Homeowners provide many benefits to communities so governments prefer a high ratio of homeowners. Studies have shown that, in general, homeowners:
- Promote social stability
- Increase educational achievement of children
- Increase civic and community participation
- Commit less crime
- Are less dependent on government assistance
Unfortunately, government policy makers repeatedly confuse the cause and effect of these home ownership benefits. The home, itself, does not change people into having these behavioral traits. Instead, there are people, who have behavioral traits with these societal benefits, which just so happen to also make them prone to home ownership. The act of moving from an apartment to a home did not change the person into having those traits, those traits just so happen to be embodied by people who successfully own homes.
But government administrators hope that societal benefits will magically appear from people who do not yet have the financial stability or behavioral traits to be a successful homeowner. So they find ways to artificially lower the barriers to purchase homes, erroneously thinking societal benefits will accrue from this (or cynically, increase their chance of re-election victories).
When the government tries to pre-maturely turn a renter into a homeowner, in general, these families lose the home and end up financially worse off than before they bought the home. This has already happened in Europe, Britain, and the U.S. when government officials try to get people onto the property ladder before their time. Most recently, the federal government did this in the early 2000s and it resulted in a real-estate boom and catastrophic collapse that left the country in an economic depression. Taxpayers then bailed out the government mortgage agencies with $187 billion.
The federal government is at it again this month by issuing new regulations:
- Down payments can now be as low as 3% when they used to be 10-20%.
- The allowable Debt-to-Income ratio has been increased from 36% to 43%.
- Personal credit-ratings will be inflated because medical bills are no longer included.
While every situation and real estate region is different, these broad national rule changes will allow many people into homes who cannot afford them. When you cannot afford your home, there are predictable financial consequences, all which are unfavorable and painful, that also include being eventually forced from the home. Just because you can qualify for a loan does not make that loan a wise financial decision or a benefit to society. Make certain that all of your purchases are affordable, meaning, you must also be able to afford all of the predictable repairs and maintenance required for that item. Decide on your own what home and lifestyle you can afford by financially mapping everything out. Do this so you don’t become a victim to yet another government policy that is not in your personal best interest.