Home Ownership in the Americas
A typical come-on from a real estate salespeson goes something like this:
It is the American dream to own your own home, and it is one of the best things that you can do for your family. Home ownership gives your family roots, a sense of pride and financial security.
Rather than paying rent every month, your mortgage payment is like money in the bank for your future. Yes, initially the majority of that house payment is interest, but that interest can give you certain tax advantages and some of the payment goes into your equity. Over time, the amount of principal paid each month increases and chances are that your home will appreciate in value. That combination can lead to a great source of wealth for your family.
Another benefit of home ownership is that if you have a fixed rate loan, your payments will not increase over time. Whereas rents are sure to increase as the years go by.
So how many Americans own their homes? According to the 2003 MARS study, 71% of adult Americans say that they own their homes (as opposed to renting or other arrangements). In the next chart, we show the incidences by age/sex groups. Home ownership is a strong characteristic of life cycle. A person needs to establish a stable career path, accumulate significant savings and build good credit history before contemplating a home purchase. According to these charts, that juncture will occur some time after the age of thirty for most home owners.
(source: 2003 MARS study)
In the next chart, we show the incidences of home ownership by marital status and household income. If home ownership implies settling down to plant family roots, then the incidence can be expected to be lower for the single (never married), separated and divorced people. Most people purchase their homes through a mortgage loan after a down payment. Clearly, someone without a steady and significant income would have trouble making the down payment and/or service the debt payments.
(source: 2003 MARS study)
In mid-2003, the US economy is mired in an economic slow-down. The usual engines of the economy such as technology, automotive, manufacturing, travel/leisure and financial services are underperforming without any sign of recovery. The major factor that has held back a disastrous recession is the housing sector, which is being pumped by a series of reduction in interest rates. When interest rates are reduced, consumers are able to re-finance their mortgages on more favorable terms and thus liberating discretionary income. This is not a panacea since the interest rate will hit zero eventually. The basic malaise of the economy has not changed, as home foreclosures are hitting all-time high records dues to job losses and personal bankruptcies.
What is the situation in Latin America? According to the 2002 TGI Latina study, 74% of the respondents live in owned residences. The breakdown by socio-economic level and country is shown in the following chart.
(source: 2002 TGI Latina study)
The situation in Latin America is not comparable to the USA for many reasons. There is much larger variation in the quality of housing in Latin America, as a home could be as simple as a wooden shack. Furthermore, in the large urban areas in which land invasions had occurred frequently, the notion of ownership may still be shaky. This is rather unfortunate, since the residents do become reluctant to make capital investments to improve the housing stock.
As with any investment, a real estate investment is not always risk-free. A story in the New York Times shows how man-made calamity can strike:
After a decade as renters, Ariel and Norma Brofman were finally able to buy a small house here four years ago. But if the Argentine government yields to International Monetary Fund pressure to rescind emergency legislation meant to protect ordinary families like the Brofmans, the couple stand to lose their home and the $32,000 they have paid for it so far.
Like other middle-class Argentines, the Brofmans, whose household includes their two daughters, aged 9 and 13, and their widowed mothers, were severely battered by the collapse of the economy here last year. In just a few months, Mr. Brofman lost his job as an electronics technician, exhausted his scant savings and fell behind on the monthly $555 mortgage payment on their two-bedroom, 1,000-square-foot house.
"We did not create this situation," said Mr. Brofman, 38, who now tries to make ends meet by repairing cellular telephones. "The rules of the game were changed on us from one day to the next, and we were hoping the government would take steps to defend us until this country is back on its feet and we can begin paying again."
(posted by Roland Soong, 6/30/2003)
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