• Summer 2012

    Volume 34, Number 4

    Virginia Tech Magazine, summer 2012
  • Is homeownership still a cornerstone of the American Dream? Is renting or buying better? Virginia Tech experts and alumni weigh in on the many questions facing a still-struggling U.S. housing market.

  • Rent or buy?
    If you’re on the fence, click here to check out our rent vs. buy flow chart.

    Editor's note: On page 28 of the print edition, there is a mistake in the presentation of the flow chart on buying versus renting. In the first question about expecting life changes, the "yes" and "no" answers are switched. The online version here reflects the correct answers: If you answered "no" to the question, now may be the time to buy; and if you answered "yes," you may be better off renting. We apologize for any inconvenience this error has caused.
  • Home base

    Photo by Jim Stroup.

    The concept of housing can take on a variety of forms, like these slices of Americana from around the Roanoke and New River valleys.

    Photo by Anne Wernikoff.

    Photo by Jim Stroup.

    Photo by Jim Stroup.

    Summer 2012

    Home, Sweet Home: The changing shape of housing in America

    On a Mission: Veterans find a niche at Virginia Tech

    Maximizing Potential: A microencapsulation company leverages the region’s resources

    Energizer: The power plant that powers Tech

  • Go to digital edition   View or download PDF

    Home, Sweet Home. Photo illustration by Jim Stroup.

    The changing shape of housing in America

    by Denise Young

    If there's anything as American as apple pie, it's a white picket fence and a house in the 'burbs. But when the housing bubble burst in 2008, sending millions of homes across the nation into foreclosure and leaving some homeowners owing more on their mortgages than their homes were worth, that dream came under serious scrutiny.

    "Achieving the American Dream, buying a home, is uniquely American," said Joe Sirgy, a professor of marketing in the Pamplin College of Business. "That's part of our culture, part of what defines you as a successful person." In a nation still reeling from the Great Recession and still working toward a housing recovery, has the American Dream survived intact? Has "home, sweet home" become more bittersweet than sweet?

    Living the dream

    "We've had the idea that homeownership was an important part of the American Dream since after World War II, but in the late '80s, '90s, and early 2000s, homeownership started becoming a problem when we started giving out riskier loans," said Derek Hyra, associate professor of urban affairs and planning at Virginia Tech and a housing policy expert. "It's not necessarily the idea of homeownership that got us into trouble; it was the deployment of unsustainable loans."

    Bill Kingsbury (M.S. urban planning '67), director of the Gwinnett County (Ga.) Neighborhood Stabilization Program (NSP) in the metropolitan Atlanta area, traces the roots of that dream to the 1934 creation of the Federal Housing Administration—established to deal with a housing crisis at the time—and to the GI Bill in 1944. "We've sort of gone full circle," he said. However, he added that the dream is a uniting force: "It's just been the American Dream, and you can't pin it on one party, one president, or anything."

    Not long ago, housing markets were booming, property values were soaring, and even novices were flipping houses. When the foreclosures started and housing prices took a nosedive, many across the country found themselves stuck in underwater homes, unemployed but unable to relocate for work.

    "[The year] 2000 was the start of ‘anything goes,'" said Kingsbury, who, via the NSP, directs the purchase, rehabilitation, and sale of homes to income-eligible buyers. Since 2009, the program has rehabilitated 101 houses and 92 apartments. "It's a drop in the bucket," he said, compared to the State of Georgia's foreclosure rate: One of every 361 houses in the state has received a foreclosure notice. (By contrast, in a hot market like Washington, D.C., that number is one in every 24,727.) "It is a true crisis that does not know any income limits, except maybe the ultra-rich. But even upper-income communities are seeing foreclosures."

    Kingsbury shared an example of a program participant—a retired teacher recovering from an abusive relationship. The woman could afford monthly payments but needed help with a down payment. "The combination of down-payment assistance with the ‘soft second mortgage' in a completely renovated house was perfect for her, saving her from the stress involved in renovating a foreclosure or short-sale property," said Kingsbury. "[She] is happily re-establishing her life and her home, starting anew with the help of the NSP program."

    The American Dream may have fallen on hard times, but the link between homeownership and perceived quality of life persists. Sirgy says the numbers are in: Data show that ownership, when compared to renting, correlates to a higher sense of wellbeing. "When you buy a home, it becomes part of you, part of your heart and soul. It becomes a salient part of your life. … Because it's intertwined with standard of living and definition of success, owning a home reflects on your status in life. Status is emotionally and psychologically important in life." In other words, because people view homeownership as a pillar of success, achieving that milestone brings a level of satisfaction.

    Because the housing industry is entangled with so many others—from construction to banking to manufacturing—it commands special attention. "The housing market isn't like any other bubble," said Hyra. "When it bursts, it affects everything. It has a rippling effect throughout our entire economy." The trouble may have begun with subprime mortgages, but it soon spread to impact other industries and borrowers—even those homeowners with 30-year fixed-rate loans.

    "I've never been through a period like this—and I've lived through five recessions," said Bob Boynton (architecture '69), an architect based in Richmond, Va., and a member of the governor-appointed Virginia Fair Housing Board. He explained that an influx of foreclosures to the market could dampen need for new houses, slowing recovery in an already weak construction industry.

    Is 'rent' the new 'buy'?

    Kimberly Mitchell (housing, interior design, and resource management '93, Ph.D. environmental design and planning '08), an assistant professor of residential property management at Virginia Tech, encourages people to rethink their definition of success. "I think the American Dream needs to be about not benchmarking yourself against whether you own a house, but whether or not you're giving back to society and living a good life. That should be the American Dream."

