A confession from a home ownership advocate

The game of finding someone to pin the blame on for the US housing market collapse has gone on long enough. Are the bankers responsible? The analysts who didn’t see it coming? The McMansion mums who bought homes that they couldn’t afford? No. I did it. It was me. In 2003, I worked for one of those well-meaning organisations that promoted home ownership in low-income communities. Our line – like that of hundreds of non-profit organisations across the US – was that people who bought their own homes could gain increased financial security, freedom from the landlord … the American dream.

But I was not like the people running the organisation. I knew full well that buying a house could be a financial time bomb. I hadn’t drunk the home-ownership-leads-to-prosperity Kool-Aid. But I had drunk enough cola to rot my teeth. I led people down the road to financial collapse – and I did it for the dental insurance.
It all started out innocently enough. In March 2002, fresh out of college, I got a job at the Center for Economic and Policy Research (CEPR) in Washington, DC. Soon after, one of the co-directors, Dean Baker, began looking into soaring housing prices, and, by the end of the summer, he had begun railing against the housing bubble. “I just don’t think there’s any consequence to getting it wrong,” said Baker, during a talk at the New America Foundation in April 2003. He criticised the Fed, fund managers, economists, analysts and reporters for missing the stock-market bubble – and for keeping their jobs so that they could go straight on to miss the housing-market bubble. “I’m not saying I know when the [housing] bubble will end, but it will end. And it’s going to be really, really bad when it does.”

Dean’s argument was compelling: if house prices rose significantly faster than rents, that meant people were buying homes as an investment, not for shelter. As more people saw housing as an investment vehicle, prices would rise, even though the underlying value of the property would not. It was the textbook definition of a bubble – and even if others weren’t taking him seriously, I was. But after more than a year at CEPR, I had itchy feet. I had gone straight from the suburbs of Washington to an Ivy League university to an economic think-tank. For a fist-in-the-air activist, it was all a bit ivory tower. I wanted experience working with the people getting screwed by bad economic policy before – inevitably, I assumed – I spent my life as a policy wonk.

So, like any good leftie from a privileged background, I started my job search on idealist.org, where I ran across a posting for an associate position at an Individual Development Account programme in Los Angeles. IDAs are an anti-poverty measure to encourage low-income individuals to buy “productive assets” – purchases meant to provide financial security for the future and encourage a habit of saving. The programmes encourage savings by providing financial education classes and “match savings”. In the case of the LA programme, for every $1 someone saved, up to $1,000, the person would receive a $4 match. Participants, who had to be referred through government-funded agencies serving low-income residents, could use the money to start a small business, go to school or buy a home. The buy-a-home option should have raised a red flag. But I was eager to get a “grass roots” job, and I reasoned that people who met the programme’s incredibly low-income requirements – no more than about $36,200 per year for a family of four – were in no position to buy a home, $5,000 in savings or not.

So I wiped the problem from my mind, unaware that easing lending standards would make loans accessible to people who would never have qualified for a mortgage before. Besides, the job sounded great. I pictured myself giving financial advice and seeing my work have an impact on real people. I composed a letter declaring my dedication to “reducing persistent and cyclical poverty through asset development”, and applied for the job. After a series of phone interviews, I was hired as a financial counsellor and flew out to LA to get a sense of the place.

The Community Financial Resource Center (CFRC) is located in South Los Angeles – formerly known as South Central, a name that conjures up images of gangs and riots. The almost-windowless building stood across from a windowless food-aid office. Barbed wire protected the parking lot. The McDonald’s on the corner was just a block away from a cheque-cashing store. Cars poured down the street, but no one braved the muggy air: the sidewalks were desolate.

The heavy metal gate was open, so I walked into the centre’s vestibule. My new managers gave me a tour of the office and took me to lunch. By the time we returned, police vans had surrounded a building across the street and a police helicopter circled over it. “Well,” I thought, “I was looking for grass roots, and I found it.” I took the job.


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Housing more affordable than a year ago, RBC report says

An RBC Economics report on home ownership released Wednesday indicates housing is more affordable than it was a year ago. But the report, which spans the April-to-June second quarter of 2009, may already be dated, as housing prices have edged up during the summer months.

Even the report itself admits its affordability figure may have bottomed out.

"This restorative phase of the affordability cycle is likely running out of steam," the nine-page report stated in its second paragraph. "The two major contributors to the significant improvement during the past year or so -- the decline in mortgage rates and the drift down in prices -- appear to have reached turning points."

In B.C., second-quarter homeownership costs fell in all four areas the survey measures. (RBC Affordability captures the proportion of pre-tax household income required to meet costs of owning a home, including mortgage payments, property taxes and utilities.)

Home ownership costs for a detached bungalow fell 11.3 percentage points from the same period in 2008, to 58.4 per cent. Standard two-storey house costs fell 12.8 points to 64.4 per cent, standard townhouse costs dropped 7.6 points to 45.6 per cent, and standard condominium costs fell 6.2 points to 32.7 per cent.

For the quarter, the drop in B.C. was not as dramatic, falling just 0.7 of a percentage point for detached bungalows, 0.9 point for two-storeys, 1.0 point for townhouses and 0.1 point for condominiums.

"While the cumulative declines in the past five quarters have been the sharpest since 1991, the latest levels are still significantly above long-term averages, suggesting that affordability in the province has yet to be fully restored," the report said.

And with housing prices rising across the province in late summer, it is unlikely we will see further drops in this measurement. Vancouver house prices today are about seven per cent higher than they were at the most affordable time of the three-month study period.

"We've reversed our trend of increasing affordability and we are going the other way," says Tsur Somerville, director of the Centre for Urban Economics and Real Estate at the University of B.C.'s Sauder School of Business.

Throughout the spring and summer, sales of existing homes were up 125 per cent over the low point early this year in the province. In Vancouver, sales of existing homes through to the end of June are three times what they were at the end of 2008, which marked a 19-year low.

The huge increase in home-buying in the Vancouver area is difficult to fathom, Somerville said.

"The craziness doesn't make sense, because that happens either when the economy is going gangbusters or when there is a speculative frenzy, and we're not [experiencing] either of those," he said.


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