Economics

The Debtorship Society

More Americans became "homeowners" while owning less and less of their homes.

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Real estate used to be a pretty lowbrow business. When my grandmother opened her agency in the 1950s, it was mildly groundbreaking for a lady to be involved in the grimy, pushy, mold-concealing business of hawking houses. When I accompanied my father on his own real estate agent rounds on a South Jersey barrier island during the Carter/Reagan years, the job seemed to alternate between long hours of cleaning up every form of human waste, heavy volumes of legal documentation, and brief, tense altercations with deadbeats, squatters, and shady contractors. The preferred weapon for this last exchange was a baseball bat. 

If anything can be said for that less genteel age, it's that people had an incentive to reduce their vulnerabilities. To be deeply in debt was considered unwise, possibly shameful, and definitely (given what now seem like usurious interest rates) hazardous to your health. A homeowner was somebody who owned a nontrivial equity stake in his or her residence, and a down payment was 20 percent if you had good credit. Meeting those standards was viewed as admirable. Liberals and conservatives joined in lauding the energy, thrift, and good sense of the American homeowner.

Where liberals and conservatives agree, social engineering must follow. A national homeownership rate above 60 percent—a figure that made the United States the envy of the planet—was deemed too low. Why not use the government to nudge that number up?

Uncle Sam has many options for boosting homeownership rates. The simplest and most important is the tax code, which allows you to write off interest payments on your real estate holdings. But there are other tools. The real interest rate on mortgages has been shaved down by 50 basis points or more thanks to the secondary mortgage market patrolled by the ostensibly competing government-sponsored entities Fannie Mae and Freddie Mac.

Fannie and Freddie also appeared to be useful in pursuing two contradictory goals: motivating banks to lend money in formerly redlined communities while allowing the relatively rich to increase the size of their own government-subsidized loans. Since 1980 the limit on a conforming loan (i.e., one that Fannie and Freddie are willing to buy from a bank) has more than quadrupled, from $93,750 to $417,000. (This growth has been well above annual inflation, which would put the current cost of a conforming loan at less than $245,000.) And if you live in a part of America where $417,000 still seems like a lot to pay for a house, be advised that the limit in "high-cost areas" is even higher: $625,500, up from $140,625.

These homeownership engineering policies create a direct incentive for Americans to take on more real estate debt. Clinton and Bush administration officials argued that they also pushed up the homeownership rate, which having hovered between 60 and 65 percent from 1960 to 1997 rose in the last decade, peaking at 69.2 percent in 2005.

The problem with subsidizing debt is that, whatever its secondary benefits, the primary signal it sends is to take on more debt. As the percentage of people called "homeowners" has increased, the percentage of their homes that they actually own has been plummeting.

According to the Federal Reserve's flow of funds data, owners' equity as a percentage of household real estate dropped from 58.4 percent in 2002 to 41.4 percent in the first quarter of this year. Some portion of this decline can be attributed to the steep drop in house prices (though in many parts of the country prices have not yet returned to 2002 levels), but that portion is actually pretty small. And the trend has headed more or less steadily downward since 1985, the last time the equity portion reached 70 percent. Americans own a lot less of their homes than they used to.

Like many Frankenstein creations of the liberal-conservative consensus, homeownership engineering finally conked out during the Mad Monster Party that was the George W. Bush administration. Bush began his second term committed to creating an "ownership society." But throughout both his terms the rate of real homeownership was declining.

So what does it look like when a fantasy like that ends? Jim Klinge, a north San Diego County real estate agent, has drawn tens of thousands of fans to his "Jim the Real estate agent" YouTube videos and bubbleinfo.com blog. Klinge's handheld, self-narrated video tours of dilapidated homes set up an exquisite contrast: The gang-tagged walls and stripped-out fixtures create a real sense of tragedy and decline, of somebody's evaporated dream. But Klinge's sardonic wit ("I got the ice cream truck in every video," he drawls during one of many looky-loos through declining barrios) reminds you why pity and contempt can't be separated. These people weren't just deadbeats, he demonstrates over and over, but the kind of deadbeats who would (for example) spend a home equity line of credit pimping out a bathroom while not repairing a dangerously rotted load-bearing beam.

The world of actual real estate, it turns out, remains hard and unsentimental. Earlier this year, Klinge launched a one-man, pre-dawn raid on one of his bank-owned listings, subduing and handcuffing a pair of squatters while wielding, of course, a baseball bat. More recently, while Klinge was trying to persuade a mother of five to leave her foreclosed residence, the mother asked him for money to buy her kids hot dogs.

The continuing fall of real estate values, Klinge says, is providing "a test of character in a way Americans haven't been tested in generations. Ever since the military went voluntary, we've had it pretty easy. My fear is that we've become too much of a namby-pamby society."

Klinge is not opposed to government action, and he recommends subsidizing interest rates at 4.5 percent for purchases of foreclosed properties as a means to encourage both banks and delinquent borrowers to wrap up the foreclosure process quickly. The Bush and Obama interventions have aimed to do precisely the opposite. "I believe the government has succeeded in making a less hard landing," Klinge says, "and they're just kicking the can down the road another year."

