Mood of the Market
Mood of the Market
Last week, we discussed how a housing swap system in the U.K. is showing promise at increasing public housing tenants' lebenschancen, or life chances, by allowing them the opportunity to relocate to do things like pursuing a job or moving their children closer to school.
German sociologist Max Weber coined the phrase "life chances" to describe the chances a person has to enhance his or her quality of life. Weber intended the concept to refer to the statistical probability that a person could improve what we Americans might call their "lot in life" -- it's a sociological measure of how the amount of access we have to basic resources like food, clothes, housing and health care impacts our ability to obtain the things we need, have a fulfilling career and generally live a fulfilling life.
Weber emphasized how both social and economic factors impacted our life chances, waxing theoretical about how things like social mobility and property ownership affect our ability to better our lives. It seems to me that a core belief that property ownership empowers us to move up the life ladder is inherent in the traditional American dream, centered around homeownership as it is (or was, as the case may be).
Of course, post-recession, it also seems that we've all begun to believe that overly leveraged homeownership holds equal power to cause slavery to debt, the loss of quality of life and, when the home is severely upside down or lost entirely, downward mobility.
Of course, in Weber's time, the concept of property ownership was completely intertwined with the concept of a social class of people who truly owned property outright, as very separate from the masses of have-nots. (OK, so Weber's time was around World War I, not the days of feudal lords, but apparently not much had changed in some respects!)
And in our time, homeownership is certainly not limited to a particular landowning class; in fact, the express intention behind the subprime mortgage market and the federal entities that ensure mortgage cash flows more or less freely to would-be buyers is to offer extensive access to ownership across the socioeconomic classes.
This was one major governmental rationale behind offering home loans without letting the need to put thousands of dollars down -- or document some enormous income -- pose barriers to entering the market.
Well, it sounded good. OK, OK, maybe you had to be there.
The egalitarian feel of this is what sounded and felt so good to so many of us. Everyone should have the right to own a home -- correct, literally, but this sentiment was just that: sentimental. It confused the issue of financial qualification with classist elitism. Saying someone isn't financially able to afford a home is not the same as saying they don't deserve to or aren't "quality" enough to own a home.
Similarly, the thought that so many with so little could play their life chances and vastly change their life circumstances and socioeconomic standing with the accrual of home equity -- with little or no upfront investment -- is very classically American. Think: rags to riches, and all that.
And we all saw it with our own eyes -- most of us knew at least one person (or were that person) who actually experienced the upwards whoosh of cashing out (or refi-ing out) hundreds of thousands of dollars in equity upside on a home they bought with virtually nothing. And now, a few years later, we've all seen the plummet in mobility of hundreds of grand in negative equity.
So, how did this happen, even to those who would have been classified as powerful property owners, in Weber's taxonomy? I think it may have to do with the fact that most American homeowners actually own only part of their homes: the non-mortgaged part.
In our world, where it is very normal, even now, for people to own only a few percentage points' worth of equity in their homes, and the rest of their homes' value owed to the bank, perhaps property ownership is no longer an instant proxy for the massive boost in life chances that it was in Weber's time.
Of course, I still believe -- as do most Americans -- that property ownership is a stepping stone on the path to gaining wealth in America. But it is just that -- a potential stepping stone. And like a literal stepping stone, the path can go both ways -- toward wealth or away from it, depending on the direction the traveler chooses to take.
Without wise management of mortgage debt and sound general personal finances, homeownership is not the "be all and end all" automatic shortcut to membership in the landed gentry.
If we want to reset real estate as the powerhouse behind the American Dream, then we must all reprioritize equity, the true life-enhancing, wealth-builder behind property ownership, by putting money down, paying home debt off, and limiting our refinancing and cashing out to situations where we can do so smartly and strategically.
What's Your Home Worth?
US mortgages are the Gazinta!