The Ultimate Line of Credit 8-31-10

Anderson, South Carolina

Long embedded in the American psyche has been the idea that property values would rise in perpetuity. Collective group-think embraced the idea we could buy most anything ‘real’ and resell it for a vast profit. Flipping houses was seen as the way to get rich quick. It was not long before banks and lenders of every ilk were stumbling over themselves to make 125% cash out thirty-year mortgages. By clicking on the right ad we could repaper our houses for thirty years and get 25% of their value back as cash. Home Depot and Detroit, here we come. Americans were suddenly building $100,000 kitchens with granite slabs and driving $70,000 sedans like we once drove Ford Comets. Using equity access lines of credit made the whole process even easier. Many banks provided buyers with check books allowing drafts against current home equity. For decades Americans used their houses as piggy banks and ATMs, believing in the mantras of rising property values and secure employment.

Something went bump in the night in late 2008 and we all uttered a collective, “oops.” Eight million people lost their jobs. Millions more lost their houses. Most of us lost our serenity. The collapse of equity and housing markets is old news. What’s not old news is the newly emerging possibility that housing might have just begun its collapse. Economists and financial pundits alike are now starting to say things like housing values may drop another 75% from their August 2009 levels. The national myth of ever-rising property values has turned into a waking nightmare. In some areas housing values have dropped 78%. In some metro areas the market value of more than half the housing stock is less than the mortgage balances on those same houses. Owners are considered ‘under water.’

For certain, it has never made sense that houses or stocks or most anything would rise in value in perpetuity. In 1920 the typical mortgage required 50% down and repayment in seven years. Obviously, this precluded any kind of senseless price speculation. 125% cash out mortgages for thirty years changed that. Now two generations get to give it all back. Twenty years of property value increases in Florida have been erased. Now we see multi-million dollars houses in Detroit being bulldozed because 93,000 properties there have been abandoned. The median home value in Detroit is less that the MSRP of my car. A grand house in Pennsylvania from the Gilded Industrial contains about 100,000 square feet in 100 rooms. Replacement cost is estimated at $212 million. It is rotting and has been cannibalized. Our decks are certainly listing.

The legendary mobility of Americans has been incited to a new frenzy by vast numbers of foreclosures and millions of others simply walking away from their houses, having decided it makes no sense to pay scarce dollars on a property worth less than the loan balance and losing even more value daily. I am starting to think the stern of our country might just stand up soon. We are not going to like this one bit. In the past three days I have been in places within twenty five miles of here that feel truly third world in spirit, infrastructure, and morality. It’s hard to imagine these are the same wholesome places I first saw twenty years ago when moving here.

A third of the housing stock on my street is either empty, for rent, or sale. There is hardly an intact nuclear family on my street, not to mention the half dozen suicides, attempted homicides, and all that which I do not know about. There is virtually no residual fabric of community here now. I can put up ceiling fans for women on disability, install curtain rods for widows, ad infinitum; it won’t repair ruptures in the hull of our economy. It’s not going to put responsible people back in these empty houses. It certainly does not seem to have any effect whatever on making community and neighborhood a more compelling alternative to the powerful urge to ‘flip’ houses, buy bigger, move up; to an oppressively desolate gated sub-division without sidewalks or front porches. Want to guess how much community there is in those subdivisions with 75 percent of houses now empty?

There is some sort of collective insanity that prevails with respect to housing. I see families sell paid-for houses and end up with a far inferior house in a more prestigious location. Others sell paid off houses and buy more house than they can conceivably afford. Granite counter-tops have become a strange litmus test of one’s success in life, even if they are installed on cardboard or particle board cabinets. Hardwood floors, once a relic of the 1950s, have again become markers of one’s life success.

An acquaintance bought a house a few months ago. Despite life and finance threatening illness, a bank was willing to give her a thirty-year mortgage which is schedule to pay off when she is in her mid-nineties, if she lives that long. Walking through her house I was taken with how pleasing the interior and exterior look. She revealed wanting to replace the windows, flooring, roof, gutters, and some other things. If she proceeds with this, it could easily add $25,000 to the cost of the house and actually reduce the quality of the house. With careful attention, the needed repairs could be accomplished for about $20.00. Does it make sense to tear out perfectly good insulated windows in a house; pull up flooring that at first glance I thought was new, replace a roof that looks better than mine?

I see daily evidence of people tearing apart their houses; gaining little of nothing in the end, except more debt and bondage to high-stress jobs they detest. Emotions and cultural mantras are hard to overcome. The ‘new normal’ for our culture is proving to be anything but new, normal, or sustainable.

Lay not up for yourselves treasures upon earth, where moth and rust doth corrupt, and where thieves break through and steal: But lay up for yourselves treasures in heaven, where neither moth nor rust doth corrupt, and where thieves do not break through nor steal: For where your treasure is, there will your heart be also.