Monday, January 28, 2008

Hitting Home

I am rather melancholy today. This weekend I heard some sobering news which caused a great deal of internal reflection on my part.

For some reason it is not as morally challenging to desire inexpensive clothes and other consumer items. Most are made overseas, and I don’t witness the sweatshops, the environmental degradation, and the child labor that results from my purchasing habits.

Real estate on the other hand is very local, and the desire for a reasonably priced housing market is directly affecting several people I know and care for. I believe our local economy has now passed the point of containment (only affecting those directly involved in a transaction). There are many good people out there who are likely to suffer due to the consequences of the housing bust, and the resulting reduction in state and consumer spending. In hindsight some of the decisions by people I know may not have been the best, but I don’t believe that good people “deserve” to have bad things happen to them.

While I am relieved to see that homes are becoming more affordable here in Sacramento, at the same time I am very ashamed of this quest of mine because of the financial ramifications for so many hardworking families. My primary solace is to think in terms of future generations. I would hate to think that my generation, as well as all those that come after me would truly be “priced out forever”.

Of course my sympathies do not extent to anyone on Wall Street whose six and seven figure salaries will be untouched, even though their “innovative financial products” have caused mass hardship. I strongly believe one of the reasons all the experts and pundits didn’t see this coming is because they are so incredibly out of touch with your average American. They had no idea how far people had to stretch to buy a home, how much fraud was occurring by people associated with the REIC, and how people had become dependant on their home equity maintain their lifestyle. No amount of employment, income or consumer sentiment data can really tell this story……Wall Street analysts do not know of the lives behind the Main Street data.


mbc said...

It's been my opinion for sometime now that the only way for house prices to return to complete affordability is for the overall economy to go completely into the toilet, which is what we're seeing now. There was no way, in my opinion, for 50 percent declines to occur and have the pain limited to the "stupid buyers" and "greedy banks and brokers".

Prices are fast approaching levels where those who chose (smartly) to sit out the madness would start getting back in, but who's going to buy if they're worried about having a job in six months?

Jacob said...

unless salaries double overnight and costs for everything dont, then there is no containment.

For years people have been using the house ATM to buy "stuff". And now that people have to buy less it will be a dominoe effect. Just look at Starbux.

The bottom line for me is that I make above the median $$. I have a full time job and also a home business I run a few hours a day. And with that I couldnt afford anything in 2005.

But people working at wal-mart for $9/hr were buying houses and living it up with all the free refi $$.

But the party had to end eventually. Prices cant go up since nobody is buying, and going down will have a lot of pain for people and businesses, but in a couple years maybe we can start to recover and make housing something people want to buy again (for a place to live, not an investment).

Jacob said...

but who's going to buy if they're worried about having a job in six months?

That and also who wants to buy when you dont know what will happen to your neighborhood in a couple years.

Buying Time said...

"But who's going to buy if they're worried about having a job in six months?

That and also who wants to buy when you dont know what will happen to your neighborhood in a couple years."

Both of those topics were discussed by Mr.BT and I this weekend. He does contract work for the state and his company is very very small and lives from contract to contract.

While homes in reasonable neighborhoods may be finally getting down to our range, we are starting to wonder if we should save our downpayment in case of a rainy day.

Mystere said...

Good to see that you recognize the pain this circumstance has been inflicting on a variety of people. It's not just the greedy, the fraudsters, and the incompetent that are being impacted. It's far broader than that, and there are plenty of 'ordinary' people who have been and will continue to be hurt -- especially if and as the general economy tanks. Nobody is immune from the fallout; it will hit everyone in one way or another.

I've watched with some amazement the cheerleading, glee and vitriol on various sites relating to the housing market bust. I wonder to what extent such attitudes are a mirror image of those exhibited by various people on the way up as the bubble swelled.

Things are adjusting and people will buy. For all the bloodlust of those championing the bust, there are those who perceive that price/income are coming back into balance, rates are well below historic norms (again), and underwriting is returning to sanity. Of course, some will wait more, and some no longer will be willing to put their lives on hold, etc. It's all part of the cycle.

Buying Time said...

I am a bleeding heart...which is why this situation creates such a pickle for me. Unfortunately, there is no easy way out of it.

I have seen some of those same comments which is why I wanted to separate myself from them. While I am rather bitter at times about renting, in no way do I wish suffering on honest hardworking individuals.

Paul said...

