What is “Sustainable Homeownership?”
By: Rafael Perez, Rafael@theHomeMap.com (619)333-0116
Prior to the most recent economic collapse, the one fueled by declining over leveraged real estate values, the American Dream was deeply rooted in homeownership. White picket fence, freshly cut lush green lawn, a nice car in the driveway, a pure bred dog, a bedroom for each kid and maybe a pool in the yard. There was no shortage of stories passed on for generations about the home someone bought decades ago for $30,000 and now is worth over $500,000.00.
Then there was the stories about the people who were buying up homes left and right and turning around selling them weeks later at a profit because the market had moved so much. “You can’t go wrong with real estate, it always goes up in value.” That is the fundamental belief that an entire economy bet the house on until it collapsed under it’s own weight. As the real estate market was skyrocketing across the USA, people believed they were financial geniuses. Real estate ALWAYS goes up in value, it’s the safest investment in the world, until it’s not.
Small time real estate investors were making hundreds of thousands of dollars while institutional investors couldn’t create enough financial products to fuel the insatiable appetite for more. Everyone wanted a piece of the pie, from main street to wall street. Even if it was just the home they would live in, it did not matter how much it cost, or how it would be financed. Real estate always goes up in value, there was nothing to worry about. If you had a heartbeat and a social security number then there was a loan for you. Stated income, stated assets, just short of stated FICO, just sign the dotted line and the home is yours.
As with any investment, the higher the risk the higher the premium borrowers will have to pay. When a blue collar service worker with a “six figure income” can get a 3/4 of a million dollar loan, on a brand new home in the newest suburb without a single dollar down, based on a payment that doesn’t even cover the high interest that was accumulating monthly, based solely on the principle that the home WILL go up in value no matter what, it’s a clear indicator that something had gone terribly wrong with homeownership in America.
Real estate loans had become the product for unscrupulous salespeople to “turn and burn” the most vulnerable with false promises of sustainability. Some people made sound financial decisions during this time while others, who were financially vulnerable, trusted the advice they were given and bought in to the “American Dream” they were sold. Real Estate always goes up in value right? The idea of homeownership, one of the core principles this country was founded on, had been distorted so badly that it would have to crash and burn to the ground before it ever stood a chance of being at the core of the American dream.
Over a half dozen years after the financial collapse, home prices remain low as do historically low interest rates. There’s been substantial recovery from the bottom of the market but overall the scars still sting and people are still afraid of the dangers of homeownership. The housing market will continue to turn around and go up and down.
True sustainability will only be fueled by one thing and that is SUSTAINABLE HOMEOWNERSHIP. The idea of a home being a thing to buy so that it eventually makes you money when it appreciates in value, sounds too much like the belief that led us to this post mortgage market meltdown. However, the principles of owning your own property are too deeply rooted to stop being fundamental to the way this country functions.
A home is the combination of people and property otherwise it’s just a house. The people who are in control of their home are those who own their home. If you rent, you are just a tenant in someone else’s plan. This country was built by property owners on the backs of those who were not property owners. We’ve come a long way, and if the will is strong enough I know that there is a home for anyone in this country. Even for a single federal minimum wage earner can qualify for a $500 monthly mortgage if they have decent credit and little to no debt. That is still $50-$70K in buying power, which will buy you a home in many communities across the country.
So then what is sustainable homeownership? Some experts will tell you that it is buying a home you can afford, based on an accurate financial assessment, with affordability that will continue for the life of the mortgage. It is making a decision to buy and own your own home. An investment that will leave you with a mortgage free home after 30 years that will carry you into retirement. It is investing into a property that while creating a stable home in a community for your family, can be the foundation your legacy is built on.
Great, but that concept is already built into the system. The mortgage market was rebuilt with consumer protection in mind. The market is already built to only give you enough financing to buy a home you can afford to make payments on. The underwriting is thorough enough to verify that your income will continue at current levels or higher through the foreseeable future. Mortgage programs are designed with the safety and security of having a fixed rate option that includes interest and principle so that it will be paid off after 15 or 30 years, depending on the amortization of the mortgage. Down payments require “skin in the game” of at least 3% or a government guarantee in lieu of a down payment if you served in our nations military.
So if the system fixed all the problems with mortgages and is designed to deliver sustainable homeownership to all those who are motivated and qualified, then why has the market still not recovered? Scar tissue. The word foreclosure and crisis are still deeply etched into the recent memory of most adults in the USA.
So when does the American Dream come back? When will people go back to dreaming of the white picket fence, lush green lawn and Mercedes in the driveway? That dream may be dead, or dying for many Americans. Wall street killed the dream. What isn’t dead is the opportunity to dream again. A new dream is rising out of the ashes, it is an opportunity to redefine the American Dream.
The civil rights movements had many heroes, one of them being Dr. Martin Luther King, Jr. Before he was tragically killed, he had been preaching a belief that economic empowerment was the last leg of the civil rights movement. Real Estate was the primary source of wealth creation for many diverse communities. People had confidence that there was equal access and opportunity for anyone to achieve the American dream. In the blink of an eye, that generational wealth was stripped along with the sense of dignity it was providing to families across America.
“Sustainable homeownership” is systematically embedded into the system of mortgage lending. The mortgage system has been overhauled so that there is a national licensing system intended to filter out the “bad guys.” Congressional acts like Dodd-Frank, have changed the entire landscape of the industry and spawned new agencies like the CFPB. The Consumer Financial Protection Bureau is one of the most powerful agencies in the country, yet people are still afraid to make the move into sustainable homeownership.
Which brings me back to the concept of “Sustainable homeownership.” The concept is in as much need of an overhaul as the mortgage system was. The time is NOW for a remodeled, retooled version of “Sustainable Homeownership” incorporated into a modern day American Dream. As communities we just can’t afford to carry ideas that are wasteful into our future as stakeholders in our cities. California’s recent drought is a reminder that natural resources . This awareness is just as an important part of the puzzle as the finance piece. It all determines how we go about paying for these resources delivered to our home. Not only is this minimizing the footprint a home has on the environment environmentally friendly, it is also an investment into hedging against rising utility costs. In California, a zero-scape yard is more remarkable these days than a lush green city fine causing lawn. Solar panels and energy efficient windows are the new badges of pride. One step closer to being off the grid, independent. Your home is working for you just as you are working for your home.
There’s also the urban planning impact of concepts like living in a high density community like a condominium near transit or in a walkable neighborhood. With shared walls and shared resources the energy impact of condo community living is also more efficient than a detached single family home through pooled resources. Sustainable homeownership, what does the redefined dream look like? Non wasteful homes are more affordable homes. A fixed mortgage payment is guaranteed for up to 30 years, an annual rental agreement is not. Making good use of your land can result in generation of energy, recycling of resources, growth of drought tolerant landscaping and homegrown food.
Are you in control of your future and own your own property, or are you just a component of some else’s business plan?
REALTOR® CalBRE #01479670
theHomeMap at Team Aguilar Real Estate