Breeann Mack looks skeptically at the kitchen ceiling of a foreclosed townhouse outside Saint Louis. Or perhaps more accurately, she looks at exposed plumbing and electrical wires where the ceiling is supposed to be. Without even checking the upstairs, Mac decides she’s seen enough. Even though the home is priced at only $45,000, she’s not interested in fixing up someone else’s mistake – not if it means overextending herself financially and potentially making a mistake of her own.
“I want to try to make sure that I’m OK-OK and that, financially, I can pay for the house, the down payment, furniture if I need it,” she says. “I have to be realistic in it.”
Mack, 32, lives with her mother. She spent four years paying off all her debt. Now, she’s thinking very carefully about what she can afford on her $33,000 dollar salary. She’s been pre-approved for a $90,000 dollar mortgage. If she goes with a loan backed by the Federal Housing Administration, her down-payment could be just over 3 percent of that. She wants to keep her payments around $500 a month.
People like Mack are the upside of the housing crisis, says Chris Krehmeyer, the president Beyond Housing, a local nonprofit where Mac’s received financial counseling.
People are much cautious now, he says; some are even scared of homeownership – and that’s a good thing, if it prevents people from taking on more home than they can afford.
But Krehmeyer still believes that most people – even the lowest income families – should be able to buy a home.
"Is there some number where you can't? Sure," he says. "What is that number, it depends upon the marketplace. But just to say arbitrarily if you make less than $26,000 that you can’t become a homeowner, that may not be true."
Krehmeyer says homes are still the best way to help build wealth and pass that wealth on to future generations. It’s just that getting lower income homebuyers through the purchasing process is more complicated.
Beyond Housing runs classes to get people ready to purchase a home and their manage expectations.
Standing in front of roughly two dozen potential home-buyers on a Saturday morning, instructor Chris Gilliam explains that lending standards have tightened.
"Underwriters, that’s the gatekeeper, they’re looking at more things, more factors than they used to," he says.
Attendee Coretta Johnson already knew she had to pay down her credit card debt. But she’s just learned that routinely overdrawing her bank account, which she does once or twice a month, could look bad on her loan application.
"That’s hurting me right now," she says. "Because I know I’m a responsible individual and I just want to leave my kids something. I want to have something in my life that I can say I accomplished and I did."
Homeownership has many benefits, says Ray BO-shara, senior advisor with the Federal Reserve Bank of Saint Louis. "Typically homeowners have about 35 times the wealth of renters."
Many homeowners get tax subsidies; they tend to save more; Kids of homeowners are even more likely to go to college.
"The problem isn’t homeownership," he says. "The problem is if you only pursue homeownership."
In 2007, the bottom 30 percent of homeowners had over half of their total assets in their homes, according to Boshara, who says a more appropriate number would be something around 20 percent.
So while he's still pro-homeownership for low income households, Boshara also thinks people need to build more pain-old vanilla savings and look at other kinds of investments.
"Historically the stock market has outperformed the housing market in terms of an investment," he says. "Many people even think it’s wrong to think of home-ownership as an investment given the risk."
But stocks can be a tough sell.
"It’s kind of scary," says Coretta Johnson, who has invested in a Roth IRA. "I mean I’d rather lock my money up in something that’s benefiting me."
A house is an investment Johnson can live in. She wants a one-story home where she can grow old.