Saturday, February 19, 2011

Homeownership loses its luster

The economic downturn and stricter mortgage standards are driving much of that decline, but economists say there's also a growing belief among many that they can live better by renting rather than straining their finances to buy a house.

Adding to that is a sense among many younger adults that they will need to move for their careers, making them hesitant to buy lest they be forced to sell at a loss.

"We're becoming more of a renting/sharing society," said David Sleeth-Keppler, a psychologist who tracks consumer sentiment for Strategic Business Insights. "People are staying less bogged down, in case something bad happens."
The pundits are saying people are so traumatized by the enormous volatility in residential real estate during the previous decade that they see homeownership as too risky an investment. However, as long as mortgage interest remains income tax deductible, that tax policy will provide an abiding incentive to own rather than rent and a hedge against downside investment risk.


gnut said...

Perhaps some of the 60,000,000 home "owners" who are governed by some type of HOA corporate government have discovered that their ownership is merely an illusion, because their home is really the HOA corporation's castle.

While homeowners in HOAs have less rights than renters, they have more obligations.

Although the HOA corporation does not contribute to the mortgage, maintenance, or repair of (single-family) homes, they do impose all sorts of "unfunded mandates" upon homeowners. And those mandates are backed with the the very real threats of fines, liens, and foreclosures.

Conservatives and libertarians like to repeat the mantra that homeowners who are unhappy with their HOAs (all 3 of them, according to the C.A.I.) can just leave if they don't like it. It takes a special detachment from reality to believe that all consumer choices -- from changing brands of breakfast cereal to changing homes -- are equally free.

Family, job, and mortgage obligations aside, a homeowner who is being abused by his HOA may have the sale of his house blocked by the HOA. Or the HOA may prohibit a homeowner from leasing, making it financially difficult, if not impossible, to move.

Although they are private corporations, HOAs have no incentive -- zero, zilch, nada -- to treat the homeowners as customers. The profit motive ensures that it can be no other way, because the professional property managers and HOA attorneys profit from creating strife and conflict, with the risks and costs of their actions borne by the homeowners (up to an including losing their homes to whatever debts and liabilities the HOA corporation creates, because HOAs are defective as corporations).

And even if a homeowner does manage to escape, either by sale, foreclosure, etc., there will always be an owner of record obligated to pay the HOA corporation, even if it's the bank. The association itself might struggle, but the professional property managers and HOA attorneys who actually run them will continue to do very well.

Landlords, on the other hand, do not make money if their property is vacant. A tenant who is not being treated well has a lot more freedom to pick up and leave than a home "owner" does, risking only a security deposit. In theory, landlords have more incentive to treat their tenants better than HOAs do their mandatory members.

Just because HOAs are private entities does not mean that their behavior is dictated by some theory of free market forces; something that conservatarians just can't grasp. To quote an earlier comment of mine, "HOAs are a system that have risk distortions, moral hazards, and incredibly perverse incentives built into it. The profit motive ensures that homeowners governed by the current HOA structure will be abused; it can be no other way."

There are many reasons that home ownership has lost it's luster. But I bet that there are a lot of people out there who would like to own a home, but realize that until the current HOA system is fixed (or abolished, I don't believe it can be fixed), owning a house can be like contracting yourself into slavery.

gnut said...

This was supposed to be a footnote to my previous comment, but got cut off due to the 4,096 character limit. This footnote is really more about the dichotomy of conservative/libertarian attitudes towards HOAs, and not about the luster of home ownership.

# # #

* When John Stossel wrote that private corporations "cannot compel payment through the power to tax," he displayed a profound ignorance of the situation that 1/5 of the American population lives in.

He is, however, able to see that labor unions "enjoy the power to compel virtually all of their members into supporting the unions’ advocacy, regardless of how the individual worker feels about that agenda."

That conservatives/libertarians/Tea Partiers/Ayn Randians see mandatory membership in a labor union as a condition of employment is a bad thing that must be legislated out of existence ("right to work" and "paycheck protection" laws), but mandatory membership in an HOA union as a condition of home ownership is a beautiful example of the free market at work, makes me believe that the current political climate does not favor legislative reform, or abolition, of HOAs.

These people really believe that privatizing Communism into Communism Inc. makes it workable. And when it doesn't work, they just use the same excuses that the previous group of "useful idiots" did; (1) it can work if the right people are put in charge ("you should join the board"), and/or (2) people aren't good enough for it, so some form of authoritarianism is necessary.

Unless the the grass roots that makes up the Tea Party movement can realize that corporatism, capitalism, free markets, and economic liberty are not always the same thing -- something the conservative and libertarian pundits won't tell them that, because it would offend the ghost of Ayn Rand -- they'll simply trade The Road to Serfdom for The Privatized Toll Road To Serfdom.

A conservative is a liberal who's been mugged
A libertarian is a conservative who's been arrested
What do you call a libertarian who's been abused by his HOA corporation?

Anonymous said...

From the comments section of the LA Times story:

"Rent vs buy is all a matter of lifestyle choice and cost. Remember, rent is forever."

So are HOA dues -- even after the mortgage has been paid off.