April 22, 2010
The Housing Crisis Is an Employment Crisis
According to Providence Business News, foreclosures continue to increase:
The number of foreclosure notices in Rhode Island rose 9.2 percent in the first three months of this year compared with 2009, RealtyTrac Inc. said Thursday.The Irvine, Calif.-based real estate tracking firm said one in every 242 homes in the Ocean State received a foreclosure notice in January, February or March. ...
Nationally, RealtyTrac said 1 in every 138 homes received a foreclosure notice during the first quarter, up 16 percent from a year earlier and up 7 percent from the prior quarter.
One difference, locally, is that Rhode Island's foreclosures actually decreased from the fourth quarter of 2009, while that number nationwide is up. By any measure, though, it seems relevant to predict that the housing market will continue to be a perilous place until people are working again, and that includes a bit of a shift of leverage back toward employees, whose employers will have to worry, once again, that they'll be able to go elsewhere if they're not happy.
Surely, some folks were supplementing their income with real estate equity, so even their jobs were insufficient, previously, and also surely, some people are walking away from housing purchases that aren't now worth as much as they paid. I still think, however, that people will pay their mortgages when they can, so solving the housing crisis will require solving the employment crisis.
Unless, of course, the federal government proclaims a right to own a home and steps in with more Chinese money from the future to pay off consumer loans.
Those stats don't seem bad at all.
1 in 242 would seem to be expected in anything other than a booming market. Having been a lender of money, including some first and second mortgages, I would have loved if only a tiny percentage like that failed....I'd make that bet any day of the week!
Yes, many lived high on the hog on false home equity, fronted to them by fraudulent appraisers, banks and loan agents. Not much we can do about that......
My thoughts are that some higher end (island) real estate will have to fall further to level things out. But people are buying and investors and developers are starting to dip their toes in again.
No, we won't have another bubble anytime soon. That's just as well. Maybe RI can develop some sustainable ways of financing the future, as opposed to the churn of land and developments.
Posted by: Stuart at April 22, 2010 3:25 PMThe population continues to grow, we continue to have what the real estate people used to call "new family formations". Those people have to live somewhere, eventually that will pull us out.
I remember when I was a kid. The state had put Route 95 thorugh our property and my mother wanted to move. I went with her and recall a real estate agent pushing a big old Victorian. He assured my mother that a deal could be had because no one wanted to heat and maintain those big old houses. I wonder if the same fate may befall the McMansions? Is the three car garage really desired? The home office, or media room?
Posted by: Warrington Faust at April 22, 2010 9:45 PMFaust, that is already happening to some extent.
The empty nesters and the baby boomers ,who will be responsible for many purchases in coming years, want smaller and tighter homes - often with first floor master bedrooms.
Since people are having smaller families, the 4 or 5 bedroom house will be less important.
I think quality, not quantity, will be the key for places like RI in coming years.
For the up and coming Justins of the world, nothing could be better than a little ranch or colonial in tiverton on a new lot.......or an existing fixer upper. Either could be had for about 200-275k if one either looks hard enough or acts as GC for building a starter home.
My first house was all of 1100 sq ft - a 3 bed, 1 bath ranch which we shared with two infants. It was not crowded at all. Today, my BIL has a 3500 Sq Ft house for just him and his wife. And, as if that was not enough, they are finishing the basement for more room.
It makes you wonder...
Posted by: Stuart at April 22, 2010 10:18 PM