Friday, February 11, 2005

Realtors, mortgage brokers benefit most from federal housing programs, study argues

As it turns out, the American dream of owning a home is not the best option for everyone, according to a study released by the Center for Economic and Policy Research. Some low-income families may even be worse off from a home purchase, losing a substantial amount of money in the process.

Even with subsidies from government programs like the American Dream Act, many low-income families would be better off renting, writes Dean Baker, co-director of the Center and author of the report, "Who's Dreaming? Homeownership Among Low Income Families."

"Government programs that push low-income families into home ownership are likely to benefit Realtors, mortgage brokers and other intermediaries, rather than the families who are the targets of this aid," Baker writes.

It is important to recognize prospective home buyers' individual situations, as well as the state of the housing market when deciding whether home ownership would be more beneficial than renting, Baker cautions. Factors like tax benefits that make owning attractive to middle-income families may not apply to low-income families who have no income tax liability.

"Almost by definition, low-income families will owe no income tax because they are below the thresholds where they first become liable for income tax," the study notes. Most low-income families won't receive a benefit from the mortgage interest payment tax deduction.

Low-income is defined as below 80 percent of the median income nationwide, which equals an income of less than $43,000 nationally.

Another factor working against low-income families is the length of time a typical family will occupy their home. For families in this income bracket, recent research shows that the median low-income home buyer stayed in the home for less than four years. That means the transaction costs incurred from buying the home will be "quite important relative to the cost of living in the home."


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