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Another Way America Is Failing the Middle Class

The American middle class was built on the back of home ownership, which has been falling for twenty years. 2016 was no exception, Pew reports:

Even as home values climb back from the dramatic fall that helped set off the Great Recession, homeownership in the United States stands at its lowest level in at least 20 years. As of the third quarter of this year only 63.5% of households own their homes, down significantly from the modern peak of 69.0% reached in 2004.

A Pew Research Center analysis of Census Bureau and mortgage loan data indicates that the decline in ownership since 2004 has been more pronounced among households headed by young adults, blacks and those in the lower income tier. A substantial portion of the ongoing falloff in homeownership reflects fewer renter households transitioning to homeownership, rather than homeowners being forced out of the market through foreclosure or other financial difficulty.

Buying real estate is the way middle class families build wealth in America. Much has been written about stagnant wages, but the decline in home ownership is another reason most Americans are generally only as wealthy as they were three decades ago.

There are many causes of the home ownership decline, and one of the biggest has to do with the uncertainty of the modern economy. To sign a 30-year mortgage, people need to know that they’ll be able to make regular monthly payments. But even successful people often change jobs these days. Renting provides more flexibility, particularly in the expensive cities where many young people live.

These big-picture challenges and the trauma of the Great Recession notwithstanding, government policy ought to focus on helping people buy homes. As millennials move out to the suburbs, there will be opportunities to get them paying mortgages and building wealth for their families. Encouraging more movement to the suburbs is thus a very good way to help reverse the home ownership decline. We hope it becomes a priority for the Trump administration.

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  • Disappeared4x

    Perhaps the biggest obstacle to home ownership is the HGTV-paradigm that only reinforces the myth that every renovation adds value/equity. Overturning this paradigm is difficult. Too many houses are fixers, and too many fail too realize that they need to invest in remodels solely to maintain the value, NOT to increase it.

    My epiphany came during six months of house hunting this year. One home, listed at $170K had had $84K of renovations. Longtime owners had understood they needed to renovate to sell, not profit. For other reasons, I passed, and kept looking. The new dilemma was that I was being told to NOT seek a renovation mortgage, hamstrung by federal regulations*, unless I could find an equity-in-place listing, which meant the location supported the addition to value.

    Also, I agree with all the concerns over how Dodd-Frank has ‘over-regulated’ the mortgage market, as my mortgage process revealed an avalanche of paperwork so cumbersome I had to review and sign all docs online, after first printing them out to actually read all the fine print. My signature is an electronic font.

    However, Dodd-Frank seemed to have ignored meaningful reform of the appraisal. My first attempt to buy led to an appraisal so faked that I refused to proceed, after being told that NO ONE was allowed to contact the appraiser to make what was a very simple, but significant, error. That mortgage broker was fired, and I then bought a different home, even though THAT appraisal also used sketchy comparables. Lose, lose, lose.

    Now that interest rates are rising, the peak prices of summer2016 will cause another round of misery. This is a new housing bubble, and younger people will have to rely on their parents to fund any down payment, possibly by refinancing those basements…and also rely on Fake Appraisals.

    *the FHA rules are now politicized, e.g., hardwood floors are considered too much of a luxury for a renovation mortgage, but anything that is energy efficient is favored. Irony is that hardwood floors in a market where carpet rules actually DOES add equity because of such strong demand.

  • Beauceron

    Nobody cares about the middle class.

    Most of them are white. Or at least too many are white to be politically sexy. In any case, there isn’t much of a middle class left. We are becoming a country of wealthy elites in coastal enclaves, groups that get by on minority rights grievances, and angry fly-over state deplorables.

    In the 70s the middle class made up 61% of the country, an overwhelming majority. It is now at 50% and continuing to drop. The wealthy class has stayed pretty much the same, the lower middle class has stayed pretty much the same–what has increased are those on the bottom. Part of that is certainly caused by the flood of third worlders who don’t speak English and don’t need or care to learn it. But the other part are families who live in the fly-over states who have fallen into poverty. That class will continue to grow. Nobody cares about them. They have the misfortune of being born white in 21 Century America, so they don’t get the college entrance and scholarship help or government contracts help, or job quotas help that minority poor have available to them.

    I was on a subway last week with a man who was railing about Trump’s election and how he is a fascist– the usual Leftist nonsense you hear every day in NYC. What was unusual was that he kept referring to the whites who votes for him as “subhuman.” Not just racists, not just people who should be beaten and killed– although he did go on a riff about that for a while. But he kept calling using that word, “subhuman” over and over. It was chilling.

    The Achilles heel of the white middle and lower classes is that they still believe in a country where half the citizens openly hate their guts. I mean HATES them, really and truly hates them. In truth their biggest mistake is that they’re patriotic, those fly-over rubes.They need to start hating this country– not Democrats or the Left, but the nation as a political entity. That country — all of its elites and half its citizens– are actively, consciously doing what they can to destroy them. They need to start defending themselves.

