Monday, August 29, 2011

Day 103: The Myth of Home Ownership

A crew of three men are at work destroying this domicile's front porch. Their goal is to get to the 73-year-old water pipes that have started leaking within the past two days.

It's possible they could be ace enough to get precisely to the problem on the first try. If that's not the case, their work must continue.

Of course, it could be reasonably assumed that 73-year-old water pipes are going to have multiple weak points. Like the home itself, which has cracks throughout its walls and leans throughout. We have shims under every piece of furniture. This is not atypical for such an old structure. The summer's record heat has dried and hardened the ground, a prime suspect in the pipe debacle.

There are other changes in the home. A few weeks back a patched piece of wall spat out the seal along an 8-inch-tall, quarter-inch wide strip. Bounding the north property line is a stone and masonry retaining wall that runs the length of the property, probably 100 feet in all. At the front edge the wall is perhaps a foot tall; at the back edge it's closer to four feet. Two-thirds of the way back, a large tree has grown near the edge of this wall and atop it. A few months back, when we had a week of sustained heavy rains, a four-foot portion of the top of the wall tumbled over. Not long after a masonry brick also was pushed out. Some of the tree's roots are now breathing more freely.

Presuming the porch exploration is optimally efficient, the team will find the leak, replace it, and that will be that. Of course, then there will be the matter of rebuilding the porch.

I am fairly certain this task cannot possibly be completed before COB tomorrow. That's a likely best-case scenario. Also best case: This job will probably cost at least $3,000-$5,000. Perhaps more.

We like this old house. It's in a great, older (obviously) neighborhood. Although the landscaping is handled pretty much solely by Madam Nature, it's beautiful. The off-kilter issues are adaptable and charming. The owner has updated some of the features nicely: we have a good, modern washer and dryer, and a nicely remodeled bathroom.

What the home does not have:
* A good refrigerator (this one is at least 10-12 years old). CORRECTION: M is an appliance geek. Ours was made in 1985. NINETEEN-EIGHTY-FIVE!
* A dishwasher. (I'm the dishwasher)
* Insulation. The house is not energy efficient, even though we've replaced the weatherstripping and made some efforts. We could probably help this by installing drapes, but I hate drapes.
* Modern heating. After yet another ridiculous gas bill over the winter, we called the provider to get their opinion about methods to improve efficiency. The inspector said the furnace is probably 40 years old and thus, not very efficient.

It does have a programmable thermostat. We installed it.

Why do people own homes?

Since the Great Recession bit down hard in 2008, homeowners across the country have had their homes foreclosed upon in record numbers. Millions have been able to keep their homes, but the homes have now lost so much value that it's become a bad investment. What used to be a builder of equity and wealth has now become a money pit. Many people have responded to this by making a "strategic default."

A strategic default is when a person can still afford to make mortgage payments, but realizes that doing so is a bad business decision. In a common scenario if a person bought a home valued at $400,000 on a 30-year note, with interest the final amount paid could easily reach $800,000 or $1 million over the life of the loan. Of course, that depends on how large a downpayment was made, or if the interest rates were extremely favorable, or if the loan term is less than 30 years. But in the past decade, and a big reason the economy is screwed, anyone who could (as Ethan says) "fog a mirror" could get a big mortgage. Whether they could really afford to have one is another story.

Because there were so many risky buyers, and because banks overextended so egregiously, the housing bubble developed. When buyers started to default, banks (at first) were stuck with these homes. Suddenly there was a glut of available housing, which lowered prices for everyone. Now, housing starts (the measure of new home construction) are stagnant at best, and it's arguable that the market has not hit bottom.

Drive down ANY street in your town and count the "for sale" signs. People cannot unload their homes, and the weight is an anchor dragging them down.

Thus the strategic default: a buyer realizes that continuing to dump money into what is now a bad investment is a dumb move. To continue to do so would drain available cash and the home will never recover the value. The smart play is to default. You hurt your credit, but you stay more liquid.

Businesses and banks do this all the time. It's called cutting your losses. Certain elements of society have no problem with businesses who default; they just go to the government and get a bailout. But the moneychangers have screamed bloody murder about consumers choosing a strategic default.

Home ownership doesn't work right now. And it will be years before it works again. I'm glad I'm not tied down to a home. It's a millstone. If I want to move, I move. If I have a great job prospect in another state, I'm not tethered to a home that I can't sell. It's freedom.

That's because debt is slavery. And the biggest debt for most people is a home.

I love this house. If I owned it and it carried no debt, and money wasn't an issue, I'd make this place a palace. It has enormous potential. But as a (once and future) member of the working class, owning this home right now would be traumatic. Because it's eating money with a three-man work crew and the meter is running.


  1. This was a great read. There are definitely advantages to renting and advantages to buying. I'm lucky I didn't have real estate tying me down prior to the big move, although I was a renter for 10 years. That's a lot of money to just pay out.

    Now in LA, our rent is more that double what I was paying in Mtl and home prices for a two bedroom bungalow start at around 400k. Buying a house is so far down the road it's not even a blip on the horizon. Who can afford a down payment when they're being gouged for rent? And even if they could, why would they want to, given what's just happened?

  2. Amen, Erin. Cali real estate has seemingly always been insane. Only houses you would hardly consider living in out there are priced below $300k. At that price you could have a ritzy home in Gawd's Country. (Of course, then you have to live in Gawd's Country.) Yes, a renter builds no equity, but the flexibility and freedom, to me, are the appeal. The hole in the porch is Cheney-sized right now, and the contractor confirmed the cost estimate. No thanks!