Fungible Convictions

For all the acclaim “Talk of the Town” and its fiction and David Denby’s reviews get, the New Yorker has no better writer, from issue to issue, than James Surowiecki and his column “The Financial Page”. His contrariness and thorough research reflect the best of the New Yorker; his necessary brevity (or perhaps that enforced by his editor) avoid the worst.

This week’s piece, “Home Economics,” is a perfect example. Taking as his topic the premise that home ownership may in fact by bad for the economy, Surowiecki fits in all these gems into a 933-word article:

[T]he boom . . . was stoked by cheap credit and lax lending standards. Buying a home used to require a sizable down payment: in 1976, the average for a first-time buyer was eighteen per cent. By contrast, a National Association of Realtors study of first-time buyers between mid-2005 and mid-2006 found that almost half put down nothing at all, and that the median down payment was just two per cent. If you earn eighty thousand a year, no one will lend you four hundred thousand dollars to buy stocks, but plenty of people were willing to lend you that money to buy a house.

Homeownership also impedes the economy’s readjustment by tying people down. From a social point of view, it’s beneficial that homeownership encourages commitment to a given town or city. But, from an economic point of view, it’s good for people to be able to leave places where there’s less work and move to places where there’s more.

[A] study of several major developed economies between 1960 and 1996, by the British economist Andrew Oswald, found a strong relationship between increases in homeownership and increases in the unemployment rate; a ten-per-cent increase in homeownership correlated with a two-per-cent increase in unemployment. (In the U.S., it may be worth noting, the states that have the highest unemployment rates—states like Alabama, Michigan, Mississippi—are also among those with the highest homeownership rates.)

All of this is beautifully brought together around the thesis that homeownership—at least in this era of creative financing—is a brutal burden when the economy goes south. No down payments, adjustable interest rates, no-doc loans, falling values: these are things you can’t slough off when it’s time to look for a job in another town or your kids need a better school district. It’s a set of points newspapers have been trying to drive home, as it were, for the last year; Surowiecki nailed it in 933 words.