Under Water
VegasInc.com shouted this headline yesterday “Amid pandemic gloom, Las Vegas housing market ‘on fire.’” The median price for an existing home set a new record at $330,000, a long ways from the 2012 median of $118,000.
“The Las Vegas housing market is not just a bright spot in the economy, it’s on fire,” said Tom Blanchard, a local agent and the president of the LVR group. “Local home prices are at record levels, with historically low interest rates, strong demand and a tight housing supply driving the market.”
With Las Vegas in a bad way with tourists, conventioneers, and gamblers in short supply, unemployment is high and mortgage delinquency was “18.18 percent in the second quarter, down from 18.61 percent in the previous quarter and from 18.89 percent in fourth quarter 2009,” reports the Las Vegas Review-Journal, “the second-highest mortgage delinquency rate in the nation, trailing only Miami.”
It seems incongruous.
For decades, buying a house was the American thing to do. Houses always go up in value, it was claimed. Every month’s payment meant some money was going into a sort of savings. Buy as much house as you can afford was the advice, the bigger the house the bigger the gain.
That wisdom has become situational, at best. Whether one wins or loses at the housing game has turned into a matter of timing. Gone are the days when you finished school, got a job at the plant in town, got married, bought a house, and stayed there until old age.
Jobs don’t last forever and neither do marriages. Having a house isn’t the problem, but the mortgage that goes with it serves as a ball and chain, hindering job and other opportunities that arise in other places.
Ryan Dezember was offered a job reporting on the real estate market in Mobile, Alabama and the rest of the Redneck Riviera during the early 2000s boom. He wrote his story “My 10-Year Odyssey Through America’s Housing Crisis,” in the January 26, 2018 edition of the Wall Street Journal. That piece and others he wrote for the Mobile Register and WSJ have been cobbled together to form his book, “Under Water: How Our American Dream of Homeownership Became a Nightmare.”
Dezember bought his home near the Gulf Coast at the wrong time, given that a divorce, job offers in other cities, hurricanes, the Deepwater Horizon oil spill, and a housing crash would be forthcoming. He was a homeowner at 28 and happily a renter at age 38. “We are the Foreclosure Generation,” he writes. Only 52 percent of 38 year olds are homeowners these days. For those born in the 1950’s 61 percent of 38 year olds owned, while those born in the 1960’s, 63 percent were owners.
The author’s struggle provides just one of the various storylines which run through the book, written in clean, journalistic style. He doesn’t walk away, but in considering it, he weighs the pros and cons that many in 2009 and beyond considered with mortgages totaling greater amounts than their home values. In Alabama, unlike California, lenders can pursue a borrower for the deficiency between what a home sells for at auction and the note amount. Dezember admits that his ex-wife might have been right when she wanted them to walk away and dare the bank to chase them. The moral question of strategic defaults is the subject of my book “Walk Away.”
Most interesting is December's chronicling of the boom, bust, and chicanary of the high rise condo development and sales business, which is just a couple murders, and some courtroom drama, short of reading like a John Grisham novel. Having been a lender to real estate developers, the story is familiar. A developer needs zoning and favors are provided to those on the council who provide the required affirmative votes from city hall.
Banks agree to lend when a certain number of units are pre-sold. Friends and family are rounded up to put money down, never thinking they would ever have to close and take possession. Someone would buy their unit for a tidy profit long before the C of O is obtained. Unit prices would double or more as towers reached skyward. “It wasn’t unusual for Caribe units to change hands four or five timeless as the towers were going up,” Dezember writes. “It’s like when the NASDAQ was going crazy and you couldn’t lose,” a condo investor told the author.
Some lenders would actually provide letters of credit for a one percent fee to some buyers. For good bank customers the fee was waived, granting buyers a risk-free, no money down option on a yet-to-be-built unit.
America’s love affair with homeownership was fueled by the government during the Depression. In 1931, Herbert Hoover said, “To possess one’s own home is the hope and ambition of almost every individual in our country, whether he lives in a hotel, apartment, or tenement.” Hoover quipped, “they never sing songs about a pile of rent receipts.” FDR said a nation of homeowners “is unconquerable.”
America may be more vulnerable to attack these days, post housing crash. Dezember spends a good share of the book chronicling the rise of the institutional landlord. The Blackstones, the Blackrocks, and the Sternlights sucked up foreclosed homes by the thousands, clearing the market of people’s dream homes that became nightmares post 2006, when the housing market peaked. Mom and pop couldn’t compete with Wall Street functionaries with satchels full of cashier's checks who kept biding, “Dollar over. Dollar over. Dollar over. Dollar over. He’d say it until other bidders gave up.”
“About 55 percent of owner-occupied U.S. homes are owned by people fifty or older,” writes Dezember, who wonders who will step up to buy from these baby-boomers when they look to sell.
Who will indeed.
