The Call-In: Answering Your Questions About Owning A Home

Lulu Garcia-Navarro talks with Svenja Gudell, chief economist for Zillow, and Washington Post personal finance columnist Michelle Singletary, about what to do and what not to do when buying a home.

LULU GARCIA-NAVARRO, HOST:

It's time now for the Call-In. Today we're talking about home ownership. Who can afford to buy? Who can't and why?

UNIDENTIFIED WOMAN #1: Hi.

UNIDENTIFIED WOMAN #2: Good morning.

UNIDENTIFIED MAN #1: Hey, NPR.

UNIDENTIFIED WOMAN #3: The market here in Colorado is out of this world.

UNIDENTIFIED MAN #2: A downtown skyline contains just as many construction cranes as it does buildings.

UNIDENTIFIED WOMAN #4: We've had offer after offer after offer outbid.

UNIDENTIFIED WOMAN #5: And now it's getting really expensive to rent because the rental market is really tight.

UNIDENTIFIED WOMAN #6: So those are my comments for today.

UNIDENTIFIED MAN #3: Thanks.

UNIDENTIFIED MAN #4: Thank you for your time.

UNIDENTIFIED WOMAN #7: Thanks, bye.

GARCIA-NAVARRO: All right, we start our conversation with Svenja Gudell, the chief economist for Zillow, a real estate listings website. And we should say, Zillow is also an NPR funder. We asked for her help with our calls from listeners like this one.

MIKE KENSICK: Good morning. I am Mike Kensick. I am a realtor from Portland, Ore. The average price for a single-family residence is in the high 300s. And that puts it outside of the boundaries for even the hundred-thousand-dollar annual salary employee of the area. Things have become so difficult for my clients, for myself, personally, that owning a home in our area is completely out of our reach.

GARCIA-NAVARRO: We got a lot of calls from people living in cities, in particular, and they're seeing a real change in affordability. A lot of them identified as middle-class with well-paying jobs. And prices are rising, they say, so steeply in their areas that they can't afford to live where they work. Can you unpack why this is happening in so many cities?

SVENJA GUDELL: Absolutely. And, you know, the question that often comes to mind, too, when you're thinking about these things - are we in a bubble, right? Does it - is this no longer sustainable?

And I think, unfortunately, a lot of these dynamics that we're seeing in markets, especially in a place like Portland, is that we're seeing a lot of demand for housing and not a lot of supply. And it's what's driving up prices.

GARCIA-NAVARRO: So why is inventory tight? Why aren't there more homes being built or available?

GUDELL: Depending on the market, these reasons can vary. But you have, in some places, still a fair amount of negative equity, where homeowners are locked into their homes and they can't move. That happened, specifically, at the bottom end of the market - so for entry-level homes or just, in general, cheaper homes that oftentimes are the homes that first-time home buyers look for.

Another reason we see tight inventory is that during the boom, specifically the bust period, we actually saw that a lot of investors went in and bought up homes - oftentimes cheaper homes - and converted them into rentals. So much so that of the entire single-family housing stock, we moved from 13 percent of homes being rented out by someone to now almost 20 percent of homes being rented out.

And then, of course, one of the main reasons we're also seeing tight inventory right now is that builders aren't building quite as much as we would expect them or hope them to build. And that means that without that new construction, we're not adding as many new homes to the housing stock even though population is increasing and demand for housing is very strong.

GARCIA-NAVARRO: But why aren't they building? Is that regulation? Is that they're scared that there will be another bust?

GUDELL: You know, it's a little bit of everything, and it's hard to kind of narrow down the exact reason. But a lot of builders that we've talked to say that due to the cost of regulation, land and even labor and supply costs, they don't believe they can build a house on the periphery that would be considered, perhaps, more an entry-level home at a price point that they think they can sell it for.

They need to be able, of course, make some profits if they're willing to build that home. And they think they have to price it as such a level that no one that would be able to pay that price would be willing to commute for an hour and a half to their job into the city. And so that means they simply don't build those types of homes. So most builders have been concentrating on what's called Class-A locations. That means usually fill in...

GARCIA-NAVARRO: Luxury properties.

GUDELL: Luxury properties - really nice locations within the city that oftentimes come at a really high price point.

GARCIA-NAVARRO: We're also seeing another effect for lower-income homeowners, at least in the cities. We're seeing gentrification. People are moving in to places where working-class people lived, and their properties are being developed and marketed to people with more money. What is behind that push?

GUDELL: You know, it's really a drive, oftentimes, to make cities more dense. You know, as many cities are experiencing population increases right now, you have these developers coming into neighborhoods that used to be a little bit more rundown or a bit cheaper, and they buy up single-family homes that were built in the '50s or even older. And they try to put townhomes in or condos - any sort of higher-density living. And that, of course, displaces a whole bunch of residents that used to live there because most of time, they aren't able to afford to still live in the neighborhood at these new places because they often run at a much higher rate than they're used to paying for their old place.

