By: Gary Bauer
March 10, 2011
One of America's most revered institutions is under attack. Since our nation's founding, it has been a leading driver of wealth accumulation and social stability - at the heart of the American dream.
I'm not talking about marriage or the family - though the erosion of these vital institutions also helps explain the beleaguered state of this American ideal. I am referring to homeownership.
Pundits and economists across the political spectrum are now bemoaning America's homeownership "fetish." I understand the pushback. This view of homeownership as a U.S. birthright contributed to the housing bubble, which, when it burst, exacerbated the financial crisis.
But homeownership ought to remain an American ideal. And if America can recommit to its core values, it will.
Housing statistics now paint a bleak picture. New home completions fell 9.5 percent in January, to an all-time low of 512,000 units. This followed the worst year for new home sales in nearly a half-century. A quarter of homeowners remain underwater - meaning they owe more on their mortgages than their homes were worth. Home values have fallen 26 percent since the June 2006 peak, according to Zillow, the real estate publication, worse than the 25.9 percent decline during the Great Depression.
Until recently, the federal government's attitude toward homeownership reflected President Franklin D. Roosevelt's declaration that a nation of homeowners was "unconquerable."
The Homestead Act of 1862 granted applicants freehold title to up to 160 acres of undeveloped federal land outside the original 13 Colonies. The National Housing and Community Reinvestment Act encouraged homeownership for Americans with middle and low incomes. Americans have always been encouraged to own land and homes.
It's no wonder why. Homeownership brings a host of benefits. It promotes saving because with each mortgage payment, the borrower increases equity in his or her home. Studies show that homeowners are more invested in their communities, devote more resources to the upkeep of their homes and property and care more about what happens in their neighborhoods.
Homeowners are more likely to vote. Their children are less likely to quit school or get into trouble. In one study, the homeownership rate was the second most powerful variable - after income - in explaining differences in crime rates throughout New York City.
Whether homeownership creates better citizens or vice versa is debatable. What's clear, however, is that it makes for better citizenship.
The benefits of homeownership, however, are probably of little consolation to the millions of Americans who have defaulted on their home loans or whose homes are in negative equity.
During the housing boom, the mentality of some lawmakers, lenders and buyers came to reflect the worst values of our culture: greed, immediate gratification and conspicuous consumption.
The housing crisis was brought on, in part, when politicians encouraged those without the means to buy homes. Borrowers often lied on mortgage applications about their ability to repay loans. Lenders often failed to be clear about teaser rates, which would adjust upward.
Many borrowers didn't understand, and in many cases didn't take the time to understand, their mortgage terms. All parties seemed to believe it wouldn't matter because skyrocketing home values would continue indefinitely.
For homeownership to recover some of the status it once had, we must rediscover the values that informed American growth: personal responsibility, patience and modesty.
Certainly, stronger underwriting standards - which require the borrower's full income, asset and debt documentation - are needed.
Prospective borrowers can no longer regard homeownership as an investment that can appreciate yearly. When housing prices are up, homeowners must realize that prices could easily fall. And homeowners should think twice about taking on home-equity credit lines or second mortgages.
They need to look at their houses first as homes and second as investments. Recent college graduates and unemployed individuals shouldn't expect to buy homes with little or nothing down. Down payments of 10 percent to 20 percent of the purchase price should again be the norm. For if personal responsibility means anything, it means not walking away from underwater mortgages.
Americans are beginning to take a more sober approach to their short-term housing prospects. A December Fannie Mae survey found that more Americans expect to rent their next homes.
But polls also find that a resilient public - even those hit hardest by the housing crisis - still aspires to homeownership. The Fannie Mae poll showed that 19 percent of respondents said the housing crisis had made them more likely to rent, while 27 percent said it made them more likely to buy, and 51 percent said it had little or no impact.
Even 34 percent of homeowners who are underwater said the crisis had made them more inclined to buy a home, while only 18 percent said it made them less inclined to do so.
Clearly, Americans are reconsidering what the homeownership ideal means. But that doesn't mean homeownership has ceased to be an ideal.
Gary Bauer is president of American Values and chairman of the Campaign for Working Families.