The Dark Side of Home Ownership

Home, the aphorism tells us, is where the heart is. And when you own your home instead of merely renting it, your heart is supposed to swell with the pride of accomplishment. Purchasing a roof under which to rest your head is an essential part of the American Dream, we’re told, a prerequisite to lasting happiness.

Local CPA and MauiTime contributor Doug Levin summed up the allure of home ownership in an April column titled “House Warming”: “When you buy a house you’re making a commitment to a community and gaining a place—perhaps for the first time since you moved out on Mom and Dad—to call home, which matures and supports you in ways you won’t realize until later.”

That’s well put, and accurate for many. But for others, the dream has turned into a nightmare. The housing boom, built largely on a shoddy foundation of unsustainable borrowing, has gone bust, leaving millions of Americans “underwater”—meaning the money they owe on their mortgages exceeds the value of their homes.

According to data from the real estate research firm First American CoreLogic, more than 22 percent of mortgages in the United States are in a state of “negative equity.” In Nevada, the most underwater state in the nation, a staggering 65 percent of mortgages are in the red. At 8.2 percent, Hawaii is doing well by comparison. But statewide, foreclosures shot up 134 percent in October compared to the same period last year. And plenty of other Hawaii homeowners are clinging on by their fingernails, weighed down by debilitating debt.

One of those people is former MauiTime graphic designer Kellee LaVars, who moved to the Mainland earlier this year. In 2003, she bought a condo in Kihei priced at $230,000. She says her lender sold her on a two-part, no-money-down adjustable rate loan and convinced her that “the beauty of this loan was that as the property appreciated over the first two years we could [refinance] and roll both into a single loan with a fixed rate based on the equity we would accrue. He made it sound easy and logical.”

Shortly after she bought the condo, Kellee lost her job. She stayed on-island working as a freelancer, but then came word that the monthly payments on part of her loan were going to rise from $1,000 a month to almost double that. Kellee says it was “a huge shock,” as she’d been assured her payments would never go that high. She went looking for refinance options, but found it nearly impossible to qualify since she was recently self-employed. A spiral of missed payments, paperwork and unfulfilled promises followed, and Kellee now jokes she’s “so far underwater, the fish down here have no eyes.”

I ask her who she blames. She says she puts “a lot of it on the brokers who were willing to tell us anything to sell the loan,” and characterizes them as “charlatans at best, liars at worst.” At the same time, she accepts responsibility “for taking their word and not reading the loan [documents] thoroughly.” Ultimately, she says, she was another victim of the failing economy: “It’s hard to pay a loan or get a new one when you’re underemployed or unemployed.”

Of course, every story is different. But Kellee’s mortgage saga has a lot of familiar elements—assurances from lenders that the ever-increasing value of the home would cover all costs, loss of a job, payments spiking unexpectedly, failure to fully understand the details of the agreement.

Some will say it’s a matter of personal responsibility, that people who got in over their heads should have known better. There’s truth in that. But take a society that promotes home ownership as a noble goal laced with tax incentives, add aggressive lenders peddling too-good-to-be-true deals and mix in a dash of good, old American get-rich-quick fever and you’ve got a recipe for the crisis we’re currently facing.

None of this means buying a house isn’t a good idea—if you can afford it and are doing it for the right reasons. But for many people—yes, even successful, motivated people—buying later, or not at all, may be the smartest move.

Some economists, including Warwick University’s Andrew Oswald—who predicted the burst of the housing bubble as early as 2003—argue that high home ownership can actually contribute to unemployment, since it decreases the mobility of workers. It makes sense: if you’re trying to climb the career ladder, the ability to uproot quickly and frequently is a distinct advantage. Buying a home tethers you to a specific place (remember, as Doug said, “you’re making a commitment to a community”). If you’re ready for that, it can be wonderful; if you’re not, not so much. In the end, making a major financial investment because it’s what you’re “supposed” to want or because some broker has put dollar signs in your eyes is irresponsible at best.

Home may indeed be where the heart is. But sometimes it’s better to use your head.