    • Disappeared4x

      Were you on the #1 or “D” subway line when exposed to this rant? Your post is quite good, but I disagree that we have to start hating “the nation as a political entity”. I tried that past four years, because of the CTRL-Left. It was easier to disappear.

    • f1b0nacc1

      Don’t give up so easily my friend….perhaps the tide has turned. I am an optimist, I admit, but all you need to do is listen to the unhinged nature of the rants to see how deeply the bad guys have been wounded. Heck, just enjoy some of FG’s grumbling to lift your spirits!

    • RedWell

      Hey, why stop there? Throw in some “states rights” and “stab in the back theory” and you can leave responsible conservatism behind in favor of full-blown nationalism.

      • Beauceron

        How would increasing states’ (possessive “s” there, buddy) rights usher in “full blown nationalism?”
        Increasing the power and responsibilities of the states and decreasing the power of the federal government would be the very opposite of a nationalist movement.

  • Remember Coase’s Law. Which would you rather have: home equity, or a big 401K account? It’s a matter of preference, and no reason for the government to advantage one over the other.

    My son has chosen the 401K.

    • Jim__L

      Just wait for the government to raid 401Ks to cover public sector pension debts…

  • Boritz

    “Buying real estate is the way middle class families build wealth in America.”

    And them some “well intentioned” (TAI’s incessant term whenever it has analyzed the housing bubble) politicians decided that achieving middle class status before owning a home and building that wealth was completely unnecessary and the only real barrier to home ownership was insufficient government coercion of mortgage lenders. They proceeded to ruin the housing market as a prelude and a warm-up to ruining health insurance and healthcare delivery. See if you can spot the pattern.

    • JR

      As a spokesman for Comrade FG I have two comments:
      1. The only pattern here is not enough power was given to the State. More was obviously needed.
      2. All of this could have been avoided if we just raised taxes to confiscatory levels above a certain randomly determined level.

      That is all….

      • FriendlyGoat

        One would think a mortgage trader would have some independent and useful insight to the subject problem and not have to run around in an FG (whoever he is) mask.

        • JR

          I mean, yeah, Boritz is right. Left-wingers used the mortgage market to do social engineering with predictable results. Do you want me to join the Hallelujah chorus?
          FG is you, silly. I was making fun of your well known propensity to rail for the unlimited power of the State and for ever higher levels of taxation. It’s funny to people. Maybe not to you personally, but to others… I was making fun of you to make others laugh. Whew, I feel like I just did a lot of talking to somebody with a bit of Alzheimer’s. How’s your brain holding up there, pops?

          • FriendlyGoat

            What a jolly idea! While you’re pretending to be an economic wizard, I could pretend a case of hopeless dementia, never remembering who you are or what you have ever said. That way, I could ask you the same stuff over and over. Let’s see, KR (close enough), weren’t you the sweet LGBT activist from San Francisco? Pelosi fan and all?

          • JR

            I never pretended to be an economic wizard. I have been educated in economics and I make my living of my knowledge of economics, but the claims of wizardly skills is yours, not mine. I’m friends with people who are way more successful than me. Does that make them Super Wizards?
            You can do whatever you want. Why would I stop you? The most important question is, are you amused? If the answer is the affirmative, I say go for it. Funny thing is, I’m a huge Pelosi fan. Running against her has been Republicans great and butter for about a decade now. why stop what works?

          • FriendlyGoat

            Thanks, LR. Be sure and let me know how the fishing is going at the Lake of the Ozarks. Ah, central Missouri.
            Isn’t that where you’re from? Hey, you know? It’s not that far from there to Branson—-great country music. Toodledoo! I’m off to the lawn to pursue the gophers.

          • JR

            I like you when you are high. A lot less dogmatic and unpleasant.

          • FriendlyGoat

            Never been high in my life, ZR. Golly those gophers are pesky. Trying mothballs this year since shotguns can be a tad disturbing to the neighbors. Gonna buy Obama’s memoir when it comes out? You’ve got friends in Kenya who knew his old man, don’t you?

          • JR

            I’m happy that you are happy.

          • FriendlyGoat

            Oh, how nice, sweetie. You must be someone’s delightful daughter.

          • JR

            Tell us some more about high taxation increasing employment, grandpa!!!! You always told such fanciful stories…

          • FriendlyGoat

            Oh, yes honey. How’s the weather there in Florida? I bet you eat lots of good oranges, now don’t you?

          • Jim__L

            THIS is quitting any time you want?

          • FriendlyGoat

            Mind your own business. There are many ways to deal with JR.

