October 19, 2007
Fennell on Homeownership 2.0
Lee Anne Fennell (U. Chicago) has posted Homeownership 2.0 on SSRN. Here's the abstract:
Current legal arrangements make homeowners high-stakes gamblers. Homebuyers routinely take on crushing debt loads to put huge sums of money into risky, undiversified ventures that are utterly out of their personal control -- local housing markets. That these markets typically post positive returns over time is of little comfort to those caught on the downside of housing market volatility. Moreover, because rights to these expected gains are priced into the home, many would-be buyers are priced out of the market. The shortcomings of the homeowner's standard investment package have not escaped notice, and for decades scholars and innovators have tried to devise better ways to manage the upside and downside risks of owning a home. Derivatives markets for such risk have recently begun to emerge, due in large part to the collaborative efforts of Karl Case, Robert Shiller, and Allan Weiss. As the technical capacity to slice, dice, and trade homeownership risk advances, this paper steps back to examine how a reduced-risk version of homeownership fits together with property theory, human cognition, and the social dynamics of neighborhoods and metropolitan areas. To explore these questions, I present a new tenure form -- Homeownership 2.0 -- that seeks to optimally unbundle certain investment components from the core homeownership package.
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I do hope the piece at least discusses something we can all appreciate...unmitigated GREED. Forget all the highbrow crap about derivatives, risk and the post-modern deconstruction of home ownership. What has changed is the zeal of lenders and the stupidity of potential homeowners. Throw in the complicity of the Fed (FHA, Fannie Mae, Freddie Mac) along with the ever increasing greed of banks/mortgage houses and you have all that you need to know about the changing "landscape" of homeownership, risk and so on. The more things change, the more they stay the same. Save your money, stop trying to buy over your head and prevent banks from throwing money at poor credit risks. Gee, what a novel concept! That this phenomenon (sub-prime woes) would ultimately manifest itself shouldn't have come as a surprise to people who already knew that this country currently has and has had for some time a net NEGATIVE personal savings rate. NEGATIVE!!! Do your homework, save your money. Don't take on more debt than you can afford. A lot of this shouldn't be rocket science. America developed great towns and cities for generations with the same basic formula. And the scholars didn't seem to be necessary. Same old song: internet bubble, housing trouble and the skies are not cloudy all day...
Posted by: Sam Gompers | Oct 22, 2007 10:44:10 AM