A major de facto government-supported investment vehicle for U.S. households has been buying a home. Unfortunately, sinking your earnings into an investment that’s leveraged, at best, 4-to-1, localized in exposure, and highly illiquid doesn’t always work out (boldface mine):
Yet Mr. White, like many people here, says he is as good as trapped in this poisoned city. [Flint, MI]
…Untold numbers of them are desperate to leave. But few see a way to pick up and move to a place where the water that flows from the taps is clean and safe.
Homeowners have little hope that they will be able to sell….
“I couldn’t rent out my house now if I wanted to,” said Joyce Cruz, 35, a homeowner and the mother of five. “Who would want to move to Flint?”
…Few “For Sale” signs are visible on Flint’s worn-down streets, but brokers said that was not because there was no interest in selling.
Chris Theodoroff, the president of the East Central Association of Realtors in Michigan, said that before the water crisis, properties in Flint were still “a tough sell,” with houses languishing on the market and homeowners underwater on their mortgages. The median value of owner-occupied homes in Flint was only about $41,700.
“We never recovered completely in the city from the economic downturn,” he said. “What this did was absolutely stop any momentum we had.”
Just last week, Mr. Theodoroff came close to a sale on a $25,000 house in Flint, but the buyer backed out at the last minute, citing fears over the city’s water supply.
While a poisoned water supply is an extreme case, as delayed maintenance costs in suburbs start to get paid, a lot of housing is going to be worth less. Not worthless, like Flint, but worth less. To the extent that housing prices are considered a key component of retirement security, this could be a real problem.
I used to work for the Canadian Government’s Housing Agency and one of the things we did was insure mortgages though that was not my job. Many of my colleagues used to spout the line that home-ownership help guarantee “security of tenure” so it was a good thing. And it was a good investment.
I always thought, well yes until the local economy goes bust. If the economy holds well then investing in a house is likely a good idea and you did have more security of tenure than in rental. Well, so long as you could pay the mortgage. Of course if the economy nose-dives then you are going to loss a lot of equity if you have to sell or worse default on an existing mortgage.
On the other hand, I noticed that it could severely limit mobility. If for some reason you wanted to leave Winnipeg and move to Vancouver, (though why anyone would want to do that, I cannot imagine) you were somewhat at the mercy of housing market.
There are pro’s and con’s to both owning and renting and I have often though the benefits of home-ownership is exaggerated at times. There are clear advantages but there are clear advantages to renting too.
IIRC, from a Western European/North American/Austalasian perspective, a heavy emphasis on home-owning is an English-speaking cultural artefact. Home-ownership rates were much higher among English-speaking countries than other countries and, at the time, home-ownership in the mainly English-speaking provinces of Canada was noticeably higher than in the predominantly French-speaking province of Québec.