Condemned To Repetition

George Santayana famously observed:  “Those who cannot remember the past are condemned to repeat it.”

I thought of old George when I read this article reporting that some banks, amazingly, have decided to once again offer zero down payment subprime mortgages.  Apparently it’s only taken ten years for banks to forget the lessons they purportedly learned during the last subprime mortgage lending bubble, when the collapse of countless numbers of bad loans brought the economy to the brink of total disaster.

tips-for-buying-foreclosed-homes-mstAccording to the article quoted above; “Borrowers can have low credit scores, but have to go through an education session about the program and submit all necessary documents, from income statements to phone bills. Then they go through counseling to understand their monthly budget and ensure they can afford the mortgage payment. The loans are 15- or 30-year fixed with interest rates below market, about 4.5 percent.”  In addition to the “education session” and documentation and counseling requirements, recipients of the loans have to live in the houses with the mortgages.

The lending agencies think that residency requirement will keep out the investors looking to flip houses, which is one of the conditions that contributed to the prior housing bubble and subprime mortgage debacle.  Another purported protection against disaster is that the housing market is strong, there’s a shortage of homes for sale at entry-level prices, and therefore homeowners who can’t make their payments supposedly will be able to sell their houses and repay their mortgage loans.  And proponents of the lending program say it helps poor people and working families to buy houses and build personal wealth.

I’m all for people becoming homeowners if that’s their dream, but if banks think that things like education sessions and counseling are going to allow them to avoid problems when the economy turns — as it inevitably will — they are dreaming.  It’s not hard to forecast that some aggressive loan officers will push the rules, some house-flippers will figure out a way to take advantage of the programs, some bad apples will take out the mortgages and then abandon the houses when times get tough, and then we may well be back in the same perilous situation that existed in 2007 and 2008.

I hope not everyone has forgotten what happened to bring on the Great Recession.  And I hope some political leader makes it clear that banks are welcome to follow whatever practices they think are appropriate for their businesses, but this time, if it all goes to hell, taxpayers won’t be bailing them out — again.

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Hot Showers And Home Ownership

A shower is an essential part of the morning routine.  You get squeaky clean and move back into conformance with prevailing social hygienic norms.  You ruthlessly eliminate that lingering case of bed head.  And you finally complete the drowsy transition from blissful sleep to outright, whistling-as-you-get-dressed-for-work wakefulness.

IMG_4820I like my showers hot.  In fact, scalding is closer to accurate.  I like clouds of steam to rise from the shower floor and fog up the shower door, so that I could write “Kilroy was here” with my index finger if I desired.  I want to emerge from the blistering deluge wide-eyed, scourged clean, and as red as a Maine lobster fished out of the bubbling cookpot.

Unfortunately, for the last few months this hasn’t been possible.  At our rental unit, the hot water temperature never got above tepid, probably for cost saving and liability avoidance purposes.  Even at the maximum heat setting, a shower had no sizzle.  As a result, the morning shower there was not a particularly satisfying experience — functional but ho-hum, and sort of like getting woolen socks from your grandmother as a birthday present.

But now we are in our own place and in complete control of the hot water heater, which has been cranked up to high-end, fast-food-carry-out-coffee-before-they-got-sued-into-moderation temperatures.  Yes, I think: this is one of the essences of home ownership and the American Dream.  Now I get to decide water heat, and “room temperature,” and what to put on the walls, and how much light there will be in each room.

So turn that shower handle to maximum at your own risk, baby!  Let the scorching begin!

On The Patio, In The Quiet Darkness

Richard is home for a very welcome visit, and after a nice dinner we spent the first night on our backyard patio, catching up.

What a pleasant time it was!  Sitting outside on a warm, quiet summer evening, talking and sipping on cold beer and puffing on cigars as fragrant smoke rises into the air.  Penny and Kasey lolling in the yard, sprawled on the cool lawn and nosing through the grass.  Dogs barking in the suburban distance and fireflies flickering in the gathering dusk.  The Who, then Marvin Gaye, then Lynyrd Skynyrd playing on the iPod speaker system.  And far above the trees and bushes framing the back yard, the sky grows progressively darker until the Milky Way is distinctly visible directly overhead and it is time to call it a night.

This is why Americans want to own their own home.  It is very special to have a place you and your family can truly call your own.

Closing The Loop

New Albany is a good place to live in that is getting better all the time.  However, it does have one drawback — it’s new, and that means there is still a lot of vacant land on which to create subdivisions, plot out new lots, and build new houses.

This fact poses issues for the owners of existing homes who want to sell their properties.  In the current bad economy, the market for real estate is soft everywhere.  When new homes are constantly coming on line, it just makes the market for selling existing homes that much more challenging.  In that respect, New Albany is different from Upper Arlington and Bexley, both of which are established Columbus suburbs where every inch of available ground has long since been the location of a house.  In those communities, if you want to build a new home, you have to buy an existing home and tear it down to do so.

So, for current New Albany homeowners, the familiar sight of yellow construction equipment, pallets of bricks, and building supplies is a double-edged sword.  We know that adding more new homes is going to affect the market for our homes, but we also know that the ultimate goal has to be to build New Albany out so that the market becomes more fixed.  If you’re like us, and don’t have a house on the market right now, you want developers to close the loop and get the new builds done before you put that “For Sale” sign in your yard.

Considering The Rental Option In A Crappy Housing Market

I hate to be the bearer of bad tidings, but the housing market still sucks.  Yesterday a widely followed index stated that housing prices in 20 major U.S. cities declined for the fourth month in a row.  Prices also declined from last year’s prices, which were inflated by a government tax credit program that has since expired.  Even more depressing, in nine of the 20 cities the housing price index hit a new bottom.

The bursting of the housing bubble was one of the things that pushed the American economy into recession, and housing looks like it might keep the economy mired in recession a bit longer.  The lack of a quick rebound in the housing market is frightening for American homeowners.  Most of us have a lot of our net worth tied up in our houses, and if the market continues to decline it is going to have a long-term impact on our lifestyles and, eventually, our retirements.  Even in our New Albany neighborhood we’ve seen a nearby house with a foreclosure sign in the front window, and the housing market clearly is soft.  Many of the homes that have been on the market for months haven’t even gotten showings, much less offers or sales.

I’ve mentioned to Richard and Russell that they might want to focus on renting rather than home ownership, at least in the short term.  Especially in today’s economy, you need flexibility to follow job opportunities.  Renting permits that, home ownership really doesn’t.  Renters have landlords who (theoretically, at least) take care of problems, keep up the grounds, and screen your neighbors.  To be sure, renters don’t build up equity in property — but in this economy, even homeowners aren’t doing that.  Renters also avoid tying up a good chunk of money in an asset that may not appreciate in value.

For young people, renting rather than moving directly into home ownership makes a lot of sense.  It may not be “the American dream,” but it is a prudent response to what may well be an unfortunate long-term economic reality.