OK, maybe that’s an uncharitable remark, but I am not sure that this dreaded economic ‘down turn’ on the horizon is really such a bad thing. Seems like some of the most visible people feeling this crunch right now are some of our more ostentatious neighbors. Obviously energy costs have skyrocketed and of course, everyone is affected by the cost of energy. But the big news right now is the ‘crisis’ in the housing market and all the foreclosures on those luxury homes. There seem to be plenty of reasons for this, not the least of them being fallout over the current mortgage ‘crisis’. But let’s take a look at what’s been happening;
1.) Across the country, people have been buying super-sized homes that are both impractical and terribly expensive. Here in central Maryland the typical 4 person family lives in a home bigger than the one that sheltered Jed, Granny, Ellie Mae and Jethro. Last year the median price of houses in my home town shot well beyond half a million dollars and Million Dollar plus homes are very common. Remember, this isn’t Beverly Hills.
2.) Apparently people could buy these giant homes because of all the creative variable-rate lending schemes the banks came up with to get folks into houses that no sane person would have considered just a few years ago. It seems that many of these buyers were more interested in real estate speculation than long term shelter because they were always trading up. Everyone was making big profits off of the insane inflation of home prices.
3.) When the new loan rates kicked in the money was not there – the price ceiling had been hit, hard. The anticipated equity was not realized, people could not sell their expensive homes at the much needed profit so loans were being defaulted on. Not only that, in some cases the cost of heating and cooling these big houses doubled. The American dream had become an albatross around the necks of many.
4.) Housing prices in our area (at least for the very expensive luxury homes) are falling like rocks. Houses have been sitting on the market for months and months when only last year offers were being made before the FOR SALE signs were up on the lawns.
Now this is bad news, for people who paid too much for their homes as well as for realtors, home builders, mortgage lenders and those businesses that service them. It’s not necessarily bad news for teachers, police and emergency personnel, nurses, restaurant and retail managers, pastors and many other people who make up what we call the middle class. In my county very few of the people who serve the community can afford to live in the community. And for a young couple starting out (like my daughter and her fiance’ plan on doing in a couple of years ) there are very few places within 30 miles that even offer affordable rents. With this “recession” on the way there is a glimmer of hope that some of these people might finally be able to buy a home that they can afford. Perhaps not, we may have already let loose a genie that cannot be rebottled.
The talk of my town is how everyone’s property rates are falling and how this has hurt our financial portfolios. My family is being ‘hurt’ here as well. But if we move, it will be to trade down, in attempt to make our lives more affordable. (If we hadn’t bought our house 15 years ago we would never have been able to live in what is a fairly modest town home.) We may lose money on this end but then whatever we purchase will also be less expensive.
Naturally, we are all concerned about losing any of the financial investments we have made in our homes. But I wonder if we have done this investing at the cost of our communities.