Rescue Logic

The question of the moment: Who to save and from what?

This week, we’ve had hardly needed confirmation that the economy’s in recession, consumer confidence is at an all-time low, housing prices are still plummeting, and rescue and stimulus plans are proliferating. Volatility is so engrained now in equity and commodities markets that keeping track of where everything is has become “like watching a National Basketball Association game,” says one housing and financial services industry observer. “It doesn’t matter what happens for most of the four quarters,” he says. “The part you have to see always happens in the last two minutes. It’s getting that way with the stock market.”

In the 11th Hour, as U.S. Treasury Secretary Henry Paulson begins to map a transition plan for over $1 trillion in rescue monies the U.S. will borrow vs. the $52 trillion in total U.S. wealth and as voters take their final moment to consider who to put into the Oval Office for the next four years, an issue at the crux of trying to prioritize focus is as simple as this: The American Dream. The global economy’s listing now relates more to those who have in the past five years joined the ranks of America’s 76-million-plus homeowers than many of us would like to admit.

There are hugely significant decisions and initiatives to make around what can and should be done about growing numbers of housing units in financial distress, and the real families dwelling in many of them. Here’s two critical facts to remember as healthy debate about plans takes place. One is that of almost 130 million households and 76 million-plus homeowners, one in three of the homeowner group does not even have a mortgage (51 million homeowners do have a mortgage, according to U.S. Census 2007 American Community Survey data). The other is that an all-time high of 14% of housing units are counted as vacant. That’s 7 empty places for every 100 housing units. It’s a lot of those places that are among the 10 million “homes” apparently underwater on mortage loans, and among the 3 million “homes” counted as either in or headed for foreclosure.

It’s important to realize this because a goodly number of so-called homeowners in distress are actually investors who bought and don’t live in their now-vacant housing units. So we should not imagine a family put out on the street for each and every one of the homebuyers in trouble on their distressed deeds. New Strategist editorial director Cheryl Russell analyzes the data to try to pry apart myth and reality in looking at the mortgage mess.

In fact, a question that may need to be asked and answered is how much the increase in homeownership rates from 63% or 64% in the mid-1990s to almost 70% in 2005 is worth. Expanding the sphere of American Dream was going to have its price as well as its value. How do we look in a realistic way at the risks and liabilities involved as well as the benefits and opportunities of bringing America’s homeownership rate closer to many nations of the world?

A necessary vantage point on this issue for all those in residential real estate and construction is one Multifamily Executive editor Shabnam Mogharabi raises in her essay, “Which One are You?,” about the need to count people in rented homes as equally critical parts of housing’s equation.

Her assertion?

Unfortunately, renting gets a bad rap—one that it doesn’t deserve. In an age where high density and anti-sprawl are the drivers, proximity to transit and walkability the amenities, and sustainability the ultimate goal, the multifamily industry has a responsibility to educate consumers about the benefits of renting in live/work/play hubs throughout the country. Homeownership may be the fastest way to wealth creation for many families in the country, but homeownership is not for everyone.

Among the most important factors in how the correction will ultimately sort out may not be who’s model works best in a spreadsheet. Human behavior and psychology weigh too heavily in the balance for even the most excellent econometric solution to fully apply. The important thing is to make a plan that will keep its head as the 800-pound gorilla of misplaced trust tosses its weight around in the middle of things.

People want their homes, and the logic of building trillions of dollars of global business upon the premise that the loss of one’s home would be too devastating for people to let that occur is showing its flaws in all their glory. Too many variables came into play with that bet.

What people also want now is not so tangible as a home, its safety, security, and protectiveness. They want revenge and they want justice, big motivators in who’ll support which rescue plan in the last two minutes of the game.

Props and Sources:

The Wall Street Journal, Data Stoke Campaign Battle Over Economy, October 31, 2008, http://online.wsj.com/article/SB122536898235884019.html?mod=testMod

CNBC, Consumers Cut Spending For First Time in Two Years, October 31, 2008, http://www.cnbc.com/id/27470443

The Big Picture, Barry Ritholtz, Moral Hazard of the Coming Mortgage Bailout, October 31, 2008, http://bigpicture.typepad.com/comments/2008/10/moral-hazard-of.html

American Consumers Newsletter, Cheryl Russel, October 14, 2008, Hot Trends:  DON’T BLAME MAIN STREET  http://www.newstrategist.com/store/index.cfm/feature/35_15/dont-blame-main-street.cfm

Multifamily Executive, Shabnam Mogharabi, Which One are You?, October 1, 2008, http://www.multifamilyexecutive.com/industry-news.asp?sectionID=537&articleID=782831&refresh=true

Image source: Bloke’s Blog, What Do you Call an 800 Lb. Gorilla? http://www.strategicmarketingmontreal.ca/otherbb/2005/09/what-do-you-call-800-lb-gorilla.html

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October 31, 2008 | Filed Under Consumer Spending, Home Builders, Legislation, MultiFamily, Prices 

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