I thought that housing prices would continue to rise in this country, so that the stagnation and/or fall of prices surprised me. My basis for my thinking was that, compared to most other industrialized countries, housing prices in the US were quite modest. An article in this week’s “The Economist” talks about how much greater was the rise in housing prices in Ireland, Holland, Britan, Australia, France, Norway, Denmark and a half dozen other industrialized countries than in the United States.
Then, I looked at demographic changes in this country, and decided that the demand for housing was not going to slow down, and that the demand for certain types of housing was going to increase.
So, when mortgage lenders would suggest to a potential borrower that “if you can afford these payments for the next 24 months, don’t worry about it after that, because we can refinance, or you can sell at a profit”, I would understand that as a reasonable position (this of course assumes that the borrowers could afford the first 24 months, that everyone was clear on the situation, that there weren’t outside fees and charges that were not disclosed or some other problem with the property or the loan, and so forth).
But it did not work out this way, even though homebuyers in other countries were often earning a smaller income, and paying more for their housing. What is the difference?
I think that what I didn’t take into account was the difference in the economic systems here and in Europe and Canada. U.S. residents have costs that residents of other countries often do not have, putting a much greater burden on disposable income. Americans have to worry about health care, they have to pay high costs for public transportation, they have tremendous expenses in education, they have high day care costs, they have to buy gas to commute great distances, they have the costs of paying for care for the elderly. So, although our incomes may be higher, and our housing costs lower, we wind up with less, not more, disposable income, making us so vulnerable to increases in housing costs that would have a smaller effect abroad.
I think this is corroborated by an article I recently saw regarding consumer credit. As we all know, consumer credit in this country is chronically too high. The glib response is that people should live within their means, and not rely on multiple credit cards at usorious interest rates, or home equity loans or lines of credit that burden their property and their future income, but it may be that this is not the case of living beyond their means (although, sure, everyone wants the latest electronic gadgets), but meeting those high cost items outlined above, that America’s economic structure forces families to spend more than they make.
What I recently read was somewhat surprising. It said that as mortgage defaults and foreclosures are rising that consumer debt is increasing, not decreasing, that people are putting more on their credit cards, that they are maximizing their home equity loans while they can and that they are doing this because they are fearful that these sources of credit are going to dry up, and they will not be able to pay for those necessities that enable their families to continue to function.
So, I was wrong, but not because the housing prices here have been too high, but rather because our entire economic system puts much too much of a burden on individual families and individual incomes, with much too little responsiblity placed on society as a whole.