Ricardo and Denise Cabrera were so burned by the last housing crash that it is hard to believe they’re vying to become homeowners again. In 2005, the couple bought a starter home for $490,000 just outside of Los Angeles through a no-money-down, interest-only loan. By 2009, after the market crash, that same home was worth roughly $150,000 less.
Now, after five years of renting, the Cabreras are once again putting their faith (and savings) into the housing market—this time, through a 10 percent-down mortgage on a five-bedroom, Cape Cod-style house in the San Fernando Valley, on the edge of Los Angeles. The seller accepted the couple’s bid of $530,000, after receiving roughly 20 other offers, Ricardo says. With the property now in escrow, the Cabreras and their children, ages 9, 5, and 4, hope to move in by the end of February. “For me, the house is something we can pass on to the kids,” Ricardo says. “Paying rent is just like throwing your money away.”
The ideal of American home ownership may have been tarnished during the recession, as the values of so many homes plummeted and the number of foreclosures across the country soared. But for many Americans, like the Cabreras, the emotional rush of buying a home still represents a significant marker of stability and financial success. Buying often gives families access to safer neighborhoods, better schools, and more services than renting. And, like it or not, home ownership still offers the best way to save money for the majority of Americans by building up equity, especially in this era of dwindling pensions and stagnant wages. “It is a forced saving mechanism, and if you don’t have to think about saving, it goes better,” says Brett Theodos, a senior research associate at the nonpartisan think tank, the Urban Institute.
The overall result has been a dramatic decrease in American homeownership. In 2013, the U.S. homeownership rate fell for the ninth straight year, clocking in at just 65.1 percent, the lowest level since 1995, according to the Joint Center for Housing Studies at Harvard. First-time homebuyers, young people, and minorities participate less and less in the housing market. The big philosophical debate is when, if ever, they’ll come back and what that will mean for their wealth over the long run.
Housing expert, Sarah Edelman of the liberal-leaning think tank, the Center for American Progress, argues that policymakers need to take a two-pronged approach to home ownership. First, they must acknowledge the value of people building up equity in their homes. And second, policymakers should continue to pursue other approaches to help both first-time homebuyers and renters save. “The majority of first-time home buyers may not be able to come up with a 20 percent down payment,” she says. “For the future health of the housing market, we must make sure families who can afford to buy a home do.”
Most importantly, they view their new Cape Cod-style house as the best asset they have to leave to their children. “I don’t know what the hell the market will be like in the future,” Denise says. “But I want to provide something for them.” That’s exactly the sentiment that keeps Americans returning again and again to home ownership. Read more…