Saving for a rainy day: Fear is good sometimes. Warren Buffett invests with the mantra of only buying when others are in fear of buying. But if you think it is too soon to buy (more price discounts in our future), then continuing to save for the rainy day and making your buying decision in a year or two, makes sense.

And you are right, the impact that the decline will have on lots of folks who had nothing to do with the greed, will be significant. But if you didn't cause it or contribute to it, there is little you can do to change it other than show appropriate sympathy for the true victims, whoever you define them to be.

head attached said...

I think you can assuage these guilt feelings by changing things around a little.
The way I view it is, sometime in 2003-05 a huge number of people lost their grip on the stability and beauty of home ownership.
Some were people who were priced out and who lost the chance to be truly settled in their communities.
Others were people who bought too high, were victimized, were greedy. They found out years later that they'd actually slipped backwards.
Now most of us are still a long way from finding home. But some of us are getting closer.

Cmyst said...

BT, I sympathize with your moral dilemma. My family has been affected by the burst of the bubble. Many co-workers have been affected. And last week, the story reached the level of tragedy for some people that I know to be good, caring people who already were carrying a heavy burden.That was my sobering moment.

We did not cause this, though. In many ways, I have come to believe that this was actually put into motion 20 years ago, based on an unrealistic desire by the financial wizards to prevent much smaller problems. Only, they didn't really prevent them. They grew bigger and bigger, and meanwhile the middle class was being decimated and jobs were going overseas. It has been, truly, a "perfect storm".
And like mbc said, the ultimate cure is to let the economy rid itself of all the sickness. It's not going to be easy.
It's ironic that so many people are going to be forced to live now so far beneath their accustomed manner, and that it was largely caused by people trying to live so far above what would have been entirely reasonable. On all levels, from the sub-primes all the way up through the CEO's.

Anonymous said...


sacramentia said...

I feel bad for people too, but like most, not bad enough to hand out my own money.

Housing will again become affordable when the size of the homes shrink. Unless you expect all the construction trades to work for 50% pay, the size of homes will also deflate along with the credit bubble.

And I get so tired of the "can't afford anything" argument. Yes you can, just not as much as you think you should have, or in a nice enough area, or for a price that doesn't make you give up expensive dinners, or shoes, or vacations, etc... Realize your own priorities dictate what you can afford and don't bitch about the decisions you make....

Anonymous said...


I feel your moral discomfort. I feel it.

But this cannot be blamed solely on the lenders. I have friends and family in all sectors of this fiasco. I feel for those who are losing their homes, I really do. Sometimes I sit and cry with them and try to tell them it's not the end of the world so that they can get through this. It's going to be very tough but they can get through this.

Every story though, gives me pause. I see missed opportunities for being fiscally responsible. I don't tell them that, because there's no point...and it would be unkind. For every greedy lender, there's a stooge to accept their loan.

Stooge is a bad term but I can't come up with a kinder one. I have friends who HELOC'd the hell out of their homes to buy stuff I could only dream of...all I could think of was: "Why can't I have these things" and, conversely, "Never ever put your home in jeopardy". Conflicting emotions, but I sure was jealous.

I have another friend who lost her home this summer, they bought it in 2002 and enjoyed the primest of increases, her husband (with her acquiescence) HELOC'd it through all the increases for a huge fishing boat and a new truck to tow it. We moved her out of the house with something like five pairs of jeans, twelve t-shirts and a 10 year old SUV and no furniture. Was she at fault? Not in my opinion, except she agreed to and signed all of those HELOC documents.

I have too many sad personal stories to tell. Sorry.

For me, the bottom line in all of this is personal responsibility. Where is the circuit breaker in their heads that finally cuts off and says "no, we can't do this"? Without that personal circuit breaker, this is what we get.

I am so sad about this, but honestly; better personal accountability would have taken care of a lot of this.

I've enjoyed a few schadenfreud moments, macro economically speaking, while on a personal level I know people who are deeply hurting.

But I keep coming back to my own personal decisions during this time. I simply said "no" to all those things they said "yes" to.

It's hard, but you've done the best for your family. I've done the best I can for mine. It's not pretty to see others whom you care about making bad decisions. The best of us have tried to dissuade them from their choices.

But the truth of it is, these were their decisions to make. Some really good people have made horrible financial decisions for their families and they're going to pay for them.

It breaks my heart, but it doesn't change the reality. Nor, in my opinion, should it.