Return to the Scene of the Crime

I haven't blogged in awhile, not because I am uninspired but rather, I have been busy turning parts of this blog into a book.  Well that and I took a vacation back to the land where all the debauchery described here occurred. 

Returning to the place where I worked as a loan officer for three years and lived for twice that time brought mixed emotions.  My hope was to avoid running into any of my previous costumers or real estate contacts, unless of course by choice.  That mission was accomplished.  I didn't want to see old customers because I was in fear of getting physically or verbally assaulted because of the loans I had done for them. and frankly, I feel sorry for a lot of people who are trapped in the sandbox where I made a ton of money for awhile and then fled.

I was struck immediately by the impacts of the housing crisis on the entire region and while it should have come as no surprise, I still was shocked to see predictions I had made long before coming to pass.  My friend and co-blogger, A.Hole, and I met my friend and real estate agent, Judy Moody, for happy hour.  Of course, we drank a lot and as to be expected, talked about real estate and gossiped about former colleagues we still didn't like.  I heard stories of homes purchased for $800,000 in 2006 selling at short sale for $350,000.  One of these homes was purchased by a gentleman that only earned $50,000 a year.  Obviously, he was the beneficiary of a liar's loan but he was just one of thousands who purchased a home he couldn't afford in a highly speculative market.

Economics 101 as it applies to housing is that housing demand is driven by employment.  In theory, people need income to buy a home.  The housing boom took this fundamental tenet of economics and spit on it.  In the area where I lent money, we had very little employment and most of it was tied to tourism.  A great number of people in the sandbox are reliant upon unemployment in the winter as their jobs are seasonal but, the vast majority of people were self employed or directly employed by industries associated with housing.  This includes a plethora of self employed individuals, real estate agents, and construction contractors.  Our housing boom was driven by people on the other side of the bridge purchasing second homes and investment properties and our local speculators, who behaved like they were players in the gold rush.  People who had no business owning one home found themselves temporarily exercising domain over small, crappy housing empires.  It couldn't last.

A number of things conspired to cause the decimation of the housing market in the sandbox.  Fannie Mae, the Federal Reserve, and government policies were the catalyst but, the local developers and real estate players pushed the market over the edge. 

Much like the Tragedy of the Commons, where everyone acting in their self interest brings about a negative outcome for themselves and the greater good, real estate developers went nuts.  With no consideration to the sustainable supply of certain types of housing in the region, condo developers saturated the market with units that demand could not possibly keep up with.  Planned urban developments went up everywhere, even where they shouldn't.  Development in a protected wetland was possible if you knew the right people; no one thought about whether they should do it, they just doled out favors and protected the fat cats of the region.  The spoils of the boom went to the early developers and investors who amassed wealth at an unprecedented rate.  Seeing the gains to these early entrepreneurs, every Tom, Dick, and Harry wanted in on the splendor.  The last to get in are suffering the most as profits were driven out and then the market collapsed completely, much like the species crash of an unsustainable animal population.  The housing market is very Darwinian, but the fittest in this case were those who got in first and then had the good sense to the get the hell out while the gettin was good and those who had political ties to avoid silly things like zoning laws and environmental regulations that the unconnected were subject to.

At a particularly drunken happy hour at a bar by the Bank of Hell ruled by the Mortgage Devil, I got in an argument with people who had invested in a condo development on what they call a river.  Growing up on the Mississippi, I felt the need to point out that their so called river looked like a polluted ditch and bore no resemblance to a real river.  They argued with me and then realizing I wouldn't change my stance that not all waterfront property is created equal, they changed their tactic to arguing that the new condo development would appeal to young professionals.  I responded, "To attract young professionals you must have jobs and this town doesn't so I think there is a pretty major flaw in your understanding of the demand for these units."  No amount of Ketel One keeps me from making sound economic sense but these people were having none of it.  They told me I didn't understand real estate and they would prove me wrong.  Yeah, right.  I went by the project and one whole building is sitting sheathed without Tyvek, unfinished and blighted.  The other condo building they actually finished has a vacancy rate that appears to be 90%.  As I predicted, young professionals go where the jobs are and are not swayed to deviate from their economic self interest by a creek filled with litter and surrounded by crime. 

The entire region looked sad to me despite the flood of tourists from Pennsyltucky, New Jersey, Washington D.C., Baltimore, and surrounding cities.  The housing market in the sandbox looks to be at least a year away from even the seeds of recovery and with the economy still struggling, financial distress for people underwater in their homes or turning their second homes into rental properties is nowhere near over.  A glance at the rental listings for the area show how the flood of housing units for rent has depressed rental prices.  Great for renters?  Perhaps, if they could find a job. 

Buying at the beach became the American Dream with the help of incentives from the Federal Government yet, our government is accepting no responsibility for its contributions to the crisis.  Even those people in the sandbox who have encountered economic ruin due to their belief that the housing market was a never ending path to wealth blame the "Greedy Bastards on Wall Street."  Ummm, people want to make more money, duh.  That is only a problem when the government provides incentives to do so at the expense of common sense, economic sustainability, and future economic growth.

If the government gives your kids free reign in a candy store for a decade, you will get a bunch of fat kids with cavities.  What happens when you give adults these same incentives but trade the candy store for the housing market, oh yeah, an incredible bust and recession. 

On a positive note, if you are independently wealthy and require no employment, I can guide you to some tremendous values in a resort community.  If however you want to live at the beach but need income to support the habit, I got nothing.