Is America’s system of homeownership just a mirage?
That’s the question Wall Street Journal economics editor David Wessel asks. The graph below compares the the peak homeownership rate, the current rate, and the percent of homeowners with positive equity for 10 of the largest U.S. metro regions. Less than half of homeowners have positive equity in their homes in eight of 10 of these metros: In Las Vegas, the figure is less than 20 percent.
Felix Salmon has already pointed out the level of underwater mortgages poses economic problems as well as tremendous personal economic pain. But Wessel notes that the success of a country’s homeownership and home-financing systems should be judged not just in terms of what percentage of people own their homes, but how it performs in down times.
Wessel quotes San Diego State University housing economist Michael Lea as saying that the U.S.’s mortgage-financing system has fallen victim to two significant crises – the savings and loan crisis of a couple decades ago and the recent crash. Lea goes on to compare the U.S. to other countries with similar or higher homeownership rates; his conclusion: The U.S. is much more volatile and more often needs to rely on government bailouts to restore system functioning.
Wessel points out that the ability to constantly refinance homes and mortgage loans makes the U.S. system less effective and less stable.
Most other countries rely on mortgages in which the rate is fixed for only three to five years. In the U.S., one usually can refinance a mortgage without penalty to take advantage of lower rates. More than 70% of mortgage applications filed in early June were for refinancing existing loans, the Mortgage Bankers Association says… The cherished right to repay a mortgage and get a cheaper one creates a huge, lucrative refinancing industry… And it creates a need for Fannie and Freddie, which may end up costing taxpayers more than any other element of the much-reviled bailouts.
The U.S. has altered its housing system during previous crises and Great Resets. It’s time for another major overhaul.