About five or six years ago, home ownership did matter. It was considered a great asset, a place to live, you know... a home. Once the technology bubble bursted, the Fed dropped interest rates. This, in turn, reduced mortgage rates to all-time lows. Investors getting out of stocks and investment portfolios started buying up houses. Low interest rates and a new class of investors started looking for houses in good markets. As manufacturing dried up in the nations wide-open spaces, more people moved to the coasts looking for work. Areas with most of the work -- the Northeast, California, and government centers such as DC Metro and military bases started getting a new influx of midwestern-Americans and a steady stream of immigrants working in the construction and retail industries. So demand for housing goes up, there is easy money available through Fannie Mae and Mac, and there are too few houses. So housing prices double in 4 years. If you have a house, you borrow $100k against the rising home prices and buy a Jag, maybe redo the kitchen and bathroom. Easy money. But you have to pay that off, don't you? In order to get people into these homes, exotic mortgages come in. You pay interest-only on an ajustable rate arm for 5 years. Then the payment per month doubles! Oh well, you say, we'll just sell it or refinance. Right? What if your house isn't worth as much because the market cools.? What if interest rates have been raised 12 times in a row? Now, a house is a liability. It is a payment that you make every month, and it might keep going up. Property taxes are higher. You might end up upside-down, owing tens of thousands of dollars more than you could sell the house for. But you have to buy now, or you'll never get in the market! It will go up forever! The American dream of homeownership has been destroyed over the last 5 years thanks to the short-sighted policy of the Federal Reserve and the lack of oversight to Fannie Mae and Mac.
The mortgage deduction is one culprit, not the whole problem. But Mike pretty much has it right on all other counts. I also agree with MattR that Freddy Mac, Fannie Mae and Ginny Mac are culprits as well When I say unsustainable, I mean that people that live in cities naturally use resources more sparingly due to common structures, the use of public trasportation, and the ability to share common utilities. The further we move away from each other, the more gas and oil we use, the more lumber we use, the more high tension line we need to lay, etc. As we are experiencing an energy defecit in this country while continuously increasing the demand we will reach a breaking point at some time. And it's no one's fault but ours
I am currently renting a 1br, 1bath duplex for $1500/mo. A similar condo in the same neighborhood costs $575K with $300 maintenence. Total cost for the condo is approx $2300/mo after a standard 30 yr mortgage, PMI, Insurance, taxes and maintence. I assumed a 3% inflation rate on the rental and an anual 7.5% ROI on the invested money
What amazes me is there's no consideration of terrorist activity Luckily we haven't been attacked. But there's no guarantee of that in the future. Say it happens in DC (or even elsewhere), if it's serious enough housing prices could go down dramatically, or does anyone think otherwise
Terrorist activity ? Why not worry about something thats much more likely to happen like a hurricaine or earthquake. But take terrorist activity as an example...how are property values in Lower Manhattan doing right now ?
A bit slow. For instance 7 WTC which is a new 40 story tower under construction right now and scheduled for completion this year has only one lease signed for two floors.
I don't know if I agree. It's certainly cheaper to send 2.5MA of service to a 6 story walkup than 150A to 24 individual homes.
How about a single tax on land? As a tax lawyer, I think the current tax system is awful and want desperatly someone to come up with a system that puts me out of a job (this way, I can go become a school teacher -- what I really want to do). That was part of the condo/co-op movement at one time. People want to own. And you can own in the city. My cousin lives in Brooklyn and owns his house (actually, my great grandfather had his bread shop there). I live in Chicago and own my house. And while I like living in cities (I guess that makes me an "Urban-con"), there may be an evolutionary reason for the suburbs. Namely, humanity evolved on the savanah of Africa, and maybe people want their own little piece of the savanah. As for why cities failed, white flight was mostly an effect of city failure. My parents moved out of NY City because of the failing schools, failing infrastructure and riots (also, my father's job moved to the suburbs, though he reverse commuted for about 7 years). My mom hated it to be sure, but my Dad moved having his little backyard. I agree that oil consumption is a national security issue, but I doubt sprawl alone is to blame. Now if you want something against the mortgage interest deduction, I have heard it asserted (though I have never independently examined) that the rate of home ownership in Canada (with no mortgage interest deduction) is approximately the same as the United States.
About the terrorist attack causing home prices to fall. My wife and I were looking for a condo in New York in the summer of 2001. Prices went way up AFTER 9/11.
So it's the old construction/new construction debate. I would think that the payback period on the 6 story walkup is much quicker than 24 individual homes, seeing that you are making one cut in a street that usually has sewer caps for maintenence, as opposed to so many feeder lines. I'm not sure about water pressure anywhere else but the aquifers that supply NYC are approx 120' above sea level and they supply constant pressure for buildings of 8 stories and below. Higher buildings use wooden tanks mounted on the roof to balance pressure. Still doesn't take away form the argument that city livers use less resources than suburbanites and exurbanites
It was both a cause and effect. The tax base started moving away because the infrastructure was failing, causing more people to move away, etc. I also wonder if part of the reason for the anti-suburb feeling is plain snobery. Back in the days, the suburbs (as they existed) were the preserve of the rich and the well off. Then after WWI, the local railrods started to trun some of teh old famring communities into protosuburbs. But still, the ownership was probably higher on the socio-economic scale. Then comes WWII and the GI Bill. You have all these young GIs, married, and screaming for homes (with cheap loans to pay for them). Suburbs now start to reach down deep into the working class. You have assembly line homes. Suburbs are no longer the preserve of Gatsby and Nick Caraway. So they go from having "snob appeal" to being looked down on as common.
...because interest rates went negative in real terms. If there was another major terrorist event, I doubt the scenario would repeat itself. Prices have been bid up so high in major cities that even a lowering of interest rates is unlikely to stimulate demand that much.
Possibly. The dumb thing is that both the Anti City and Anti Suburb feelings are both based on 40 year old steryotypes.
I agree with you on that. When I lived in Brooklyn, my Long Island based cousins had the impression that where I lived (first Italian-Jewish-Polish-Artsy Williamburg, then Brooklyn Heights aka Yuppieville) were free fire zones. My Brooklyn based cousins were surprised my Long Island based cousins had running water and electricity.
But when you cut the big city trench you are not just servicing one 24 unit building. You are servicing a whole block which could consist of thousands of units. Split this many ways, surely the utilities are cheaper in the city per person. I do assert that city dwellers use less heating oil since some cities have extensive steam systems constructed to use the heat byproduct of the electrical systems. They also use less fuel oil and electricity due to the size difference of living spaces Throw in the signifigantly less gasoline used and my argument stands. The discussion had nothing to do with subsidies, just the use of resources.
Let's say you have $2,000 left every month before housing. Question, would you prefer giving it to your landlord or your banker? Answer that and you've answered the home ownership and related questions.
You don't live in a normal market. No way can you take NYC info and extrapolate to the country as a whole.
Well it's not like I'm out to buy a house to live in anywhere else in this country. To rent out, that's another story. And before you jump on me, yes it is prudent to own property that you are making money on.
Cities have been the more efficient economic units through history. That doesn’t have to be the case in the future. There are a lot of jobs that you can do from home.