In "The House Trap,"this month's Harper's Magazine's cover story, writer and University of Missouri-K.C. Distinguished Professor of Economics Michael Hudson brilliantly lays out what he envisions as the coming real estate collapse.
Using convincing economic and historical evidence, Prof. Hudson makes this point:
"The reality is that, although home ownership may be a wise choice for many people, this particular real estate bubble has been carefully engineered to lure home buyers into circumstances detrimental to their own best interests. The bait is easy money. The trap is a modern equivalent to peonage, a lifetime spent working to pay off on an asset of rapidly dwindling value."
So why do I welcome a housing market crash? Not for the hard-working folks out there who have scrimped and saved and now have a starter home- or even a nicer one than that. And certainly not for you folks who have spent every weekend over the last six months tearing out kitchen tile to remodel and increase your home's value. I'm with people like you on those virtues.
But for some of you, I welcome the housing crash because of your sheer arrogance, and the irrefutable fact that our economic, financial and even justice system places wealthy homeowners in a higher caste then working, renting Americans.
I welcome the humble pie of a housing crash for those of you who:
Feed the sprawling of America beast by moving out to a newly developed exurb just because your existing yard is too small for your hyperactive brats and overenergetic large dogs.
Basically sit on your patios drinking fine wine while the value of your condo or home jumps from $500,000 to $800,000 in a short period of time- without you doing anything more than calling your housekeeper or landscaper. I have a philosophical problem with the accumulation of wealth based not on the toil of muscle or brain, but because of an economic model that awards prescient members of a landed gentry. You get all the breaks while at the same time economically distressed renters are saddled with lack of health insurance and payday loans with stratospheric interest.
Revel in your new-found affluence while voting for local referenda that would cap your taxes and leave your local schools and civic infrastructure underfunded.
Bought and tore down a $2 million home to build a $5 million home. In most cases that is just arrogance and hubris.
I return again to Prof. Hudson's argument, which he deems especially relevant for recent homebuyers:
"The problem for recent homebuyers is not just that prices are falling; it's that prices are fallng even as the buyers' total mortgage remains the same or even increases," he writes. Eventually, the price of the house will fall below what homeowners owe, a state that economists call negative equity.
"Homeowners with negative equity are trapped," he adds. "They can't sell - the declining market price won't cover what they owe the bank - but they will stil have to make those (often growing) monthly payments. Their only 'choice' is to cut back spending in other areas or lose the house- and everyhing they paid for it - in foreclosure."
You know what? Sometimes the only remedy for foreclosure is bankruptcy- but thanks to the new law in place voted in by Republicans heavily backed by the real-estate investor class- that option is a lot more cumbersome than it once was.
I hope no one gets foreclosed upon, and I certainly don't want to see people get hurt. But for some of you materialistic, selfish and lucky real-estate investors, you need a taste of humble pie. Maybe then you will get a sample of how the other half lives, and the real-life economic and other fears they have to deal with every day.