from Dollars and Sense, via AlterNet:
America's Exploding Mortgage Crisis Reveals That Home Ownership Isn't Paradise for Everyone
By Howard Karger, Dollars and Sense. Posted June 14, 2007.
Middle-class and poor families have been sold the idea that home ownership is the ticket to economic security, but mortgage vultures and soaring costs have turned buying a home into a financial nightmare.Anyone who has given the headlines even a passing glance recently knows the subprime mortgage industry is in deep trouble. Since 2006 more than 20 subprime lenders have quit the business or gone bankrupt. Many more are in serious trouble, including the nation's number two subprime lender, New Century Financial. The subprime crisis is also hitting Wall Street brokerages that invested in these loans, with reverberations from Tokyo to London. And the worst may be yet to come. At least $300 billion in subprime adjustable-rate mortgages will reset this year to higher interest rates. CNN reports that one in five subprime mortgages issued in 2005-2006 will end up in foreclosure. If these dire predictions come true, it will be the equivalent of a nuclear meltdown in the mortgage and housing industries.
What's conspicuously absent from the news reports is the effect of the subprime lending debacle on poor and working-class families who bought into the dream of homeownership, regardless of the price. Sold a false bill of goods, many of these families now face foreclosure and the loss of the small savings they invested in their homes. It's critical to examine the housing crisis not only from the perspective of the banks and the stock market, but also from the perspective of the families whose homes are on the line. It is also critical to uncover the systemic reasons for the recent burst of housing-market insanity that saw thousands upon thousands of families getting signed up for mortgage loans that were highly likely to end in failure and foreclosure.
Like most Americans, I grew up believing that buying a home represents a rite of passage in U.S. society. Americans widely view homeownership as the best choice for everyone, everywhere and at all times. The more people who own their own homes, the common wisdom goes, the more robust the economy, the stronger the community, and the greater the collective and individual benefits. Homeownership is the ticket to the middle class through asset accumulation, stability, and civic participation.
For the most part, this is an accurate picture. Homeowners get a foothold in a housing market with an almost infinite price ceiling. They enjoy important tax benefits. Owning a home is often cheaper than renting. Most important, homeownership builds equity and accrues assets for the next generation, in part by promoting forced savings. These savings are reflected in the data showing that, according to the National Housing Institute's Winton Picoff, the median wealth of low-income homeowners is 12 times higher than that of renters with similar incomes. Plus, owning a home is a status symbol: homeowners are seen as winners compared to renters.
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While homeownership has undeniable benefits, that doesn't mean it is the best option for everyone. For many low-income families, buying a home imposes burdens that end up outweighing the benefits. It is time to re- assess the policy emphasis on homeownership, which has been driven by an honest belief in the advantages of homeownership, but also by a wide range of business interests who stand to gain when a new cohort of buyers is brought into the housing market. The Downsides of Homeownership
Low-income families can run into a range of pitfalls when they buy homes. These pitfalls may stem from the kinds of houses they can afford to buy (often in poor condition, with high maintenance costs); the neighborhoods they can afford to buy in (often economically distressed); the financing they can get (often carrying high interest rates, high fees, and risky gimmicks); and the jobs they work at (often unstable). Taken together, these factors can make buying a home a far riskier proposition for low-income families than it is for middle- and upper-income households.
Most low-income families only have the financial resources to buy rundown houses in distressed neighborhoods marked by few jobs, high crime rates, a dearth of services, and poor schools. Few middle-class homebuyers would hitch themselves to 30-year mortgages in these kinds of communities; poor families, too, have an interest in making the home-buying commitment in safe neighborhoods with good schools.
Homeownership is no automatic hedge against rising housing costs. On the contrary: lower-end affordable housing stock is typically old, in need of repair, and expensive to maintain. Low-income families often end up paying inflated prices for homes that are beset with major structural or mechanical problems masked by cosmetic repairs. A University of North Carolina study sponsored by the national nonprofit organization NeighborWorks found that almost half of low-income homebuyers experienced major unexpected costs due to the age and condition of their homes. If you rent, you can call the landlord; but a homeowner can't take herself to court because the roof leaks, the plumbing is bad, or the furnace or hot water heater quits working.
Besides maintenance and repairs, the expenses of home°©ownership also include property taxes and homeowners insurance, both of which have skyrocketed in cost in the last decade. Between 1997 and 2002 property tax rates rose nationally by more than 19%. Ten states (including giants Texas and California) saw their property tax rates rise by 30% or more during that period. In the suburbs of New York City, property tax rates grew two to three times faster than personal income from 2000 to 2004. .....(more)
The complete piece is at:
http://www.alternet.org/story/53826/?page=1