    As foreclosures increased and lending criteria severely tightened, homeownership rates declined, and the number of renters increased. Homeownership rates fell 1.1 percent between 2000 and 2010, from 66.2 to 65.1 percent, according to the U.S. Census Bureau. While the drop sounds small, it represents the steepest decline since the 1930s.

    Despite the decrease, some experts doubt that the shift will be permanent. "There is a counter-movement [that renting is better]," said Sirgy, "but it hasn't picked up the way I thought it would. A lot of academics, scholars, and professionals have made this argument, but it's not very convincing to generations who have been brought up to believe that buying is the ultimate sign of success." Sirgy noted that in countries outside the U.S., renting is much more common, even in countries with high standards of living, such as Canada and parts of Europe.

    For Blacksburg-based real estate agent Jeremy Hart, renting was a lifestyle choice that he and his wife eagerly embraced. "We're a family of two. We had a nice house in Blacksburg and were finding we weren't using the space. We also wanted to walk more places and ride our bikes more." Since selling their home and moving into the downtown area, the couple spends more time downtown, utilizing the farmers market and living a lifestyle in line with their values. "The right reason to buy is when buying meets your goals," Hart said.

    Some cite a different reason that renting might be a better option. Employment trends have shifted over the decades, and younger generations especially are often prepared to be more mobile in order to follow new job opportunities.

    Tina Merritt (economics arts and sciences '91), a Blacksburg-based real estate agent specializing in working with real estate investors, sees a different reason young people might be holding off on one of life's major purchases. "They're thinking about it more. They don't want to get stuck like their parents did. [Generation] Y also has to meet tougher credit standards. They're very, very smart about making decisions and are being cautious. They're saving and making sure they're ready."

    Mitchell fervently dismissed the idea that homeownership, as opposed to renting, should be a cornerstone of success. "To think that you're more of a person or you're contributing more to society because you've bought a house has never made sense to me. No one should build [his or her] self-worth on what [they] buy." Renting may simply be a better option for some people, whether because it is more economical, because they lack the down payment, because they need the freedom of moving easily for work, or because they simply value the convenience and services that accompany being a renter.

    Goodbye, McMansion. Hello, sustainable living.

    For many, the aftermath of the housing crisis has led to a new way of looking at what may be the biggest purchase they make in their lifetime. "People's mindsets have changed," according to Carrie Schmidt (animal science '84), a Richmond-based Virginia field office director for the U.S. Department of Housing and Urban Development. Schmidt's role covers a wide range of issues, from single family, multifamily, or public housing to fair housing and equal-opportunity housing—even community development and planning. "[People are] not just looking to buy a house or rent a home. They're looking at everything that goes into it. … People are looking at schools, transportation costs, community services. More than ever, folks [put] a great deal of thought into where they choose to live."

    The types of homes people want are also changing. "The trend toward big homes is reducing. You're seeing the market not wanting a master bedroom closet that's the size of a 1950s bedroom," said Andrew McCoy, assistant professor of housing construction and director of the Virginia Center for Housing Research, based in Tech's College of Architecture and Urban Studies. He cited rising energy costs as a major concern for potential homebuyers. "You're starting to see more attached/multi-family housing. That's the fastest-growing side."

    "The trend is toward energy efficiency," McCoy said. "And if that means a smaller footprint, that's one way. If part of that equation is performance or new technology, then you're seeing people who want homes that perform better. Mobile technology is changing the way we interface with our house." For example, the Virginia Tech Lumenhaus, an internationally acclaimed solar house, employed a chip that would detect if everyone left the building. The house would then automatically adapt to conserve energy. "‘Smart' housing isn't going away," he added.

    The way people think about sustainability is also changing. "You're seeing less and less of ‘green' as a marketing tool. It's becoming the new normal," McCoy said. Even older houses are undergoing energy audits to measure efficiency and performance. The homes are then retrofitted to improve that score, saving the homeowner money on energy costs. In the future, McCoy said, "The consumer will have more options in how technology is integrated into the home, and that's a good thing. It's always a good thing to have a robust market."

    In his research, urban affairs and planning Professor Ted Koebel hopes to address how to produce housing that consumers want, in places they want it, at price points they can afford. Koebel, former director of the Virginia Housing Research Center, said a movement away from large houses in the suburbs toward smaller, more-efficient housing closer to urban centers may be the way of the future. With many boomers approaching retirement, there may be a need for housing that accommodates retirees living on tighter budgets. And many younger generations, concerned about transportation costs, may push into the cities, a sort of "re-urbanization."

    Beyond contemplating the pros and cons of an individual property, Schmidt said potential homebuyers have an even bigger question on their minds: whether to buy at all. "I think a lot of people of all ages are taking another look as to whether homeownership is the right move for them at the time—no matter if it's young folks starting out or older people questioning what's going to [occur] five or 10 years down the road."

    Despite record-low interest rates, many prospective buyers are understandably skittish. "We are still working ourselves out of the housing-market crisis," said Schmidt. "And, slowly but surely, we will eventually get to where the market needs to be. It is not there yet."

    "What people need to keep in mind is that the problem started with the bubble—the 25 to 35 percent overvaluation," said Koebel. Don't expect housing values to suddenly soar back to 2007 prices, he warned, because those were bubble prices. "We're now running on 10 years of being in abnormal housing market conditions. It's unclear how we come out of that and what the new normal is."

    For now, the heyday of flipping real estate seems to be behind us, and many Americans appear to have changed their pre-recession tune. As Merritt noted, "People aren't buying houses; they're buying homes now."

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