The lobby at the Housing and Urban Development Department is draped in posters of smiling families, houses painted fresh enough to smell, and block letters that proclaim "New Homeowner." HUD Secretary Shaun Donovan still believes in that idyllic image, even after a housing crisis that crushed equity for millions of Americans or, in the worst cases, forced them out of their foreclosed homes.
Donovan's vision for homeownership rejects the bubble frenzy of the 2000s and harks back to a simpler — he calls it "sustainable" — dream of the American home as a castle, not a means to a quick profit.
"The mentality of kind of using homes as ATMs that we got to three years ago — don't mistake that with the long-term, fundamental belief that most Americans had in their homes not as piggy banks, but as a place to raise their kids, a place to invest in, and, in the long run, a place to build equity in that they could pass on to their kids and their grandkids," he said. "We can get back to that if we do it responsibly."
Is homeownership still an achievable dream for most Americans? Is it still the government's place to support it?
DONOVAN: Absolutely, it remains a dream for a huge number of Americans, and it's one we ought to help Americans achieve. But for too long, the country was too focused on getting people into homes, not sustaining them in homes. So what has to be our goal is sustainable homeownership.
We also need a balanced housing policy. For too long, we have focused on homeownership to the exclusion of rental housing. This isn't an either/or proposition. The real issue is, how do we create a ladder of housing opportunity, where each of the rungs along the way is solid and isn't going to fall out from under somebody as they step up that ladder?
Can we have a sustainable market if the government is propping it up by guaranteeing home loans?
DONOVAN: Look at what [the Federal Housing Administration] has done. When [the Obama administration] came in, it seemed every month there was another editorial in The Wall Street Journal or someplace saying FHA was going to be the next big bailout. And yet, FHA's been able to continue to [pursue] its mission of reaching low- and moderate-income buyers, including large majorities of African-American and Latino homebuyers. It's an explicit guarantee; it's fully priced at the time we make loans — with projected losses — and, in fact, since we came into office, we've outperformed the projections our independent actuaries had for how our revenues and our expenses and our losses would perform. I think we've done a lot to reform FHA and show how a government guarantee can be effective.
In the wake of the crash, is housing still a smart gateway to the middle class? Or should we be steering people to other investments?
DONOVAN: It's a very different thing to say, "I'm going to buy a home and expect the value [to rise] with inflation. I have a fixed-payment, 30-year mortgage, which allows me to build equity over time. [This house is something] which I can leave to my kids or my grandkids." That's a very different expectation than, "Two years from now, because I got a teaser rate, I'm going to be able to flip that home and I've made a fortune."
Should we go back to where we were three years ago? Absolutely not. Does that mean that homeownership is going to be more expensive? Yes. Does that mean that there are going to be some folks who were able to buy homes three years ago that won't be able to? Yes. But that doesn't mean that homeownership doesn't provide the fundamental bedrock of access to the middle class that it did for generations.
The author is economics correspondent for National Journal.