Source: The Automatic Earth, by Helen Loughrey
Nicole Foss is in Christchurch, New Zealand right now for the Living Economies Expo, and sent me, I’m still in Athens, Greece, a piece written by yet another longtime Automatic Earth reader, Helen Loughrey (keep ’em coming!), who describes her efforts trying to find a rental home in Fairfield County, Connecticut.
The first thing that struck me is how effortless and global sending information has become (category things you know but that hit you anyway occasionally, which is a good thing). The second is that the fall-out of the financial crisis has followed the same path as the information ‘revolution’: that is, it’s spreading faster than wildfire.
And I can’t avoid linking that to earlier periods of American poverty (see the photos), times in which ‘leaders’ thought it appropriate to let large swaths of the population live in misery, so everyone else would think twice about raising their voices. A tried and true strategy.
But of course there are large differences as well today between the likes of Greece and Connecticut. In Athens, there’s a poverty problem. In Fairfield County, there’s a (fake) ‘wealth problem’. Ever fewer people can afford to buy a home, so the rental market is ‘booming’ so much many can’t even afford to rent.
We can summarize this as ‘The Ravages Of The Fed’, and its interest rate policies. Or as ‘The Afterburn of QE’. That way it’s more obvious that this doesn’t happen only in the US. Every country and city in the world in which central banks and governments have deliberately blown real estate bubbles, face the same issue. Toronto, Sydney, Hong Kong, Stockholm, you know the list by now.
Helen’s real-life observations offer a ‘wonderful’ picture of how the process unfolds. The demise of America comes in small steps. But it’s unstoppable. The same is true for every other housing bubble. When no-one can afford to buy a home anymore but a bunch of Russians and Chinese, rental prices surge. And then shortly after that the whole thing goes up in smoke.
Helen Loughrey: I am getting a reminder about class systems and downward social drift while searching for a rental in Fairfield County, Connecticut.
First of all, I realize I am extremely lucky to be able to afford a home at all. More and more Americans increasingly cannot. I am very aware that my current socioeconomic status could be gone in an instant. And so I am more inclined to notice class issues. There, but for the grace of GDP, go I.
And as one who studies the economy, I know we are all destined to go ‘there’ in the not-so-distant future. Owners are downsizing to become tenants, occupancy rates may rise to depression era levels, and homelessness will continue to rise up through the social fabric like water wicking up a paper towel.
Renters risk losing their deposits to unscrupulous thieving landlords but nothing beats a thieving bankster. That down payment you saved? Kiss it goodbye, you are very likely never getting it back. And banksters know this. It is why they demand high down payments.
They’re counting on the eventuality that a good portion of current mortgagees will have to forfeit in a depressed economy. But you would not know there is a sales market slump, let alone another looming crash, by reading glowing real estate -sponsored newspaper articles. It is no wonder many sales are for cash not lien, to wealthy foreign buyers.
Anyone buying housing today should expect an asset value loss to occur when the real estate market adjusts downward again. (Which is another reason we are not buying in this market.) However sellers, listening to advice from hopeful real estate agents and pollyannish economists, are holding out for *higher* prices to return.
They eventually remove their properties from the sales market in order to rent them after they still cannot find a buyer even though dropping the price continuously for two years. And because fewer people can afford buying than renting, the price of rentals is rising now while the price of real estate is dropping.
Landlords who are strapped with high mortgages from the boom years, and other landlords who may have owned their older houses outright but then took out home equity loans to finance eventual roofing or HVAC expenses, and even to afford replacement cars or family vacations, are placing expectations on their tenants to provide the income to pay for those bank loans.
Meanwhile town zoning laws still prevent the tenant cost savings of subletting; and prevent owners from contracting with simultaneous multiple tenants. Yet the pool from which to draw tenants who can afford a whole house or 3/4 of one is still shrinking.
Renters like us may eventually opt (and perhaps should be opting now) for smaller square footage multiple family apartment complexes. (But no food gardening amenities? Rental managers take note.) Whole houses, with high mortgages to cover, will remain vacant and become foreclosed.
And I get it, owning a mortgaged property is also costly. But while renters are seeing standards of living drop now, so too will landlords when their properties sit vacant due to aggregate inability of renters’ incomes to afford to support the mortgaged landlords in the manner to which they had once become accustomed.
There will be a resurgence in foreclosures. And then, if they are lucky to still have a job income, we’ll also welcome them to the renters club.
Read Full Article Here: The American Dream, Twice Removed – The Automatic Earth
Categories: Financial/Societal Collapse and Dependence