A nation fit to be slaves

I came across this in an article advocating for a nationwide freeze on foreclosures--not just for 90 days, but for at least a year:

In December Mabuhay [a community non-profit organization] sponsored a "foreclosure clinic" at a community college in the San Francisco Bay Area city of Vallejo, which despite its small size--its population is about 112,000--boasted the tenth-highest foreclosure rate in the country at the time. About 150 anxious homeowners showed up, clutching thick folders of financial documents, waiting to speak with mortgage counselors. Their stories were painfully similar: one couple was struggling to pay an interest rate of 16 percent; another was unable to make $4,300 monthly payments and owed $630,000 on a home worth $370,000; another, in their mid-60s, had resigned themselves to losing the home in which they'd lived for twenty-three years and spending their retirement in a motor home.

If anything, these anecdotes show why we need more foreclosures, and sooner rather than later. By law, the couple struggling to pay that 16% interest rate was provided with documentation showing that figure in large print boxed in a nice big table--but they were too busy picking out drapes and planning trips to Home Depot to look at the table. The family with a $630K mortgage on a $370K home definitely signed up for negative amortization, meaning they were way, way, way out of their price range from the start and knew it.

But my absolute favorite is the supposed tear-jerker of a couple who have somehow managed to live in a house for 23 years but still failed to pay down their mortgage to the point where they are in danger of foreclosure now. Instead, my guess is that they plundered all the equity that should have been there long ago with home equity loans, and so they are back where they started 23 years ago.

The foreclosure process is there for a reason--to force people who can't face facts out to free up the property for someone who can pay for it. I know it's sad, and I know it sucks, but houses are just things. The sooner we start thinking of them as such, the quicker we can get out of this mess.

Playoff picks

OK, success in any venture depends largely on having a personal stake, so herewith are the officially Deadman-endorsed teams for the playoffs this weekend:

NFC

1. Philadelphia over the NY Giants.

2. Carolina over Arizona. WRONG!

AFC

1. Baltimore over Tennessee. DING!

2. San Diego over Pittsburgh.

UPDATE:

Well, because of my inexperience and generally not paying attention, I didn't realize until this morning that two of these games went down last night, but it seems the Deadman is batting .500. The Panthers let us down, but the Ravens pulled through for us. Now it's up to the Chargers and the Eagles...right?

2009 is Here!

This is the year the Deadman deal will finally wrap up. Here's my list of New Year's Resolutions:

1. Improve my Russian.

2. Improve my Spanish.

3. Learn to play golf.

4. Learn to enjoy pro football and baseball, or at least be conversant.

The first two are for if I ever find a way out of here again, and the last two are in case I don't. We'll see which ones get the most use!

Happy New Year!!

Structural Shift

From the real estate section of yesterday's New York Times:


“In 1985,” he said, “50 percent of households had children at home. In 2000, that was down to 33 percent. Today it is 29 percent, headed to 25 percent.

“That means that 75 percent of home buyers over the next 15 years will have childless households — and within that group are empty-nester baby-boomers, or couples or singles buying a first house. And that means that three out of four home buyers will have no interest in a house in the suburbs with a good school system, which is pretty much what we’ve created over the last 50 years.”

Mr. Otteau cited a new study from Virginia Tech projecting that a nationwide surplus of 22 million suburban homes on lots larger than a sixth of an acre will be languishing on the market by 2025.

The article notes that some counties surrounding New York City have almost two years worth of backlog inventory in residential real estate. Since home construction (not sales, construction) drove over a third of the economy for the last eight years, it's not surprising that we're in a deep recession. Hopefully we'll realize that putting people that don't need them in these homes just to put people in homes is not the way to go. Here's how Professor Posner sums up our recent housing policy:

“Home ownership policy of the Bush and Clinton administrations was, in essence, an attempt to pay low-income people to make a risky investment that they would otherwise rationally avoid. I cannot understand why anyone would think that such a policy would be sensible. In some cases, these people will do well and enjoy the upside of their investment, but in other cases they will do poorly, with the result that they will be worse off than ever.”

Unfortunately, this same logic may be about to be deployed in the realm of 'job creation':

Speaking of digging holes, Obama also wants to spend $60 billion to "provide financing to transportation infrastructure projects across the nation." He says "these projects will create up to two million new direct and indirect jobs and stimulate approximately $35 billion per year in new economic activity."

