Wednesday, September 24, 2008

Location, Location, Vocation

About the economy: Expert texpert choking smokers didn't see it, but I saw it. Five years ago, and more and less than, some very smart people were telling me it was a good time to buy a house and that I could get a loan.

One offer at a "meet the lenders community meeting" was to take my retirement money out of my pension fund and make it into a downpayment on a house. I said to the lender, "but what if something bad happens and I lose the house. Then I wouldn't have any retirement money..."

And the man reached out his arms as if to hug from a distance and said, "that could never happen! How could that happen? You're going to keep working to pay rent! Buy a house!"

"But what if there's something like another great depression?" The room fell quiet.

"This is Southern California. It won't happen. Home values are only going up." The buzz returned.

This didn't seem right. Friends with friends in real estate swore I could reduce income tax withholding from my paycheck by claiming to have a bunch of kids (I don't...) and then I would have a few hundred extra bucks a month to make payments on a loan for a little condo with a potted tree and cinderblock hardscaping. When the tax came due at the end of the year I could just, "write it off because you own a house!"

I would likely have fallen for it, but I earned just a little too little to convince myself I could pull this off. I couldn't afford to stretch beyond my rent and I didn't want the IRS knocking on my door and asking to meet my many children. So I waited.

Math isn't my strongest subject. But it just makes sense to me that you don't spend money you don't (and the key is: won't!) have, at least not on something as significant as a home. You can nickel and dime yourself up some credit card debt, but a HOUSE!? How can two bedroom house within 200 yards of two major freeways in Los Angeles be worth nearly a million dollars? Oh, wait: it's not.

I saw the crash coming. I'd started telling people in '05 I was going to wait a few years for house prices to come down - when all those people taking interest only loans started having their balloon payments come due, I'd swoop in!

What I hadn't figured on was the stories behind the doors of those houses. Driving through the valley I see at least two untended houses on every block conjuring images of Flint Michigan in the Michael Moore movie, but LA's not as green. I don't know where these people have gone - there are a lot of apartments for rent around town, too. I have felt a frequent sense over the past eight years as we've leveraged ourselves out further and further over the brink, of my parents' and grandparents' stories about the depression.

I hear my childhood lessons and when I leave a redundant light on, I hear the voice of my dad bellowing to us kids to turn off the lights when we'd leave a room, "What, do you think I own the electric company?!"

In other news:

Today we have a guest again, and a new addition to my links in the right column. Here is Jay Smooth's blog, Ill Doctrine. What HE said. See Economics and Annoying Smart Guys.

1 comment:

John said...

Very similar housing market probems in the UK. We had reached the crazy situation in which lenders were odffering borrowers home loans of up to five times their annual income. Which meant that they were heavily stretched on meeting payments even before the economy turned pear-shaped.

The result has been large numbers being unable to keep up with their payments, homes beig repossessed by lenders, and the housing market as a whole slumping.

And as the loans companies have been dealing partly in "imaginary money" they too have hit problems.

Problems in rural Wales are slightly different, with the main area of concern lack of affordable property to buy or rent for young families starting on the housing ladder.

In some ways the current glut of repossessed houses and falling prices might be expected to help them. But then that leads on to the other big problem of there being little local employment for them.

Which leads back to where we started; the economic downturn :-(