Falling off the cliff – into the abyss…

Real Estate Issues
Westchester Real Estate Shakeup – featured in Inman News…
February 13, 2010
Shopping Westchester
Larchmont Tavern – Larchmont NY
February 14, 2010

Over the edgeYesterday I showed a foreclosure.  Until fairly recently, Westchester hasn’t witnessed much in the way of “underwater” home ownership.  We’ve always had our share of foreclosures, but they were far from commonplace.  The house was a mess.  The walls contained broken dreams of home ownership and you have to wonder about the people who lived there.

There have been a lot of blogs written lately about who is to “blame” for the housing bubble and its disastrous aftermath. Some bloggers blame lenders, some blame agents, brokers, NAR, the Fed, home owners…the list goes on and on.
But one common thread I find very discouraging are blogs which lay blame on  the homeowner who was underwater.  They should have KNOWN better. They were GREEDY. They were IRRESPONSIBLE, they were this, they were that…

In truth, the housing debacle is as much a result of the decimation of the middle class as it is about a housing bubble itself.   Families have found the ground shifting under them faster than they could ever have imagined. Many homeowners have found  themselves into the horns of a dilemma.  This is the story of my generation.  As a forty-something I’ve felt the sands shifting under my feet ever faster.  I have found myself scrambling to earn those ever elusive extra dollars that will allow me to keep my own home – even as I help my clients sell theirs.

The middle class has been under assault for the past 30 years.
Elizabeth Warren outlined it the best in the presentation embedded below.  For those who don’t have 50 minutes to view the video – here is a brief synopsis:

Dr. Warren did a series of studies comparing  the income and expenses of a family of four living in 1970-1971 to a family living in 2005-2006.  The summary of her findings gives us eye-opening insight as to what has happened to the middle class.

Income & Savings:

  • Overall income went up for COUPLES.
  • Income for males decreased when adjusted for inflation.
  • So the bump we got in overall income  came from having a second worker.
  • Salaries have actually been flat or have been decreasing over this period.
  • In 1970 savings was 11%
  • In 2005 savings was under 0%  (debt had increased)
  • Revolving Debt up from 1.4% to 15%  of income.

How did this happen?
Was it rampant materialism combined with childish irresponsibility?

Where did the money go?

  • Clothing: Families are spending 32% LESS on clothing then they were in 1970.
  • Food:  including eating out:  Families are spending 18% less on food than in 1970.
  • Appliances: Families are spending 52% less than in 1970
  • Car ownership:  Families spent 24% less on each automobile in 2005 then in 1970.
  • Electronics – including internet and computers:  up $300 a year from 1970.

So it wasn’t traditional “luxury items” that got people into trouble.  The electronic craze, such as wide -screen TV’s play nominal role at best.

Here’s where prices went UP, UP and away….

  • Home: There was a 76% increase in housing costs due to higher prices and taxes.  But the average size of  a home increased by an average of one room.
  • Health Insurance: (via employer only)  Up 74% from 1970.
  • Cars: Outlay up 52%  to account for the need for two cars once both husband and wife are working. Increased 52% – because most are now 2 car families because both parents employed.
  • Childcare – up 100% (since the mother was mostly home in 1970)
  • Taxes:  The tax rate is up 25% due to having a second earner and thus higher overall income.

Here is the trouble – the expenses that are down are the flexible expenses.  The expenses that are up are not flexible.  The expenses that are UP are what Elizabeth Warren calls “Fixed, relentless expenses.”

Increased Vulnerability:

  • Families need BOTH incomes to make the mortgage.  There is no leeway if someone gets sick and no one to put in the workforce to replace the person that has died, become sick or incapacitated.
  • The risk shift: Warren sites Jacob Hacker’s work –  on the risk shift.  Here they analyze the risk of a 20% drop in family income.  Income volatility is up nearly 20%.  This is in good part due to the fact that since both workers are needed to sustain income, the risk of incapacitation or layoff DOUBLES.
  • Health Care is totally dysfunctional…Warren sites the tremendous vulnerability families have to health care.
  1. Lack of insurance coverage. More and more middle class losing coverage.
  2. Decreased health care – releasing patients quicker and sicker.  (I can attest to that with my father. The hospital is forever releasing him TOO SOON – dumping the burden of care on my shoulders. This has wrecked havoc with my business as it sits. But I was a 9-5 worker – it could  – probably would – cause me to LOSE my job.  Sending home sick people saves insurers money – but it foists what should be nursing care on the family who is already working full tilt to meet the bills. Warren calls this “just one more push” over the edge if there is a serious illness. She sites illness as a major and “direct income impact.”
  3. Warren sites “faux insurance” – where people think they have good insurance until they get sick.

So, next time we see a family in trouble. Let’s not think ill of them. Let’s stop pointing fingers.  Remember if you point a finger and look in the mirror – you see a finger pointed back at you.

For those who ended up leveraged to the hilt – I can see how it could have happened.  As their income potential kept declining, they kept thinking “I am smart, I work hard, I have a good reputation in my field and I play by the rules – so things will get better – this is only temporary.”  In previous recessions this would have been the case.  But the last recovery was truly jobless.   The rich got richer, but the middle class went nowhere.  They never even recouped the ground they lost in the crash of 2000. So they borrowed on their homes which went up in value thinking “this will pass – its GOT to pass.”  Everyone felt that  eventually things would get back to normal and the jobs and money that went with them would flow freely once again.  But things didn’t get back to normal.  That was the “old normal.” Instead, we have a “new normal” which  is an unacceptable normal where the middle class are being pushed off the cliff and into the abyss.

Lets also remember that the bottom line here is jobs, jobs, JOBS.  We need to swing the doors wide open on well paying career opportunities.  We need to stop out-sourcing, downsizing, and importing cheap foreign labor and keep well-paying jobs HERE in America.

© 2010 Ruthmarie G. Hicks. https://thewestchesterview.com.  All rights reserved.

Please feel free to contact me anytime to request additional information or to set up an appointment so we can explore your listing or purchasing needs. I am easy to reach by phone, text or email. Or, if you just want to continue your search online, the links below will help you get started.

Phone/Text: 914-374-5529

Email: Ruthmarie@TheWestchesterView.net

Property Search Home Valuation Open Houses

Comments are closed.