          • Jim__L

            True enough. But this doesn’t look like quitting.

            FG, you call me on it when you think I’m fooling myself. Just returning the favor.

          • FriendlyGoat

            I never said I was ready to “quit” by conceding this space to cynics. I said that I “can” at any time—–just like you can. You could be putting your commentary most anywhere other than here. We all can.

          • Disappeared4x

            JR: perhaps you meant “Republicans BreaD and butter” ?
            The irony is Pelosi out-did Tom deLay on bully tactics to keep her dwindling caucus in line.

          • Bob

            Is it necessary to throw insults? It seems to me that it would be better if you just make an argument based on the merits.

          • JR

            Believe me, many have tried to make arguments based on merits with Comrade FG. You are more than welcome to try if you like.
            Most have either stopped talking to him entirely or, like me just mock him. I mean, he thinks increasing taxes on corporations and small businesses INCREASES employment. How am I supposed to NOT insult that?

          • FriendlyGoat

            Hi, Bob. If you’re new here, you should know that JR has been driving me (FG for FriendlyGoat) absolutely crazy for well over a year. I decided, just here today, to oblige him with my new faux dementia act (below). Nothing else has worked on him. He’s a hard economic conservative. I’m not.

    • Frank Natoli

      You are referring to the Carter Administration’s “Community Re-investment Act” a/k/a CREEP, which was given fangs by Clinton’s Reno, who let banks know if they didn’t make loans to people they knew were not credit-worthy, their licenses would run into “difficulty”. Nice bank you have there. Too bad if something happened.

  • FriendlyGoat

    While Bernanke was right about not letting institutions go down en masse in 2008, it has never been entirely clear why sending the lending community (and those “toxic” bundled-mortgage bonds) a lifeline by helping homeowners make their payments would not have worked just as well as helping the institutions only.

  • Eurydice

    A lot of people already have a 30-year mortgage – it’s called a student loan.

    • Jim__L

      Student Loans… Yet another way that America is failing the Middle Class.

      It used to be, that University educations were far, far cheaper — a whole lot fewer frills, a whole lot more bang for your buck. I still remember my folks taking me around Berkeley when I was small, pointing out the drafty old WWII-era lecture halls. If schools still made do like that, rather than demanding the top-of-the-line luxury buildings (lecture halls, dorms) you find at places like UCI, if you still had the old practical majors instead of useless Grievance Studies majors and the parasitic administrations that go with that… student loans would be a whole lot smaller, and far easier to repay.

      A college education might even lead you to a large enough marginal return to land you comfortably in the Middle Class, instead of the marginal return (after financing is taken into account) trending towards zero for everyone, and negative for too many.

      But no, the Great and the Good decided to open the floodgates of funding. When you get that many more dollars throwing themselves at Universities, what is anyone expecting to happen, but severe bloat in University budgets? And when some prudent students cried that tuition was going up, what did the Great and the Good do, except open the floodgates wider, exacerbating the problem?

      Oh, but an aggressive and well-funded indoctrination infrastructure, and fond memories of a paradisaical, luxurious (promiscuous, drugged-out, but above all Government-Doled and -Controlled!) “college experience” that a private life straitened by student loan payments could never hope to meet — that is just what the Left wanted, to assemble the foot soldiers for its radical agenda.

      It’s the same strategy the assassins used. What was required to end their reign of terror was for the Mongols to come through with fire, sword, and massacre, to take down the Old Man of the Mountain, and free the people of Asia from his murderous grip.

      It’s possible that the same thing will be required in our University system. I hope we can find a more civilized way to do it, but hey, you gotta do what you gotta do.

      • Eurydice

        Oh, I don’t think the Left (or any other political group) is smart and well-organized enough to maintain a long-term agenda. I think it’s more a series of short-term ideas that have metastasized. As for the Mongols, maybe and maybe not – but untended problems can become large enough until they cause a collapse somewhere in the system, whether Trump is president or not. So, with the prime consumer generation loaded down with school debt and without great prospects for a job (not to mention a whole different definition of The American Dream), why wouldn’t we expect homeownership to go down?

        • Jim__L

          I agree, home ownership should be expected to decline because of student loans.

          Instead of an asset that has a prayer of appreciating, “lifelong learning” boosters are telling kids to load up on debt with an asset which is not, by their own admission, life-long. I think it would be best if something catastrophic happened to these people…

          … Like having to change their minds, because they realize that they’re so very, very wrong.

          • Eurydice

            Well, theirs are the screams of the mastodon in the tar pit. But it’s not wrong to believe in life-long learning of some kind, considering how peoples’ lives are getting longer – 16 years of education aren’t enough for 80+ years of life.

            But to get back to housing – it’s not clear to me that an Uber generation is necessarily drawn to the idea of homeownership – they have different measures of wealth and success.

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