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Homeownership sparks economy in many ways

Home prices are up nationwide. The recent demand has been good for more than just realtors and lenders.

U.S. housing prices for October are up 6 percent over last year, the biggest jump since 2006 and a hopeful sign of a rebounding economy. Many eyes are on the housing market because every decision new homeowners make -- from re-painting the living room in Umbrian Sand to making sure all the light switches in the hallways match -- impacts the economy.

If you’re a renter, you may worry you’re wasting money by not investing your rent dollars, but at least you don’t have to worry about taking on the role of handyman and trying to figure out how to rip out that weird, too-big fireplace on the second floor of your new house. Mark Corbin, a new homeowner in South Orange, N.J., says reshaping the walls of his new home took the power of a sledge hammer.

“And friends,” he said.

Corbin and his wife had been renters for the past 10 years until spring, when they bought their new house, and, Corbin says, a lot more supplies than they expected.

“Sheet rock and plywood and mud and paint and tools and all the stuff you never need when you rent because you have a landlord,” he said.

Now Corbin has shag carpet to rip out, and unless he decides he’s a fan of pastels, pink and lavender walls in his new upstairs office and guest room to paint over. But the upkeep of a house isn’t limited to its four walls. No new homeowner can forget the yard -- front and back. Corbin and his wife also purchased a lawnmower, weedwacker and sprinkler. Luckily for the couple, their new basement is a spacious one.

“I don’t know of anyone who can move in and just sit and just be happy with the way everything is. There’s always something else that needs doing or repairing,” Corbin said.

All this spending may be tough on Corbin’s wallet, but it means good news for the economy. After all, it’s the enthusiastic spending by new homeowners like Corbin that help drive it.

To understand how easy it is for new owners to be lured into spending, one only needs to consider this fact: at Home Depot, the temple of home repairs, there are 600 choices available when purchasing a toilet.

The flurry of spending can start with something as simple as the purchase of a door knob. Vinnie Merlo, Home Depot’s local district manager, explained to me that of course you want all your fixtures, inside and out, to match.

“The brushed chrome on the outside. Now the brushed chrome has to be on the inside,” he said.

The door knob leads to hinges, and perhaps even a new door. After all this spending, you need to save so you consider a new,  energy-efficient storm door, albeit one with a full window panel through which to admire your new purchases. And, well, you see where this is going. No other single consumer purchase ripples through the economy like the sale of a house -- old like the Corbin’s, or, brand new.

Susan Wachter, a professor of real estate and finance at Wharton, says a home is the single, major purchase households make.

“If someone is buying a new home, a newly constructed home,that has immediate consequences in terms of construction jobs,” she said.

The rule of thumb, Wachter says, is for every newly constructed house sold, one new job is created, but that is just the beginning. The new job means a new paycheck which means spending. The cycle repeats. Though the housing market has been off, Wachter says it’s beginning to come back.

“As the housing market improves, housing prices increase. And that has a wealth impact. People are wealthier, they feel wealthier, consumer confidence increases,” she says.

But not every consumer is feeling confident enough to take on an old house. For Paul Woodiel, also of South Orange, N.J., the love affair with old homes is over.

“Totally over for me. Totally over,” he said.

Woodiel’s last home was old, so this time he bought new and he and his wife have barely had to lift a finger to make changes to their new home. But, there is a catch.

“To be honest, we paid more than we wanted to pay for a house, but that’s what we paid for," he said.

The lesson Woodiel says he’s learned is this -- you can pay now, or you can pay later, but homeowners always have to pay.

About the author

Sally Herships is a regular contributor to Marketplace.
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"[N]ot every consumer is feeling confident enough to take on an old house. For Paul Woodiel, also of South Orange, N.J., the love affair with old homes is over."

Well, not every consumer feels confident enough to take on a new house; for some of us, the love affair with new construction never began, while the love affair with old houses never ends. My house was built in the 1940's, my parents' in the 1890's; both houses were built to last. My brother's house was built in the 2000's; it was most assuredly NOT built to last. (He would have preferred an older house, but there aren't any where he has to live for his job.)

I will bet anyone any amount of money that the overwhelming majority of new construction will not be standing in 70 years (the approximate age of my house), let alone 120 (the approximate age of my parents' house). This is because new houses are flimsy and cheap -- hollow-core doors instead of solid wood; chromed plastic fixtures instead of metal; fiberglass shower/tub inserts (which are easy to crack) instead of tile or porcelain or enamel; drywall that is prone to growing mold instead of plaster walls; at best a brick facade, but more likely vinyl siding, instead of masonry construction; asphalt shingles instead of slate or tile roofs.

I'm hardly the strongest woman in the world, but I can easily put my fist through drywall; my plaster walls, by contrast, are so solid that I needed to use a hammer drill to install my curtain rods -- and plaster doesn't grow mold. My brother has already had to replace the tile on his bathroom floor because the contractor took a shortcut: instead of using one single piece of cement board for the sub-floor, as he should have, the contractor instead used a bunch of smaller pieces; as a result, the tiles cracked along the seams between the pieces of cement board. As long as they maintain it properly, my parents' slate tile roof will last as long as their house stands; modern asphalt roofs, by contrast, last 15 to 30 years.

Yes, old houses require upkeep, and new houses generally need less work right off the bat -- but EVERY building must be maintained if it is to stay standing. As I said before, new houses are not built to last; they are built with an eye to keeping costs down and finishing quickly -- and you get what you pay for. With a new house, you're paying for expedience, not quality. I know which is more important to me.

Oh come on Sally, can you at least let the realtors write their own puff pieces about how great owning a home is over renting? The fact of the matter is that we as a nation have over invested in residential real estate thanks to a litany of bad public policy from prefered tax treatment for mortgate dent and capital gains, to bankrupt GSE's to the Fed with artificial and low intrest rates. The economic funk we've been in for the last 5 years is the hangover from the previous housing bubble.

Great story! But can we please clear up, once and for all, one misconception about the low costs of renting that was mentioned in it? Renters--at least New York City renters who are lucky enough to live in rent controlled or rent stabilized apartments--often find themselves paying for and taking on most repairs, renovations, painting, even plumbing and carpentry. They pay for purchase and installation of new windows, refrigerators, stoves, sinks, light fixtures, electrical wiring, tile work, floor repairs . . . Or they do them themselves. What have I left out? And can you tell that I'm one of them? I've lived in rent stabilized housing for many years now, and I don't know anyone in my building or in others like mine, who does not take on a good deal of the cost of maintenance and repairs themselves. It's an unspoken agreement between such tenants and landlords. In return for low rent, we cost as little as possible to the owners of the property we live in. No, we don't pay for boiler repairs or fuel, but we do pay for nearly everything else. We even clean hallways. So renters really often are carpenters and handy people, much like homeowners. That would be an interesting story, I think, but I wonder how willing landlords and tenants would be to talk about it openly. I can't tell you how many times our landlord has called and said, "Listen, I'm looking at your rent, and it's way below market value. Could you just take care of it yourself?" And usually, that's exactly what we do.

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