One family’s loss another’s opportunity…

February 19, 2009

(Copyright 2009)

I felt kind of embarrassed watching my television screen seeing reportedly desperate American workers losing their homes to foreclosure after losing their jobs. Embarrassed because these homes I was seeing on my screen did not look like modest working people homes, they were two story, upper middle class or professional class edifices with new super-sized pickups and giant SUVs parked out front.

(We have a higher class of poor people in America.)

That of course does not make the plight of these beleaguered homeowners any less desperate than someone losing a more modest home with smaller and older vehicles parked out front, but there does seem to be something incongruous about this picture.

Credit, way too much credit, has allowed a much larger portion of the American workforce to live as if they were upper middle class (sorry for using the class terminology, but how else do I describe it?) over the past couple of decades or more.

It is often said that most American families are about one pay check away from losing everything, and apparently that is so from what we are witnessing now.

I have a thought. In the neighborhood where my wife and I lived until recently, many homes are being left vacant. Others are being rented out, but the precarious lives many renters live leads to a lot of moving in and out. Yard and home care in many cases is suffering, although overall, things are not desperate yet (maybe).

It is said that homeowners who are current with their payments and are not in danger of losing their houses, and ones who have been careful and played by the rules of prudent finance will nonetheless benefit from President Barack Obama’s administration’s move to bailout distressed homeowners, because blight in neighborhoods could be prevented or curtailed and the market could be restored.

Many or most of those distressed homeowners were not terribly responsible, taking on mortgages they should have realized they could not handle (unless the price of homes continued forever on their rocket ride up and they therefore could leverage themselves into upper middle class into infinity – but even rockets often come crashing back to earth). Some may have been bamboozled by real-estate salespeople, but we have to demand of everyone, to include ourselves, a certain amount of buyer bewariness. We do have public education (although personal finance is not emphasized), use it.

But here’s a thought, just a thought:

Okay, so the lenders take over homes in my old neighborhood. They will, or should, either eventually be sold to someone else (and there are bargain hunters out there) or they will be rented out. If neither is the case, there must not be much of a demand or need for housing (and could folks rent the homes they are losing for the short term? I know, only if the rent payment was a lot lower). I always wonder why the push to get homebuilding going in the local area when apparently we now have an oversupply. I know the answer here too, carpenters want to work and I don’t blame them. But one of my now retired carpenter brother-in-laws said that when there weren’t new homes to build he did remodels. He was never out of work during his career and he never (with one short, very short, exception) moved out of the local area. 

I guess part of what I’m trying to get at here is that letting the market itself correct the problem might work somewhat more efficiently and even equitably (I know, too late for that).

I have to think that as bad as unemployment is around my area (about 10 percent – not unusual for here, though) , that means 90 percent of the workforce is busy (that’s how conservatives interpret unemployment figures, so I thought that even though I am a moderate, I would steal that from them). That means there are a lot of people who could take advantage of much lower home prices. There may be a lot of working people living in apartments who could now afford to move into a home, either to rent or buy (although, reality tells me that most apartments in my area are either occupied by the never or seldom working class nurtured by the welfare system, which was never really reformed, and retired people on fixed incomes).

The big problem around my area (and everywhere, I suppose) is speculation. Speculation is what drove up home prices around here into the stratosphere before they came back down to reality (and I think in my area at the going rate one could use the old, old fashioned rule of 25 percent of the household income for a payment, as opposed to the outrageous modern rule of 50 percent or more). The easing of lending rules (like can you really afford to take on a mortgage) led to a rush to buy homes. Outside and even inside spectators took advantage of the situation and gobbled up homes, not to live in them, of course, but to flip them. I have a nephew who actually did buy a home to live in, fixed it up, and then flipped it (with the help of his retired carpenter dad). He got out just in the nick of time; it was breathtaking. He’s an extremely hard-working fella and I don’t begrudge his speculation and I suppose it is hard to impossible to limit speculation. But make no mistake, speculation hurts. It drives up home prices way above what average working families can ever hope to afford (unless we drop prudent lending rules like we did – but now we know the outcome).

So I’ve kind of gone around in circles. Just some random thoughts. No real conclusions, except: “a penny saved is a penny earned”, “let the buyer beware”, “don’t take any wooden nickels”.

Add 1:  Hopefully Obama’s forclosure rescue plan will fare better than attempts so far by lenders. I heard on TV that the current rate of  re-default on adjusted mortgages is 50 to 60 percent. A Wall Street Journal editorial pegged it at 50 percent.

P.s.

I know of a good home buy in a certain neighborhood.