Government Program Competes with First-Time Home Buyers
If there should ever be a great time to be a first-time home buyer — it should be now. Mortgage rates are at historic lows. Prices have fallen almost 30% across the country since the peak. Builders continue to add supply into already saturated markets. Yet, as the Wall Street Journal reports, potential first time home buyers are facing stiff competition from investors…and from the government.
Congress has appropriated about $6 billion to local and state governments to buy foreclosed properties. President Obama is proposing to add another $1.5 billion that could be used for similar purposes. The argument is supposed to be that these funds would eliminate the negative impact of foreclosures on communities, while also providing shelter to needy families. Part of the program’s rationale is that local governments’ will select a better group of tenants and purchasers that would private investors (the history of public housing should rebut that assumption).
With the exception of cities like Detroit, Cleveland and Buffalo, many of the country’s boom areas still have significant population and other amenities (like sunny weather). Many people would continue to choose to live in these areas, if only they were more affordable. After all these years of massive subsidies for home-ownership, there seems a great irony in having the government now be one of the largest barriers to families achieving home-ownership — by using tax dollars to bid up and compete away existing homes.
Homeownership Myths
In a recent Washington Post op-ed, Professor Joseph Gyourko, chair of the Wharton School’s Real Estate Department, lists what he sees as the five biggest myths about homeownership. Given the central role of federal housing policy, particularly Fannie Mae and Freddie Mac, in our recent financial crisis, it is worth following Professor Gyourko’s suggestion and question whether a national policy of ownership, all the time for everyone, really makes sense.
Professor Gyourko’s five myths:
1. Housing is a great long-term investment.
2. The homebuyer tax credit makes buying a house more affordable.
3. Homeowners are better citizens.
4. It’s safe to buy a house with a very low downpayment.
5. Owning is always cheaper than renting.
You’ll have to read the op-ed to see his explanations. An important qualification on his analysis is that in many cases what can be good for the buyer, such as putting no money down, may not be good for the economy if it results in additional foreclosures.
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