I'm now entering the third year of being responsible for the sale of a twenty acre farm in rural Washington State, that's part of an Irrevocable Trust. I find that there's less likelihood than ever that it will sell soon, despite having lowered the price to half of what it might have brought in at the height of the market, lower even than my suggestion to the heirs last year, when I saw no recovery coming, just the opposite (prices are down 16% in a year in that area now). What irony: The chickens won't come home to roost and no one's bought the farm, but everything both sayings imply seems to be happening to the sellers...
After reading Alan Milner's post: "Anyone Who Buys a House in This Market: Sucker" a few thoughts come to mind:
Queens, N.Y., circa 1958. My parents go out with a realtor and look at a three bedroom brick home with a finished basement. Cost? $ 12, 000.00
The cost of a new top of the line Cadillac at that time? $ 6,117.00 - about 50%.
An upscale, San Francisco suburb, circa 1981. Cost of a one bedroom, 775 sq. ft. condo $ 47,000.00. Homes in some S.F. suburbs started inflating at 100% every 3.5 years around this time.
Cost of a 1981 top of the line Cadillac? $ 24,464.00 – about 50%
Move forward seven years, to 1989. The said condo is sold for $ 130,000.00.
Cost of a 1989 top of the line Cadillac? $ 30,000.00 – about 23%
Just prior to the mortgage bubble bursting, the same 775 sq. ft. condo is not on the market, but similar ones are listed in the area of $ 400,000.00!
Cost of a 2007 top of the line Cadillac? $ 60,000.00 – about % 15
Keep in mind, all the cars are brand new, complete with all new technology. The condo is the same old, aging place which wasn't well built to begin with (the HOA won a huge out-of-court settlement against the builder Centex, for numerous problems).
I wonder how much the Cadillac (and all other autos) would have gone up in price, if there had been a tax write-off for auto loan interest and autos, rather than homes, had been turned into a sort of “Casino You Are So Smart to Gamble In” by every single governmental, banking, real estate industry and media outlet flack for several decades?
Yes, yes, I know – “they can't make more real estate” but if you consider the God-forsaken holes that have been turned into “desirable suburbs” throughout the country, and how much of it is actually built on (next to nothing in real terms) who cares? It's obvious there's no shortage of land that the aforementioned couldn't get people to believe it's desirable to live on. How many of them have you passed, two feet from an interstate in the middle of nowhere, while muttering to yourself, “Who the f* would want to live there?”
Now think about it: Was that mortgage deduction a better deal for, the consumer who got to keep a mere fraction of his income paid for interest (reflecting their tax rate) or the banks who collected twice the cost of the homes over 30 years?
What did everyone end up paying in the real costs of inflation that putting that much of their income into interest payments created in every other sector of the economy? I wonder how many of the people who participated in this greater of many Ponzi schemes, now find themselves living with their grown children, who were priced out of the housing market before it crashed, and now are priced out of living an adult existence, by the economy left after the Casino closed it's doors?
The “Your home is your best investment” had a very ugly undertone that no one wants to talk about: It implied that the way to riches had nothing to do with working for it, it had everything to do with the greater fool theory or taking advantage of succeeding generations of home buyers. All of whom would suffer a greater and greater portion of their income sucked up by a necessity of life, while they hoped that they too, would benefit more from the next fool than from anything productive they could do for themselves, or society as a whole.
I used to ask someone close to me a very simple question during that time in the 80's I lived in a very rapidly inflating area: “So, when the mortgage payment for a one bedroom condo rises to four or five thousand dollars a month, how is anyone going to earn enough income to pay for that? And if it stops rising, what's going to happen to an economy that's predicated on assigning value to something that is a net consumer of resources and produces nothing which improves life, beyond it's basic function. A commodity, one that's value beyond that function, is completely subjective and manipulated by people who sell it as a get-rich-quick scheme?”
I guess we have an answer to that question now. I only wish it had been obvious before it did so much damage to so many people.