Academic journal article Monthly Labor Review

The Costs of Homeownership

Academic journal article Monthly Labor Review

The Costs of Homeownership

Article excerpt

"Homeownership, like baseball and hotdogs, is an integral part of American culture." So begins an article by Wenli Li and Fang Yang that calls into question the general American belief in homeownership as a net economic benefit ("American Dream or American Obsession? The Economic Benefits and Costs of Homeownership," Federal Reserve Bank of Philadelphia Business Review, third quarter 2010).

Li and Yang explain that the primary argument made in favor of homeownership is that it is the best way for many people to save money: in purchasing a home, people force themselves into making mortgage payments, thereby increasing their share of ownership in the property relative to the bank's share. However, financial developments over time have decreased the strength of this argument. For example, there are interest-only mortgage contracts, which make it possible for households to pay nothing but interest for a number of years. Even when people have built equity, many of them are able to tap it to pay bills. In addition, housing wealth affects people's marginal propensity to consume: for every dollar of appreciation in house prices, homeowners spend somewhere between 3 cents and 10 cents more than before. Interestingly, the tax benefits for second homes are similar to those of first homes as long as certain conditions are met. …

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