TOPICS > Economy

American ‘Lust’ for Homeownership Tied to Credit Crisis

August 14, 2008 at 6:40 PM EDT
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The drive to own more homes and renovate old ones in the U.S. fueled the number of bank loans that underlie the country's meltdown. In the first in a series of interviews on the economic downturn, Daniel McGinn, author of "House Lust," details his take on the factors behind the housing and credit crises.

JIM LEHRER: We begin a series of conversations about the roots of the downturn. Judy Woodruff looks at how the changing view of a traditional American home played into the housing crisis.

JUDY WOODRUFF: The height of the real estate boom saw people building enormous new homes, expanding existing ones, and flipping others to make a quick buck. That devotion to homeownership helped set in motion the forces that led to the mortgage and credit meltdown.

It’s a subject of a book called “House Lust: America’s Obsession with Our Homes.” Its author is Daniel McGinn, and he joins us now.

Daniel McGinn, thanks for being with us. You write about how Americans’ relationship with their homes have evolved over time. Tell us about that.

DANIEL MCGINN, Author, “House Lust”: Well, homeownership has always meant a lot to Americans. The American dream, we call it. We’ve called it that for more than a century. But in the last 10 years, something really did change. We started to look at these things as not just a place to live, but as a way to get rich.

JUDY WOODRUFF: And what was the trigger? What changed it? Because, as you say, you know, we think back, for the longest time, people have thought owning a house is a good thing.

DANIEL MCGINN: Right. I think the biggest thing we saw was that prices just started shooting up all over the country, 10 percent a year, 15 percent a year, 20 percent a year.

When we were seeing the values of our homes rise — and if you didn’t already own a house, you felt like you had to jump into one quick or you’d miss out — this really changed the way we thought. We weren’t just living in these houses; we were hoping to get rich off of them.

Living beyond people's means

JUDY WOODRUFF: And what were some of the triggering mechanisms that caused this to happen?

DANIEL MCGINN: Well, when you talk about the problems we're in, in the housing market now, clearly it became much too easy to get a loan and much too easy to get too big of a loan.

But you also have to think about the other side of the table. It wasn't that the banks were making us take these loans; it was people like us who wanted them.

We wanted bigger homes. We wanted brand-new homes. We wanted vacation homes. Our demand for housing just really went nuts for a few years here, much like it did for dot-com stocks in the '90s.

JUDY WOODRUFF: So it clearly did in an important way play into the mortgage meltdown?

DANIEL MCGINN: Sure, absolutely. I mean, we've all seen mansions that the very, very rich people own, but if you go into normal suburbs today, you can find the smaller -- what they call the McMansions. I've been in houses that have gift-wrapping rooms, plant-potting rooms.

You can go into very modest houses today and see home theaters. It's not uncommon to see people who have more bathrooms in their house than people actually living in their house.

And, you know, there's nothing necessarily wrong with living this way, unless, number one, you're borrowing more than you should to do it, or, number two, you're not saving for retirement or doing the other financial things that people should be doing with their money.

JUDY WOODRUFF: You even write about a woman who identifies herself as a therapist for people going through renovations.

DANIEL MCGINN: Sure. I mean, renovations are one aspect of the boom. It almost became a form of recreation for people to change the granite countertops in their kitchen or change the appliances every couple of years.

And I did meet a therapist -- I met a couple, actually -- that specialize in treating people who are anxious and stressed out from dealing with contractors and having to choose paint colors.

Home investments vary by state

JUDY WOODRUFF: And you write, Dan, that you actually participated in this house lust yourself?

DANIEL MCGINN: I did. I wanted to go beyond just talking with people with my notebook in hand. I actually wanted to try to get into their mentality, to see what was driving these people.

So for the book, I went to real estate school and became a licensed real estate agent to try to understand what drove a 500,000 people to become realtors during the early part of the century.

I found out how easy it is to become a realtor, to get certified, but then how hard it is to make a living.

And the other thing I tried to do -- we had a lot of people investing in properties, not just the house they were living in, but trying to make money by flipping houses or renting out houses.

So I actually bought a house in Idaho over the Internet that I've never seen before. I rent it out, out there. And I experience what it's like to worry about your refrigerator breaking in the middle of the night, worry if your tenant is going to actually pay the rent. So it definitely gave me some insight and some sympathy for the lifestyle of these folks.

JUDY WOODRUFF: How's the Idaho property doing?

DANIEL MCGINN: It was very shaky the first six months, but I have some good tenants and a good property manager. And I'm sort of breaking even on it right now.

JUDY WOODRUFF: Were there parts of the country where you found it was worse than other parts? Or was it pretty much all across America?

DANIEL MCGINN: Well, generally, places where home prices went up the fastest is places where it became the worst, but you definitely saw different flavors of it.

I'm in Boston, where we have a lot of older homes and we don't have that much buildable land, so in my neck of the woods it was mostly about renovating older houses. People were spending a lot of money doing that, and some of them getting over their heads.

If you go out to Las Vegas, where they have lots and lots of land, there people wanted to build brand-new houses. It wasn't good enough to buy a 10- or 15-year-old house. You wanted to have one where you chose every cabinet knob yourself, where you were making every decision about it.

If you go down to Florida, it was mostly vacation houses that people were getting into. So it happened in many places of the country; it just took different forms.

From a housing to a credit crisis

JUDY WOODRUFF: And where does it all stand right now? Now that we're well -- a year or more into the housing crisis, it's become the credit crisis. Where does this overdoing, buying homes, getting caught in a credit crunch -- where does that stand for people who own their homes?

DANIEL MCGINN: Well, I mean, clearly, there are a lot of people who are in a lot of trouble, whether they're already facing defaults and foreclosure or whether they're able to pay their mortgage, but they're so-called underwater, where the value of their house is less than the value of what they owe the bank for the mortgage, which means it would be very difficult to sell the house, not a good situation to be in.

I think, in terms of where we go from here, the most important thing to watch is inventory levels. There are still too many houses for sale, and there are still not enough buyers.

We've seen some government actions to try to get that moving, but I think we still have at least another year ahead of us with this.

JUDY WOODRUFF: Do you think people are learning their lesson from watching what's happened over the last year?

DANIEL MCGINN: I think to a certain extent they have, but I do think that there are signs that, for some people, there's a transcendent quality to all of this.

I actually got an e-mail a couple of days ago from a stockbroker who deals with very affluent people. And he's actually started giving my book out to clients, because he sees them -- still, even as prices have gone down -- they still want to spend too much money on their houses and not save and invest enough.

So I think there is some group of people who, even though we've seen a lot of damage from this the last couple of years, we're still watching a lot of HGTV. We're still watching people flip houses. Some of these ideas are very seductive.

JUDY WOODRUFF: That's Home and Garden TV?

DANIEL MCGINN: Yes, absolutely. I mean, I think in many ways that channel helped fuel some of this the same way that the stock market channels, like CNBC, drive a stock market boom. We became very interested in watching other people make over their houses, and many of us did the same thing.

JUDY WOODRUFF: Well, the media ends up a part of every story. All right, Daniel McGinn, the author of "House Lust," thanks very much.