Housing Market...

To me, these are words that do not go well together.

I realize that people have come to view the place they live as an investment. This seems at once incongruous and discouraging. There are few more basic needs in life than the need for shelter. The drive and interest in obtaining the best housing for one's self and one's family is a universal thing, although interpreted differently in various cultures and even regions. An apartment in Shanghai or New York may be very desirable, and thus very expensive, while in our neck of the woods, a single-family detached home on a relatively large lot is desirable. I will not venture to say which is better - that is way too complicated for this kind of forum. But suffice it to note that there are differences in housing types that are desirable by different folks for different reasons, all of which are perfectly valid. Everyone needs a place to stay, to hang their hat, to call their own, to raise their families, and to just be away from others. It is a real, valid need.

Thus, to make a commodity of something so basic, so fundamental to our human condition, is a difficult thing for me to handle. The whole housing bubble thing really disturbed me for a long time - the gentrification that occurred, the debt that people incurred (kept artificially high by fraudulent banking/lending practices and excessive market conditions), and the whole "flip my house" phenomenon (which contributed to both the gentrification and high mortgage rates) really discouraged me. Everyone seemed to want to own a house NOW with little thought about how to pay for it. Banks seemed eager to lend to everyone, creating artificially low conditions and terms for procuring the loans (often giving loans to people who really couldn't afford the payments, thinking erroneously that the value of the house - as an asset - would continue to increase, and thus hedging their poor business decisions on a false premise). So when the bubble burst, and when the artificially low terms came due, well, you know the rest.

This morning I heard a report on the radio. A link to the transcript is here.

A couple of things I noted from the story: first, there is a surplus of 1.6 million homes in the market. If the median house price in the United States is $220,000 (down from a high of about $250,000 in 2007) then that means that there is close to $352 billion dollars in homes on the market that are essentially unproductive assets for some bank. That's a lot of money. Further, someone has to pay taxes on those houses. I'm not sure how that works if the government has taken over the debt (Freddie/Frannie)- do they have to pay local taxes on a foreclosed property? - but if it's bank-owned then the bank must pay. Assuming that they all must pay local taxes, and further assuming a base tax rate of 2% (which seems modest, but just to use round numbers), the entities holding the notes are paying $7.04 billion dollars a year on these vacant properties. It is even more frightening to consider that they might not have to pay these taxes.

Local municipalities may have also set great stock in the housing bubble, entering into infrastructure projects and other tax burdens in anticipation of continued growth and increased property values. When this did not materialize, many local governments are left in the uncomfortable position of having to close schools just built, or not maintaining parks that were just constructed, and leaving built and paid-for infrastructure improvements underutilized - like so many roads-to-nowhere.

Thankfully, Mont Belvieu does not find itself in that kind of position. The financial director and other City staff worked very carefully and cautiously to curtail the kind of excesses seen in other places. The City Council also is very aware of the debt we have and has ensured that we have sufficient funding sources available for unforeseen eventualities. This kind of conservative caution and fiscal policy has served us well and has made our position very stable. It's also good for me - I get to keep my job!

The second thing I noted was the idea of how long it will take to rectify the problem. 1.6 million houses means that 3.2 million more Americans can be accommodated without building any additional homes. This will not affect us much here, where the demand for housing is still relatively high. But it may serve to shift attention to the housing market our way, lowering construction costs (cheaper, more accessible materials and labor) lead not only to greater profits for builders, but also less expensive houses, which can have a negative impact on valuation. These problems are going to take a long time to sort themselves out. Further, since most of the lending institutions are national in scope, their policies reflect and react to conditions outside of our region. We've already seen a much more reluctant lending base (for good or bad) and it may continue to get exacerbated as banks remain cautious lenders.

I guess the take-home lesson in all of this is that the rest of the nation DOES have an effect on our little community. We have done things very well here, fiscally speaking, in terms of managing our debt and policies. But we do not live on an independent island and are subject to the vicissitudes of the rest of the country. Care should be taken on a personal level, as well, to make sure that our families' needs are being met.