Thursday, August 30, 2007

The lies about home sales and poverty

A couple things in the local papers - articles which have been echoed nationally - have really angered me lately, and it's time I get this off my chest.

The first anger-inducing headlines were about how home prices have dropped for the fourth straight quarter. You can read about it in this article, with the caption "Mortgage Meltdown 2007."

The part that all these articles don't mention is the thing that has been happening for much more than a year - and that's the long-standing freeze in the mid-priced housing market. Up until recently, if you wanted to buy or sell a half-million-dollar or better house, it was no big deal - because people in that economic strata hadn't been hit with the economic two-by-four that many of us now face.

But I knew a year ago, visiting my sister's neighborhood on the southwest suburbs of Toledo, that the housing market was already showing signs of rigor mortis, because in a neighborhood of 50 or 60 condos in the $150-200K range, there were 12 of 'em for sale. A quarter of the housing stock in this reasonably-new (less than 10 years old) development was on the market - with almost no movement whatsoever.

My sister and her husband had already lost nearly $40,000 in equity two years ago, trying to get out of the two-story house which they could no longer live in because of Sue's advancing MS and fibromyalgia. They'd been clobbered by the soft housing market two years ago.

I truly do understand that what the market is measuring is the price of homes that actually sold - and that average is down considerably for four quarters straight. But no one is measuring the devastating effect of the homes that won't sell - like my friend John's house in Lexington, sitting empty on the market for a full year. If you factor in the homes whose sale price is zero - those that haven't (and likely won't) sell, then the market is in a much, much scarier place.

When you look at the group of people being affected by this, they are what used to be called the lower-middle class - working stiffs whose home was their single biggest asset, and their single biggest investment. These are also the people whose employers (where they are still employed!) are also squeezing them on health care. Sue went from reasonably good employer-paid HMO health care with reasonable cost sharing to a 70%/30% plan with a vastly reduced prescription formulary and much higher co-pays. This happened even as she went from more than $15 an hour to barely $10. Less money, more costs, and no cushion in sight.

The tragic part about this is that it wasn't front-page news until the melt-down in the sub-prime market affected Mr. and Mrs. Lexus-and-BMW's ability to sell their half-million-dollar house to move up to the $750k one with the granite countertops. Once they couldn't get what they wanted, boy, it was Oh, the humanity!..." everywhere.

Honey, we have been there. For a while.

For ten years or more, economists have been warning about the housing boom and the home-equity mortgage market that has been propping up consumer spending. Without those two things fueling the economic engine (and with it stock prices), there would have been a considerable retraction before that - and the White House couldn't have afforded that, now could they? Well, folks, the vultures are coming home to roost - folks like us have been watching the flies circling these particular corpses for quite a while.

The Toledo Blade's recent report says that 22% of Toledoans - more than one in five - are living below the poverty line. Detroit (a scant 40 miles away) has the unenviable position of having the highest percentage in the nation for big cities of people under that ugly line.

And there are a whole bunch of people like my sister and brother-in-law who are hovering just above that dreaded line. People who may become the last generation in their family to have the "American dream" of home ownership. Like an iceberg, I'm afraid that the true size of the problem has been hidden up to now, and I don't know what we can do to recover from it.

And yet our President can still justify what is upwards of $400 billion in costs for the Iraq war - not to mention the human costs of 4,031 lives in the coalition forces, more than 27,000 wounded and crippled US soldiers, and more than 70,000 civilian casualties (possibly much higher).

John McCutcheon's lyrics come to mind:

The ones who call the shots
Won't be among the dead and lame
And on each end of the rifle
We're the same.

("Christmas In The Trenches")

We need a different set of answers, people.


Tom Scharbach said...

We have a similar situation in our area. A friend who heads a large realty office in our county, told me earlier in the year that the market has revolved, for a couple of years, around sales of $75,000 and less and $300,000 and up houses and condos, while houses like mine, in the middle, aren't selling, period.

Reading between the lines, I suspect that the middle-level housing market isn't moving because the middle class is overextended and can no longer afford the housing they expect, so they aren't buying. I also suspect that things will get worse rather than better before this is over.

Household income has been rising over the last twenty years, while inflation-adjusted wages have been going down. The reason household incomes are higher during a period when real wages are lower is that there are more workers per household now than in the past.

Our government policies in the last half-dozen or more years have been making things worse -- no doubt about that at all -- but the problem has deeper roots, I think.

I look back about forty or fifty years. At that time, the average square footage of a family house was about 1,500 square feet on average, and today it is 2,500 square feet. Most families then had one car; today the average is closer to three, not to mention boats, ATV's and so on. What is true of vehicles is true of televisions, kitchen appliances and just about anything else you take a look at ... people are trying to live a lot higher now than they did forty or fifty years ago.

Over the last forty or fifty years, our cultural expectations have changed. Middle Americans -- the "working stiffs" as you put it -- have come to expect big houses with a bedroom a kid, family rooms with 40-inch HDTV, breakfast nooks and all the rest, a standard of living that was, forty or fifty years ago, the preserve of the well-to-do.

All of this has been fueled, in part, by working mothers -- how many couples do you know where one of the parents is a "homemaker" these days -- and by credit.

Economists, as you note, have been warning for at least a decade that our housing stock was getting beyond the means of middle America's ability to pay for it, and that a crunch was inevitable, but they have also been warning, in even more stark terms, about consumer credit, which has been and remains out of control.

The bottom line, I think, is that too many of us have been living beyond our means -- our eyes (our expectations) have been bigger than our stomachs (our ability to pay for it all), as my mother used to say when the kids would load up their plates.

The crunch looks like it is finally come -- after all, what more can a family do to pay for it all after the one spouse is working one and a half jobs -- and I'm not sure what can be done about it. We are in for serious economic dislocation, because our standard of living has risen far beyond what we can pay for, and most families have no margins to carry them through even the small crises (such as one of the wage earners being out of a job for a month or two) because Americans haven't saved for three decades. We have been headed for a fall, and we've ignored, as a society, the warning signs for two or three decades.

It is a tragedy in the making and I don't have a solution.

Poor Mad Peter said...

One solution, although I don't automatically apply it in your situation, Steve man, is to drop out of the whole "equity" biz altogether and find a good solid housing cooperative (not co-housing), and become part of a community that nurtures and gives back. It's a grass-roots, people solution.