Fixing a bridge, widening a highway or building a light rail system may or may not make economic sense. But the fact that it involves paying people to operate jackhammers and pour concrete does not make it any more worthwhile. If creating jobs can justify transportation projects, why not fill the country with bridges to nowhere?

First, houses for no one, now bridges to nowhere. Both are what happen when we let sentimental notions (houses are good, jobs are good) override analysis.

Maybe someday

Some winter shots of Atyrau and Almaty that I came across on the net.

It sucks being ahead of your time

Here's an excerpt from a piece in the New York Times on the mixture of federal policy failures that led to the housing bubble:

Typically, as home prices increase, rental costs rise proportionally. But Thomas sent charts to top White House and Treasury officials showing that the monthly cost of owning far outpaced the cost to rent. To Thomas, it was a sign that housing prices were wildly inflated and bound to plunge, a condition that could set off a foreclosure crisis as conventional and subprime borrowers with little equity found they owed more than their houses were worth.

That was in early 2007. But of course, no one believed this guy, because it was accepted as a truism that owning just had to be cheaper than that "sucker's game" of renting. Econ 101, man! Read the whole thing when you have time--especially the early sections that detail how the unquestioned, blind belief that increasing home ownership was a good thing drove so many policy decisions.

For those more visually oriented, here's a clip of a recent talk given by Peter Wallison of the American Enterprise Institute that has alot of good material on how tax policy--specifically the deductibility of home equity loan interest--led to generally lower levels of equity across the board. What's so striking is that Wallison still can't quite see the forest for the trees--note the standard genuflection to the altar of home ownership that prefaces his otherwise very insightful analysis. He's got all the symptoms down, but he can't bring himself to diagnose the disease.

Here's my Christmas present to everyone--something you won't hear anywhere else: owning a home is what keeps poor and middle class families poor and middle class. For most people, the vaunted "wealth-building" effects are only an illusion, and this will only become more so as lending standards tighten back up to require down payments approaching 20%. Consider this: hardworking family A spends five years accumulating a sizeable down payment. By plowing it into a home, they have just placed that capital into a financial vehicle that pays no interest and generates no dividends. May has well have stuffed that money into a mattress. True, each month, a portion of their mortgage payment then goes toward building more equity ("wealth-building" as the radio mortgage jocks like to call it), but because of the reality of loan amortization, it is pitifully small: on a $100K balance on a 30-year note, it takes more than five years to accumulate even $5K of equity. After ten years, it's barely over $12K.

And let's say family A was lucky--after 10 years, their home appreciated in value. What do they most likely do? What do most families in fact chomp at the bit to do? Yep--use all that equity as a down payment on a bigger house, and begin the whole process over once more, starting again at square one of the business end of the amortization table. By investing all this capital in their home, they have choked themselves off for years from the single most powerful force known to mankind: the power of compound interest. This is what economists call an opportunity cost.

Not to mention that all this time, the family has had no access to the accumulated capital in their "wealth-builder" unless they wanted to borrow against it with a home equity loan. When cash shortages came (as they inevitably do), they would instead likely rely on credit cards. See now why we have such outrageous credit card balances? Sure, we shop too much, but it's also because the average American family carries 60%(!) of their 'wealth' in the equity of their home--in the one place where it can't do them any good when they need it.

Plus, I've been kind here--this whole thing ignores the cost of Home Depot, new furniture and appliances, normal (and abnormal!) repairs, increased commuting costs, etc. The term "money pit" didn't appear out of thin air, you know.

Maybe those petunias and picket fences are worth it to some, and if so, that's great. But the numbers show that it's time for a new-style American dream--hopefully one that's got some hard-nosed analysis worked in there somewhere. Here's to hoping!

Today Dallas looks like England

Or at least what I always imagined England to look like--overcast, kind of misty fog, gray. I've always kind of dug this look, plus it's the day after finals. Natasha always says that the law school reminds her of Hogwarts from Harry Potter, so I guess it really looks like it today.

A little reverse homesickness

Feeling the yen especially keenly this morning for some reason, so I noodled around for some photos, and found these from Aktau. I've heard it's become a nice little resort since I was there years and years ago. The tradition is to take a bar trip after the exam, so maybe I'll treat myself to two or three weeks in KZ this summer.