For many families, a house can be a bad investment
It's what take places when low-income families who have bought their first houses are forced out because they can't keep up the mortgage payments. Says Wilkins, an Indianapolis consumer advocate who once worked for Fannie Mae selling foreclosed properties: "I don't care if you put five families in the front door if three families fall out the back door”. Measures to increase the rate of low-income homeownership have historically been strongly supported by both Democrats and Republicans, as well as homebuilders and banks one way to stop foreclosures. Fannie Mae and Freddie Mac, the giant mortgage-finance institutions, have justified their existence by their promotion of homeownership among the poor. More recently, boost up low-income home buying has been an important part of what President calls the "ownership society."
Advocates say ownership builds wealth while promoting responsibility.
Misguided Policy
Despite conventional wisdom, extensive research has shown that homeownership is not the most reliable means of building wealth for low-income families, especially those with unreliable incomes and few other investments. Over the long run, home prices tend to rise more slowly than other assets, such as stocks. Moreover, poor families are now so easily able to tap their home equity to pay pressing bills that many don't accumulate wealth. Finally, as more poor families buy homes with low-down payment mortgages, the odds of seeing their investments wiped out goes way up. Last year, Congress passed the Bush-backed American Dream Down payment Act, which gives money to low- and moderate-income families to help cover their down payments for Federal Housing Authority-insured properties supporting them to stop foreclosures.
Meanwhile, Fannie Mae is aggressively promoting lending to low-income families. As owners, they are in a position to benefit from rising home prices. Says a 2002 study by the Housing & Urban Development Dept.: "Over time, purchasing a home has proven to be an effective wealth-building strategy for millions of Americans.... When housing prices rise, the benefits flow to all income levels." From 1975 to 1995, the inflation-adjusted rise in house prices nationally was just 0.4% a year, nevertheless government interventions hadn’t stop foreclosures of houses for the poor sector of the contry .
A Harvard University study of house sales in Philadelphia, Boston, Denver, and Chicago from 1982 to 1999 found that sellers of low- priced homes lost money 20% to 40% of the times, once transaction costs were taken into account, it seems that to gain from sell is to stop foreclosures and just sell it when the tide is right. naturally, the odds of taking a loss were higher if the seller bought after prices had already risen. Economists William N. Goetzmann and Matthew Spiegel of Yale School of Management argue that low-income homeowners would do better investing in lower-risk, more-liquid assets such as stocks and bonds. The argument that owning a house forces low-income families to save is also flawed.
Today, however, it's easy to get home-equity loans, which allow people to extract whatever wealth they've accumulated. Several other factors make homeownership a worse deal for low- income families than for the middle class and the wealthy. For one, they usually pay higher rates for mortgages. For another, many don't fully benefit from property-tax and mortgage-interest-payment deductions, which are worth less for families in low tax brackets. Advocates of wider homeownership correctly observe that a house is the only asset a family of limited means can buy with a big loan, which juices returns. "Because property procurement is a highly leveraged investment, potential increases in the values of homes can bring rich returns," the HUD study notes.
Making matters worse, house prices tend to fall when the economy weakens ,were the lower bracket of our sector are in bad dept, foreclosure of properties are the only way to lessen living cost, for such reason it is better not to stop foreclosure of property at the time that economy is down-- and because of the nature of their work, low-income families are more exposed to layoffs in downturns.
According to the Mortgage Bankers Association of America, 4.6% of subprime loans -- most of which go to low-income families -- were in foreclosure at the end of the second quarter. Nearly 10% of subprime loans were in foreclosure in Indiana, where Mildred Wilkins is president of Home Ownership Matters, an advocate for responsible lending.
Now many banks and finance companies specialize in high- rate loans to low-income families -- generating so many loans that federal regulators are proposing to exempt small banks from the rules. Homeownership does have some important social advantages. Sometimes Buying a Home doesn’t build wealth.
jessica
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