sturdier, he said.
"The home occupies a special status in the American mind, and I think it's going to stay that way," Sleeth-Keppler said. "These ideals will remain, but there will be a much larger barrier to entry."
Indeed, while the Declaration of Independence said that Americans have the inalienable right to "life, liberty and the pursuit of happiness," that was somewhat at odds with the statement it was based on by philosopher John Locke, who wrote that people have the right to life, liberty and the pursuit of property. Tension between these two ideals persists to this day, said Grace Wong Bucchianeri, an economist at the Wharton School of Business.
In a study that Bucchianeri conducted in 2005, at the height of the housing boom, she found that among people with equivalent incomes, renters were significantly happier than homeowners, spent more time with friends -- and weighed 12 pounds less, on average.
"Another persistent difference I see between homeowners and non-homeowners, in terms of psychological well-being, is that homeowners consistently report that they feel more pain from their house," she said.
The economic crash has given Americans the chance to face up to these realities and begin making decisions that are in their best financial and psychological interest, she said.
For increasing numbers of people, that will involve renting, Florida said.
"The American dream, for many years, was about economic opportunity . . . before it got redefined as owning a single-family home in the suburbs," he added. "Now, those two things are rapidly coming into conflict for many people."