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Deciding to buy while just getting by: Low-income families and the housing market

Beachwood Homes In Pine Law, Mo.

To buy or not to buy?

The leap into homeownership is always a big decision. But buying now, post-housing crisis, can be especially challenging -- especially for lower-income buyers.

“Everyone’s looking to apply for a mortgage,” says Chris Gilliam, a counselor with Beyond Housing, a Saint Louis nonprofit, which does community development and runs home-buyer education classes.

Gilliam stands in front of roughly two-dozen potential homeowners on a recent Saturday morning.

“Credit will be evaluated,” he tells them. “They’re looking at more things than they used to. They’re going to look at your bank statements.”

Some workshop attendees know they’re going to buy and are here to qualify for down-payment assistance. Katherine Estrada, a vet technician, is not so sure.

“When I was younger, we had a great house,” she says. “But unfortunately, you know, things fell through. My father lost his job, he was injured.”

Her family was foreclosed on in 1998, and spent a long time bumping from family member to family member, rental to rental. Now, Estrada is 22 and out on her own. She’s looking for some stability -- and a good investment.

“I’ve been thinking about it for a while, since everyone’s like, ‘Foreclosures! Property, this, property that,’” she says. “But it’s like if I get in a house and three years later, if I need a new roof, I’m not going to be a situation where I have to get another loan out to pay for something.”

It’s a position echoed by many here: on the one hand, there’s this fear of missing out on low interest rates and low housing prices. But on the other, there’s caution.

“Fear and trepidation about foreclosure is higher than it’s been in the past,” says Beyond Housing CEO Chris Krehmeyer, while driving through some affordable neighborhoods where the organization builds and rents homes. “We think that’s a good thing. We want people to go into this eyes wide open.”

He stops on short on a dead-end street, in front of a new brick home with beige siding that’s been on the market for over a year. “From a sheer what-you-can-buy-for-what-you-can-afford [perspective], the house itself is a great value,” he says. “However, when you think about the neighborhood and the community, is this the place that you think is the best investment possible for you?”  The house next to it is vacant, boarded up with rotting plywood. A few houses down, there’s what Krehmeyer figures is a fresh eviction; a former tenant’s belongings are piled on the front lawn.

Krehmeyer wants people to buy here, because homeowners who are literally invested in a neighborhood can help stabilize it. But he also knows that some of the best deals right now can be risky investments. It’s difficult for a potential homebuyer to know whether that nice brick home will retain its value. And will that value increase over time? It’s hard to predict what will happen to a neighborhood in five or ten years.

Plus, money that’s tied up in a house can’t be invested in other places.

“Historically, the stock market has outperformed the housing market in terms of an investment,” says Ray Boshara, a senior advisor with the Federal Reserve Bank of Saint Louis. “Many people even think it’s wrong to think of home-ownership as an investment given the risk.”

Boshara says low-income buyers need to build up savings and other investments; they shouldn’t let all their money get tied up in a house. But homeownership does have its advantages.

“There are tax subsidies to support homeownership for a big part of the population,” he says. “And there’s other evidence that when people own homes, there’s other outcomes associated with that, like saving and investing. Your kids are more likely to go to college.”

While homeowners with mortgages do pay interest, their monthly payments can become a form of automatic investing -- they’re less likely to skip a mortgage payment than other kinds of saving during a tough month.

“It’s a forced savings plan,” explains Boshara. “It requires you, by making that mortgage payment, to put money into your house.”

Ultimately, the decision to buy is part economics, part emotion.

“I just want to leave my kids something,” says home health-aid Coretta Johnson. “I want to have something in my life that I can said I accomplished and I did. And so as of right now, I can’t say that. I can’t say that I can leave them anything.”

Johnson already works seven days a week, but she wants to pick up some night shifts to pay down a few thousand dollars in credit card debt. She hopes that will help her qualify for a loan under the new, tighter standards.

“I have to do this,” she says.

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