But the effects of homeownership engineering are more than just financial. Social engineering may aim to create stronger citizens, but it usually ends up producing weaker people.

Contributing Editor Tim Cavanaugh (bigtimcavanaugh@gmail.com) is a writer in Los Angeles.

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  1. And this relates to Norman Bates how?

  2. “And this relates to Norman Bates how?”

    It was the debts that drove him mad!

  3. After Psycho had established itself, as well as jump-starting the career of Anthony Perkins, he soon began to suffer from typecasting. However, when Perkins was asked whether he would have still taken the role knowing that he would be typecast afterwards, he replied with a definite “yes”.

  4. My understanding is that Barney Frank and Chris Dodd used ACORN/Fannie May to redistribute MY wealth to a bunch of ghetto savages and help them own homes they should have never bought. More like a “Stealership Society” that left me in debt…TO THE GOVT!!!

  5. Not that the government has learned its ways. And we’re going to be subsidizing student loans even more now, too.

  6. FUCK YOU Parents Rights / Marine Patriot.

  7. “ghetto savages”, seriously? Please fuck off.

  8. What’s your problem Bertha, did ACORN revoke your hooker’s license or reject your pimp’s application for a homeloan? J/K, LOL! Take a chill pill!

    “You can always tell a Liberal is in the room because the comedy level goes to zero.”
    Thomas Sowell

  9. became “homeowners” while owning less and less of their homes.

    Come on, Tim… tell us how it should be “fewer and fewer” of their homes.

    Oh wait…

  10. “Parents Rights / Marine Patriot”

    Why not just shorten your name to Semper Fag?

  11. “My understanding is that Barney Frank and Chris Dodd used ACORN/Fannie May to redistribute MY wealth to a bunch of ghetto savages and help them own homes they should have never bought. ”

    “Ghetto savages”? Really? While those who bought houses they couldn’t afford could be called a lot of things, I’m curious where you get off calling them “ghetto savages”. What sources do you have to back up that assertion?

  12. I prefer to think of them as “ghetto sophisticates.”

  13. I blame Xeones for the debacle that is H&R today.

  14. Did Norman own the house and the Bates Motel outright? Or was his soul-crushing debt the reason he went insane? Damned lenders.

  15. Boo, Xeones! BOO!

    Why doesn’t iPhone have an app to let me throw a rotten cabbage at him?

  16. Richard Hoste and Lefiti’s love child; insightfulness personified.

  17. Did Norman own the house and the Bates Motel outright?

    Bates owns neither. Since he never reported her death, his mother’s will never went through probate. The property might be considered his by inheritance, but not in a legal sense. And his constant impersonation of her surely constitutes fraud.

  18. I blame Xeones for the debacle that is H&R today.

    I shall sleep well tonight, then.
    [doffs top hat, bows]

  19. Perhaps. Or maybe you’re just covering for those evil lenders and their debt instruments of mental torture.

    Is it fraud to commit murder dressed as your mother? I mean, did Norman sign documents on her behalf? I don’t recall seeing anything like that in the movie.

  20. Well, he was certainly dressing like her to make people think she was still alive. Cashing social security checks, perhaps?

  21. My God, that would be truly abominable. Surely even a madman like Norman Bates wouldn’t do such a thing!

  22. You know, fraud requires intent. I wonder if anyone has ever raised an insanity defense to fraud?

    Psycho II should’ve addressed all of these open issues.

  23. I wonder if anyone has ever raised an insanity defense to fraud?

    And what Bates did with all that money Janet Leigh had stolen.

  24. To pay his lawyer, naturally.

  25. Did the lawyer know? Conspiracy after the fact!

  26. You guys need to brush up your Shakespeare.

    Everybody in town knew Norman’s mother was dead. Their mistake was that they thought it was a murder-suicide by the mother and her boyfriend. Norman actually killed both of ’em. Then he became his mother because he couldn’t handle the guilt.

  27. PRMP- I think he is using sarcasim….

    but well I’ve been wrong before

    Medic001

  28. Is it fraud to commit murder dressed as your mother?

    Fifty-two per cent of the studio audience say, “Yes.”

  29. Committing murder while dressed as your mother is virtually certain to get you on some sort of list.

  30. What does Shakespeare have to do with anything? Granted, Francis Bacon was a lawyer, but that’s neither here nor there.

    Did the community know that Mrs. Bates was dead? It’s been a while since I saw the film, but I thought no one knew. Well, no one but Norman.

    Here’s the basic elements of common law fraud (reality varies):

    (1) a false statement of a material fact, (2) knowledge on the part of the defendant that the statement is untrue, (3) intent on the part of the defendant to deceive the alleged victim, (4) justifiable reliance by the alleged victim on the statement, and (5) injury to the alleged victim as a result.

    Where’s Norman’s fraud? Sounds to me like that there are some serious issues here. One is who Norman wanted to deceive. I think it might have been himself.

    Murder, on the other hand, should have been easier to prove, barring a good insanity defense.

