This space has needed a proper name for a while now; it has not been happy with Absolutely or The Journey, and will try on this new name to see how it wears. I am reviewing earlier comments about the economy and foreclosures, and softening my stance in the deepening depression with so few financial options. We are suffering greatly.
People on TV seem to promote the idea that the American people were duped into getting themselves deeper in debt than they realized and that is the root cause of this entire mess. Credit was cheap and easy to get, but something doesn't equate. Are they trying to say that consumers didn't understand as they wore out those credit cards and took purchases to their cars that they would have to pay for them at some future point? Seriously?
However, California real estate is a different animal altogether. For a non-coastal state, it is hard to explain the 'expected' and rapid increases in value and how it puts families nearly unable to afford homes and apartments because landlords take advantage of the opportunity to continually increase rent.
In crazy California, as hard as it is for a family to justify committing themselves to a mortgage that is beyond their reach, there comes a point when they realize they are being priced out of the rental market, too. Add to that the feds encouraging home ownership with tax shelters, and all that is left to do is find a sympathetic lender before diving right in. We now know there were big, and I mean BIG, financial incentives to entice unscrupulous lenders to make credit available to just about anyone, but that does not relieve the consumer of their heavy burden for signing on.
The boys and I lived out of state for seven years and when we returned I wasn't keen on buying again. But in our 2nd year, we were socked with an additional $10K tax bill because we were renters and had no mortgage interest to deduct. Having depleted most of our savings to pay taxes, we borrowed the down payment to get into a volatile housing market. It was that, or risk incurring an annual tax debt we knew we could not pay. And so against our better judgment, we went for it.
With a small budget and big family, we settled on an abandoned, big cavernous house on a busy corner in really bad shape. Over the next eight years, we gradually sunk another $30K of sweat equity into making it our own. The story ended happily, as it usually does in California if you can hang on long enough for property values to rebound. But the lesson is clear.
That's how we got here, and why people were so willing to get those interest free loans. Of course home buyers knew going in that it was possible at some future date they might not be able to maintain or afford it, but they socked everything into it anyway, because in California the real estate is as close to a sure bet as you can get.
I think California will rebound. But in the current climate of layoffs and financial shakedowns, who has the luxury of waiting? There are much tougher financial decisions going on than I have to make, the really heart-wrenching choices about abandonment. I only hope when the decision is made the homeowners remember our equity and home values are on the line, too, and at the moment it feels like the entire country is standing at the edge of a giant foreclosure sinkhole that threatens to consume us all.
http://richbailey.posterous.com/recovering-from-the-real-estate-katrina
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