The Housing Bubble

Readers suggested a topic on renting. “The other day I saw another warning notice of rent non-payment on the door of an apartment in my building. If that person doesn’t pay up, they’re out in 30 days. Or less, since I’m guessing they missed the current month’s rent. But we never hear about the plight of the renter. If a homedebtor gets behind in their payments or goes into foreclosure, it is years before they’re forced to move. If a renter misses a payment, he’s evicted in 30 days. But you know what? Both are humans. Both may have families.”

“What exactly is it about the homedebtor going non-current in their payments or facing foreclosure that evokes such sympathetic howls of grief and agony from the media, the Fed and the government, whereas nary a peep is heard about renters being evicted in 30 days if they miss a payment? Why is that?”

A reply, “It’s really simple. An apartment can easily be rented out again after an eviction, whereas a foreclosure usually represents a massive financial loss to the creditor (the banksters). So they lobby for programs to help keep FB’s in their houses, with the bailout money ending up in the bankster’s pockets. It has nothing to do with whoever is living in the property.”

And finally, “I think people see renters as inherently more footloose and mobile, not attached to any one place. A move for them is seen as no big deal. People see ‘homeowners’ as people who have ‘put down roots’, are raising a fam, the whole American Dream thing. It’s not always accurate, but that’s the perception.”

My West Texas. “In some areas of the United States there is still a long way to go to reach a healthy state in the residential real estate market (and prior peaks may not be surpassed for decades, if ever). When the housing downturn began, homeownership had reached almost 70 percent nationwide. The total market value of all U.S. homes more than doubled between 1999 and the peak in 2006/2007, with prices for individual homes up an average of about 50 percent. The jump in value was uneven, with the east and west coasts generally rising more than the center of the nation. For some metropolitan areas, prices more than doubled.”

“There is some empirical evidence (such as a study by economists at the Boston branch of the Federal Reserve Bank) that only those who suffered from the housing crisis directly or through someone close to them are likely to change their behavior based on it. For people who have merely seen the news stories and statistics, the decision of homeownership is far less likely to be affected. Age is also a factor, with younger people less confident that buying a house is a good idea than older individuals who may be more apt to see the recent pattern as an aberration in an otherwise known trend.”

“A survey supported by a major real estate firm (Coldwell Banker) concluded that Americans now have more respect for homeownership, and pointed out that a home is far more than a financial decision, but an emotion-laden aspect of happiness that isn’t easily measured by dollars.”

“Over the past several years, the housing market saga has been played out in the media with stories of displaced families, foreclosures, and bankruptcies. Against this backdrop of bad news, the natural question has arisen regarding whether homeownership is still ‘the American Dream.’ The answer is as much psychological as it is economic.”

The Chicago Tribune. “Among the many aftereffects of the popped housing bubble is the perception that a generation of young adults has been spooked into doubting that they’ll ever own a home — or even aspire to own one. Not true, says a new survey from a major real estate company, which contends that 18- to 35-year-olds do indeed like the idea of owning homes, and they’ve learned a thing or two from watching their parents struggle with the housing market.”

“Sherry Chris, CEO of the Better Homes & Gardens real estate brand talked about what her company gleaned about 20- and 30-somethings (in edited form): Q: Why did your company recently survey a broad group of young adults, generally known as Generation X and Generation Y? A: When you look at nationwide demographics, about a third of the population is baby boomers — that’s my generation. We’ve driven the economy for 30 years, and we’re starting to slow down our buying of real estate.”

“Another third of the population is echo boomers, which are a combination of Generations X and Y, and they’ll drive the economy for the next 30 years. It was important to find out what’s on their minds, because there’s been a lot of chatter about how they’re going to remain renters and don’t have a clue about home ownership. It was important for us to get this firsthand.”

“Q: So, are they gun-shy about real estate? What did they tell you? A: What we found was the opposite of all the chatter and noise. This group of young adults is very much in tune with owning real estate…Nearly all of them said they were willing to adjust their lifestyles to save for a home. Sixty-two percent said they’d eat out less. Forty percent said they’d work a second job. And 23 percent said they’d move back home with their parents to save money.”

“Q: Of course, confidence in the job market is no small indicator these days, which I think might slow their entry into the buying market, even if they want to buy. Then there’s the evidence of huge amounts of student debt they’re likely to be carrying. What did they say about student debt? A: We didn’t get into that.”

“Q: What would you have done if young adults had said, ‘No, thanks, I think I’ll remain a renter’? A: Well, as an industry and certainly as a brand, we’d have to step up our campaign to show young buyers the importance of real estate as a long-term investment and lifestyle.”

The Victorville Daily Press. “The Victor Valley has been one of the epicenters of the housing market’s boom and bust during the past decade. The median home price in the area dropped from $323,000 in July 2006 to $103,000 in July 2009, according to Caroll Yule of Shear Realty. Investors flooded into the market after the housing bubble burst as they looked for opportunities to make money off cheap foreclosed homes.”

“Some of these investors refurbished the purchased homes and resold them quickly with a markup, in a practice known as flipping. But as inventory of foreclosed homes depleted and prices began rising recently, many investors are holding onto their properties and renting them out. ‘Investors are creating an environment where the rental market is going to be flooded,’ said Tony Smith, a real estate agent at Century 21 Fairway in Apple Valley. ‘It’s the next wave we are seeing.’”