  31. Did the community know that Mrs. Bates was dead? It’s been a while since I saw the film, but I thought no one knew. Well, no one but Norman.

    Yeah — that’s why the sheriff tells what’s-his-face and Janet Leigh’s sister that they can’t have seen Norman’s mother’s shadow in the window of the house.

    (“Shakespeare” is a term of art. Goes back to Lord Coke, I think.)

  32. Parents Rights / Marine Patriot ?

    Why, he wouldn’t even hurt a fly.

  33. (3) intent on the part of the defendant to deceive the alleged victim

    If the intent of the defendant is to commit murder, there is little point in deceiving the victim as to his identity, unless the defendant expects to avert any consequent haunting or other supernatural bedevilment.

  34. that’s why the sheriff tells what’s-his-face and Janet Leigh’s sister that they can’t have seen Norman’s mother’s shadow in the window of the house.

    I had forgot that bit. All I really watch is the shower scene over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over again.

    And then I watch it again.

  35. Attorney,

    Oh, yeah, I remember that now. Guess Norman did own everything. SugarFree has deceived us all again.

    I was making a funny about Shakespeare, dude.

  36. but the kind of deadbeats who would (for example) spend a home equity line of credit pimping out a bathroom while not repairing a dangerously rotted load-bearing beam.

    And it will be ever thus. As an off-roading hobbyist, I spend a certain amount of my off-time browsing the 4 wheel driving forums. Sometimes they turn political. I’ve seen threads where JollyRanger391 complains bitterly about the cost of his medications, then in another thread, brags how he dropped $18,000 on a custom suspension for his XJ.

  37. “I believe the government has succeeded in making a less hard landing,” Klinge says, “and they’re just kicking the can down the road another year.”

    ‘Cause if you can’t stand the heat, you shouldn’t live in glass houses and be the first to throw stones.

  38. “but the kind of deadbeats who would (for example) spend a home equity line of credit pimping out a bathroom while not repairing a dangerously rotted load-bearing beam.”

    This is entirely rational if your intention is to flip the property, rather than invest in it’s long term soundness. Once a buyer’s signed for it, rotted beams become his problem. Nothing a bit of fresh paint can’t cover up.

    Unfortunately, this has become something of an allegory for much of American society.

  39. Sugar, you really need to open up a blog. 🙂

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  41. Though many people cite elaborate reasons to disagree, the smartest thing anyone can do is get that mortgage paid off, post haste. Not just for the interest savings, but when yer old it makes a big fargin’ difference in your lifestyle when your budget for rent is ZERO.

  42. Come on, Tim… tell us how it should be “fewer and fewer” of their homes.

    Oh wait…

    Why would I want to tell anybody that? The percentage of real estate you own is an amount, not a number.

  43. All I really watch is the shower scene over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over again.

    And then I watch it again.

    This explains a lot.

  44. ..the kind of deadbeats who would (for example) spend a home equity line of credit pimping out a bathroom while not repairing a dangerously rotted load-bearing beam.

    Forget the house. Here in Orange County the HELOC money goes directly into vacations, car leases, botox, clothes, and bling. Even people who bought their houses 15 years ago for reasonable prices now have debt as high as if they had bought at the peak of the bubble. Most people were making more money off their houses each year than from their jobs.

    See the Irvine Housing Blog for example after example after example….

  45. How many liberals does it take to change a lightbulb?
    THAT’S NOT FUNNY.

    Seriously folks… did anybody notice that the FHA market share of the purchase mortgage market spiked to 47% last week? Not to mention USDA (yup, USDA) home loans, and Fed purchases of MBS to drive down interest rates, and massive and likely growing tax credits for homebuyers.

    Government housing subsidies are growing and can’t easily be removed. It’s like the movie “Speed,” where the bus is rigged to explode if you take your foot off the gas. The government has the pedal to the metal and the market’s barely showing any life. If the government takes its foot off the gas, the housing market rolls over and dies.

  46. My only point is that if you take the Bible straight, as I’m sure many of Reasons readers do, you will see a lot of the Old Testament stuff as absolutely insane. Even some cursory knowledge of Hebrew and doing some mathematics and logic will tell you that you really won’t get the full deal by just doing regular skill english reading for those books. In other words, there’s more to the books of the Bible than most will ever grasp. I’m not concerned that Mr. Crumb will go to hell or anything crazy like that! It’s just that he, like many types of religionists, seems to take it literally, take it straight…the Bible’s books were not written by straight laced divinity students in 3 piece suits who white wash religious beliefs as if God made them with clothes on…the Bible’s books were written by people with very different mindsets…in order to really get the Books of the Bible, you have to cultivate such a mindset, it’s literally a labyrinth, that’s no joke

  47. My only point is that if you take the Bible straight, as I’m sure many of Reasons readers do, you will see a lot of the Old Testament stuff as absolutely insane. Even some cursory knowledge of Hebrew and doing some mathematics and logic will tell you that you really won’t get the full deal by just doing regular skill english reading for those books. In other words, there’s more to the books of the Bible than most will ever grasp.

  48. How many liberals does it take to change a lightbulb?
    THAT’S NOT FUNNY.

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