GARCIA-NAVARRO: All right, let's hear from another one of our listeners. Here's Danielle Edgehill (ph) raising another aspect of affordability where she lives.

DANIELLE EDGEHILL: Miami is an extremely hard place to find affordable housing. I think that our government - they spend a lot of time trying to attract foreign investors into our city to buy condos that nobody here, who actually lives here and is actually a native Miamian, can afford.

GARCIA-NAVARRO: So we've heard a lot about this in places like London but Miami, as well. How much is foreign investment playing a role in rising housing costs in some cities?

GUDELL: You know, it's an interesting question because I think on the whole, if you look at the U.S. overall, foreign investment is not driving most of our affordability concerns. Having said that, though, in Miami, it absolutely is. And affordability is a huge concern in Miami. It's also one of our highlighted cities that we talk about frequently because I think if there's one place in the U.S. that might be in a bubble, it might be Miami because we saw such a push from foreign investors and so much really supply production, specifically for that sector of the market, that it's - it has ballooned into something that isn't supported by local demand or sustainable in the long run.

GARCIA-NAVARRO: So is it better to try to buy or stick with renting? We invited Michelle Singletary to help answer that question. She's a nationally syndicated personal finance columnist for The Washington Post. And she gave this advice for people deciding what to do with their money.

MICHELLE SINGLETARY: Don't look at homeownership as an investment. All the data now shows that it's actually a poor investment. What happens is we get in a home and - back in the day, people stayed in homes 20 or 30 years. And so they might have bought the home for say 30,000, and by the time they retired, it's worth 200. It's like, oh, yeah, I made a lot of money. But we're looking at the data now. And it sees that home prices are actually right at inflation. And so you're not actually making money when you add in interest and...

GARCIA-NAVARRO: Taxes.

SINGLETARY: Taxes, and all of that. Your better shot is to put the money in the market. Now, that's not to say that you shouldn't own a home. But you shouldn't buy a home with the idea that it's an investment. It's your place to live. It's a way to stabilize some of the costs of housing.

Although, anybody who's listening right now who has a home understands that they can be money pits. You know, if your roof fails, you know, you got to pay for it. If that heater goes up, you got to pay for it. If you're in an apartment, you just call the landlord. And there's a lot of cost to homeownership that people do not factor in.

GARCIA-NAVARRO: You know, one of the things that people talk about is exactly this issue. They go in. They want to buy a home. And then they don't realize all the other costs. And they overextend themselves. They want to get the best house that they can. And so they end up really reaching their maximum level. Is that really something that is a problem?

SINGLETARY: It is. It used to be that people had starter homes, where you bought a home and you had some cushion. And when - just before the housing crisis, everyone's like, buy as much home as you can afford. You know, stretch if you have to because your income is going to make more. Well, that didn't turn out to be true. And so people buy a home right up to the line of which they can afford and, actually, even more than that.

I mean, my - you know, I run a ministry at my church. And we sit down - we spent a year with people in a program that I run. And I've seen some budgets that just made me gasp. People spending 70 percent of their net income - 60 percent, 50 percent, 40 percent.

GARCIA-NAVARRO: What should it be?

SINGLETARY: It really should be 20. And you can stretch it to 36 percent, really, of your net take-home pay. So notice I didn't say gross. Don't let the bankers talk you into buying more than you can afford based on your gross income.

GARCIA-NAVARRO: We got a call from a listener named Robin who has rented her whole life and has never wanted to buy. She said you don't have to own a house to be an adult in America. Do you have any tips for people who aren't investing in homes for long-term financial success?

SINGLETARY: Absolutely. You are not a financial failure if you are renting. And you are getting something for your money. If somebody else says that to me one more time, I'm going to slap them. Oh, you're not get anything for your money. Really? Look up. You've got a roof over your head. You can invest your money. If there's a difference between what it costs to own and rent, invest that difference and then some. And you'll be on track just as much as with the homeowners because, listen, if you're going to own your home, the only way to pull the money out of that is to sell it, which means you still got to find a place to live, or borrow against the equity, which is a loan. And so I look at homeownership as my place to live. And just like a renter, I'm going to invest my money in the market. I'm going to make sure my expenses are as little as possible. And you can be a financial success in America without owning a home.

GARCIA-NAVARRO: That's Michelle Singletary, personal finance columnist for The Washington Post.

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GARCIA-NAVARRO: Next week on the Call-In we're focusing on refugees. Did you come to this country as a refugee? Did your family flee because of war, political persecution or violence? Do you have a story from your family's history? Call in at 202-216-9217 with your experiences. Be sure to include your full name, contact info and where you're from and your story. We may use it on the air. That number again 202-216-9217. You're listening to WEEKEND EDITION from NPR News.

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