“Cash buyers accounted for nearly 40 percent of all home sales in the Victor Valley during September, according to Larry Trombley of Century 21 Rose Realty. ‘This is basically cutting regular home buyers out of the market,’ said regional economist John Husing of the Inland Empire Economic Partnership. While some strongly oppose his view, Husing warned that the recent expansion of rental properties is ‘destructive’ to the Victor Valley communities for the following three reasons:”

“1) Rental properties are generally not wellmaintained and will bring down property values in their neighborhoods. 2) Calls for police service tend to increase in neighborhoods with a high volume of rental properties because they attract low-income earners. 3) Schools suffer from a high concentration of renters in one area because some of these families move their children around to find the cheapest property.”

“‘There’s a close relationship between the housing market and the crime rate,’ Husing said. ‘My instinct is it’s getting worse, not better. The share of underwater homes is extremely high.’”

“Ben Lamson, founding partner of Bluestar Properties which manages rental homes pointed out a cultural shift among Americans, who are often forced to move around to get a job. ‘I think you are seeing more demand for rentals as the society becomes more mobile,’ Lamson said. ‘We are seeing young people today wanting to live in different places and not tied to mortgages and loans.’”

“Tony Card lost his Big Bear home when the housing market collapsed and is now renting a house in Apple Valley. Card, a real estate agent, said people have different reasons for renting. ‘They have to live somewhere,’ Card said. ‘That doesn’t make them a second-class citizen.’”

Readers suggested a topic on comparisons. “Do Americans have more or less to be grateful for than they did in 1980? That’s the time the old post-New Deal liberal order, unions and industry were starting to collapse, precipitating the era we have been in since, or had been through 2007 or so. It’s also the time that those born from 1930 to 1955 or so took over our institutions from the Greatest Generation, and those born afterward entered the labor and housing markets.”

“There were real gains in information technology, and the information and entertainment people had access to. And, though it was expensive, health care. But much of the rest of the apparent gains in the standard of living over the past few decades have been funded by debts, public and private. And now that has collapsed, the standard of living is falling.”

“In the early 1990s recession, when people were down, I put together a spreadsheet with a variety of economic, social and environmental indicators comparing the so-called ‘good old days’ with the ‘recent bad years’ to show things were, in fact, better. I’m pretty sure that for most people, especially young people, I could make the opposite case today.”

One said, “Fancier toys do not make a for a better life. 20 years ago I wasn’t constantly keeping my ear to the ground, hoping to dodge the next wave of layoffs. I would gladly trade my flat panel TV and high speed internet for some peace of mind.”

And finally, “I think we have a great deal to be grateful for, such as modern new inventions and greater prosperity. With all the news talk about how this decade compares with that, it’s often not even comparable. My first computing experience began in High School with a Wang card-reader that barely did arithmetic. Shortly thereafter, a hand calculator emerged, priced about $450 that could do multiplication and division and even had a percent key. Wow.”

“By 1980, my College had a computer that worked with punch cards. By 1985, it was fully integrated with computer data consoles and a few programming languages. Apples, Amiga, Commodore and IBM laptops had all entered the market. I started out with a 16k laptop that was an amazing 4 times the previous model for data storage, with a floppy disc, rather than cassette tape storage. We also had the first COLOR ‘RGB’ consoles. I started out with amber and green screens. You can see where this is going.”

“I used to stay up nights drinking beer with computer geeks and downloading data on a 1200 baud modem. Soon we got a 2400 bps modem and WOW, we doubled out data stream. It was like magic.
We didn’t have the Web, web-sites, internet access (only university inter-library access and bbs services). We didn’t have cell phones. My first dial-up systems used a rotary telephone. Most kids don’t even know what that is.”

“My college car was a 1972 Datsun pickup. It was built poorly, but mechanically unstoppable. Cable TV? You must be joking. We started out with 5 network channels in the 1960s. That was it. World satellite communications? Didn’t exist. VCR’s had begun to be developed. Then we got DVD’s around the 1990’s or so. My 8-track and cassette players have been replaced by CD’s. Online music?? MP3 players?? What’s that?”

“Shopping ‘malls’ were new creations. We had local stores and strip centers for 1/2 my adult life. Look around your house. I still have VINYL records and still play them. I like to put the stylus down on the track I want to hear. But lots of the stuff you have didn’t exist in 1980.”

“Online library? Forget about it. You need to look something up? A trip to the local library and a dig through the Card Catalog (no computer files). 3×5 cards. Index cards. Rotary Business lines with phone books delivered for every phone. The advances of medicine and available care could fill a book. I never had an MRI before 1999. I could go on for the rest of the day. A lot has changed and in many ways our lives are much easier and more efficient. I think my standard of living is mostly improved. I am communicating with you in ways that were not possible in 1980 or even 1990. But all this has come at a cost. We spent way too much to achieve a greater, bigger and richer society. I say that collectively, as I personally did not.”

“There have been vast improvements to people’s lives, but societies live by way of comparison. We all live better than most Regal Elites of past generations to whom ’salt’ was a luxury, ice was shipped around the world for cold (before refrigeration), Books were rare, and ‘climate controlled’ buildings were simply a dream.”

“The simple truth is that whatever ‘new thing’ some people are able to possess, others will feel left out and ‘oppressed’ because they don’t have one, too. And somehow, it’s not fair and the government should ‘do something’ about it. We live in a world of scarcity, not abundance. Human efforts have created more abundance, but the desire to ‘fairly distribute’ it will remain a source of conflict so long as humans are working to debate and resolve the issues. Unfortunately ‘credit’ allows people to live more abundant lives and create the illusion that they are more ‘wealthy’ than they really are. This includes societies as well as individuals.”

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