Random Thoughts - Economics and Houses

First, let me admit that I'm almost a senior citizen--and I've been an observer of the U.S. economy for 30 years or so.

Back when we were young, in the mid-1970's, my husband and I moved to Texas with our baby daughter after he finished his military service. We came here because of the unbeatable combination of a job offer and a city with affordable housing and several good universities. Our plan was to find an affordable house, pay on it for a few years while my husband finished his degree, and then move on. We managed all of it except the moving on part, and we still live in the small house we bought then.

Why didn't we ever "move up" as we had planned? Simply because the economic situation in the United States changed. Our original mortgage was governed by usury laws in the state of Texas, capping a "floating" interest rate at 10%. Two years later, that law and all similar ones across the country, was rescinded by the U.S. government under Ronald Reagan. New mortgages were at about 18% interest, or more, when we looked at "move up" housing.

And of course, there were the Realtors to contend with. Before we bought our first home, we planned our finances carefully, and then we toured the city with two different Realtors, from two different agencies.

With both of them, we were very honest about the size of the mortgage we wanted. And neither of them showed us a single thing within the parameters of our chosen debt limits. One of them showed us houses that were 20-25% higher in price than what we wanted to see, and the other showed us houses that were 10-15% higher.

Then my husband, a dedicated jogger, found our current neighborhood a few miles from our apartment, and we checked out all the "For Sale" signs and found a house that fit both our chosen debt limits and our other requirements.

Both of the Realtors who had shown us the houses beyond our means called a few weeks later, and we told them that we had found our home, within our price range, thank you very much.

Based on that admittedly limited experience, I would say that pushing a home-buying client to accept more debt than planned is probably a long-standing standard practice in the Real Estate profession. A practice that got out of hand in recent years, but a standard practice nevertheless.

Another point: back when we bought our home, we bought it to live in. We wanted a roof over our heads and a safe place for our daughter to play outside. Our apartment rent was a major outlay each month, and due to rise on a regular basis every six months; replacing it with house payments of approximately the same size seemed like a good choice, since we expected to stay in the area for awhile.

Somehow, in recent years, the home became transmuted from a shelter into a piggy bank. The idea of staying in a house to raise a family shifted into selling a house at a profit. A big, fancy house that was not really affordable was OK, because you weren't really planning to stay there, only to sell it at a higher price to the next buyer, get a pile of money, and get an even bigger unaffordable house, to sell on to another buyer.

All of which neatly fit into the above-mentioned standard practice of encouraging a buyer to accept a bigger mortgage than he or she really planned on.

Now we've reached the point where housing prices have topped out, and are going downhill, because (as we might have expected), at a certain point the upward spiral has to stop. In the end, a home is shelter. And even in good economic times, there is a limit to what folks can afford to pay for shelter.

There has been a lot of moaning about how the American public has been too greedy and too selfish to think and plan ahead, and has taken on more debt than was wise. But it seems to me that the whole home-buying environment has been polluted for some time.