[Jack M.Guttentag is Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania and author of The Mortgage Encyclopedia. Throughout his career, Professor Guttentag has been concerned with the difficulties faced by consumers in the home loan market.]
The homeownership rate has been increasing recently following more than 10 years of decline. According to the US Census, the rate peaked in the first quarter of 2005 at 69.1%, then declined to a low of 62.9% in the second quarter of 2016. It has been creeping up since then, reaching 64.2% in the first quarter of this year.
This may or may not be a good thing, depending on how many of the new owners are NOHOs – my term for people who should not be homeowners.
Defining a NOHO
The distinguishing feature of NOHOS that makes them poor homeowners is not their income, family structure, mobility, ethnicity, or where they live – rather, it is how they live. Where successful homeowners live with at least one foot in the future, and have learned how to delay some gratifications for future rewards, NOHOs live from day to day — or week to week, or month to month, depending on how often they are paid. Whatever they want, furthermore, they want it now. Typically, they have nothing left at the end of their pay period, and if they run out early, they have to scrimp or borrow, usually at high interest rates. [MORE: Go to Mortgaqe Professor link here.]
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