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Retro decor. Fixer Upper. Easy Access. Mature Landscaping. Motivated Seller.
The housing industry I love is near death, but the structures themselves didn't have much to do with it, though everyone with hands like a geisha girl likes to blame the houses and the people that built them.
A very complex web of laws, regulations, committees, guidelines, taxation, trade agreements, snail-darter set-asides, ratios, bureaus, and just plain white-collar criminality – with a generous frosting of Barney Frankincense on top --has been placed on the back of the noble camel of American housing for decades. That staggering poor dromedary saw the last straw coming at it in the corner of Hank Paulson’s mouth, and died of shame. Let's stop blaming the victim.
Besides, it's your turn to be the victim. A house doesn't need you as much as you need a house.
Hmm. Upon reflection, that's dead wrong. A house does need you as much as you need it. And therein lies the reason why the end game of this housing bust is going to be unlike any other in my lifetime.
I've been through quite a few housing booms and busts. I’ve renovated houses so old they still showed visible damage from King Philip’s War, so I’ve been exposed to every housing bust since wigwams, one way or the other. The early nineties were pretty bad, as I recall. The late seventies/early eighties were Armageddon. But they all mostly had discrete causes and effects, and in fairly short order Metacomet or Jimmy Carter or whoever was mucking up the landscape got run out of town, and something like normalcy returned.
This time I'm not so sure.
The unemployment rate in the construction industry was a mindboggling 27 percent earlier this year, according to the Associated General Contractors of America. That doesn't surprise me, because unemployment in skilled and unskilled construction trades alike is always Depression-grade after a boom. And those figures are more of a WAG (accountant-speak for: Wild Ass Guess) than in most industries. You can get better response rates surveying the Cosa Nostra than men that don't like to use a Porta-Potty at the jobsite because it's too fancy, and use the bushes instead. Not to mention the illegal alien sort of person who’s been doing the scut work. They’re famously reserved. Construction's a very informal economy in many ways, with almost all small players. The rate of unemployment in the general population would look like paradise in construction right now.
Entropy doesn’t take years off
while you try to scare up a down payment.
If you're currently out of a regular, non-bushes-peeing job, you're likely collecting unemployment insurance and waiting for your industry to rebound. It doesn't work that way in residential construction. Everyone that can manage it in residential construction leaves the industry during downturns like this, and rarely returns if they can help it. It has always been that way. I’m living proof of that.
The Commerce Department estimates that 11 percent of the residential housing market is currently unoccupied. Yikes. The Mortgage Banker’s Association estimates that 1.2 million households were “lost,” despite a rise in population of 3.4 million from 2005 through 2008. “Lost” is a euphemism for mom’s basement. Empty houses and once and future households? Looks like a match made in heaven, doesn't it? Not so fast.
Why won’t these numbers converge into one big, happy cheap housing fiesta? Regular people are waiting out the Great Recession, hoping to someday get a job, form a household, and then buy a house. They are being told that when they finally emerge, that all that empty inventory of houses will be waiting for them in fine condition at rock-bottom prices. No it won’t. Because a house needs occupants, and the contractors they hire to maintain them. Houses left alone by absentee banks are going to slowly disintegrate. Entropy doesn’t take years off while you try to scare up a down payment.
My father was a banker. He told me long ago that the last thing a bank wants is your house, because all they can do is mow the lawn and pay taxes on it. But that was back when the local bank was actually holding the mortgage.
I bought my house from the bank that was holding the mortgage on it. The last guy had defaulted on it and bugged out. They were on the hook for it. They were in an office two miles from the house. I could talk to them. They certainly were desperate to talk to me. That’s a rarity now. Banks that hold bundled mortgages can’t even produce the loan documents on houses they own in a pinch.
So a bank 2500 miles away might very well be forced to pay someone to mow the lawn, and pay the taxes, because the local government demands it; but they have no expertise or interest in property management. They were made whole with that marvelous TARP cash and don’t really care about the mortgages all that much anyway.
Mice and squirrels will breathe their last in the attic.
Time will pass. Pipes will freeze. Raccoons will get in. Persons who know a house is never worth nothing will break in and discover sweet, sweet, copper in them thar walls. Mice and squirrels will breathe their last in the attic, and you’ll be breathing their lasting perfume for a good, long time -- if you can smell it over the mildew.
The only people that know how to renovate these places aren’t going to hang around in an industry with Dust Bowl unemployment numbers, waiting by the phone for years for you to pull yourself together. They’re going to leave the industry; the few that are left aren’t going to be interested in being your coolie labor. All you know how to do is download songs from iTunes and fill the copier when it says PC LOAD LETTER. They know what a house is worth, and how to fix it. They only need you to show up at the closing with a big, fat check. Just like old times.
A two-tier market for housing will develop. Regular houses, owned by regular persons, will be bought by other regular people with regular mortgages for regular prices. The “shadow” inventory – houses not occupied and in very uneven condition -- will be purchased by speculators, renovated and flipped as rapaciously as before, and will be sold for about the same money as the regular houses. No amount of waiting around in mom’s basement and reading about housing bubbles on the Internet is going to change the fact that houses are expensive because they are valuable and always will be.
In 2009, we were looking for houses every night on the Internet. We did all sorts of homework, trying to find inexpensive, barely habitable houses for short money. We drove all over Maine (on our computer, late at night, using Google street view) to see if the realtor was cropping a rendering plant out of the pictures of the ramshackle houses we were considering.
A guy next door having a smoke on his front porch.
In his socks. In December.
We finally came up with a house in a town in southern Maine that looked OK for a disaster, and only cost $35,000. We begged the realtor to take pictures of the surrounding neighborhood before we went there, but realtors are almost completely worthless in this, and many other regards. We drove the four hours to see it. When we drove by, there was a guy next door having a smoke on his front porch. In his socks. In December. He looked as though he had just murdered, cooked and eaten his entire family, and was still hungry. We didn’t even slow down.
“There was a sign for Rumford on the highway,” I said, “ I saw a few places there we could check out.” We live in Rumford now. There were inexpensive houses everywhere. There are a lot fewer now.
The house we turned down flat later sold at auction for $15,000. A contractor bought it and has renovated it fairly nicely in a “Home Depot blew up” motif, and is selling it for $100,000. He did more or less what I would have done, except I was going to live in it while I renovated it.
$100,000 is less than half the average house price in that town, so he’ll probably get it, if the realtor remembers to bring the buyers when Mr. Lecter next door isn’t home. The contractor will cash out and do it all over again.
You got bad information before, and you’re getting bad information now. Listen to me: Houses are inexpensive, but they’re still valuable. Buy one before they’re only one of those things again.
