Tuesday, July 30, 2013

On the Foreclosure Crisis and the Logic of Resistance IV

In August of 2001, I was on the verge of starting graduate school.  I still had almost $25,000 of savings in my bank account saved up from a job I'd had out of college and I had this naive thought that I could be a handyman home owner and landlord.  I went about the process of procuring a real estate agent to find myself a multi-family property in Greenfield or Turner's Falls (Montague) in Franklin County, western Massachusetts.  Oddly enough, I managed to hook up with a mortgage agent at a local bank in Greenfield who offered me a first-time buyer Federal Housing Administration (FHA) loan with a 20 percent down payment requirement, not subject to mortgage insurance.  I was on my way to becoming a home owner!  I checked out a property that I'd seen online on Hope Street in Greenfield, just down the road from the YMCA and the library.  I then checked out this really weird but oddly attractive property with hardwood floors and big attractive French doors on Avenue C(?) in Turner's, with a bunch of poor folks living on the first floor for whom I'd have had to make a significant bathroom renovation (it wasn't pretty!).  That being said, I had a lot to think about my first week of grad school.  Not just the relatively orthodox version of Marxian political-economy conveyed by David Kotz, my graduate program director and a really great, very honest and committed Marxist theorist, but the quantitative issues involved in mortgage financing on a two-family home, and the potentiality of commuting by alternative means from Montague to the campus of UMASS, a distance of about 18 or so miles, if I gave up my car to afford a mortgage payment.

Life puts weird things on our plates.  I was a National Guardsman at the time.  I never expected what was coming my second Tuesday into grad school.  I was up early at my parent's house to finish a paper for my economic history class on a book by Ken Pomeranz, The Great Divergence, on technological and cultural variations separating Western from Chinese economic development.  I managed to pepper the paper with some choice references from my limited undergraduate studies of Chinese, Japanese, and East Asian history in general.  As I was finishing, I turned on the radio in my room in time to hear that a plane had crashed into the North Tower of New York's World Trade Center.  After a few minutes more, I heard the report that a second plane had crashed into the World Trade Center and, only (what seemed) a few short minutes after that a third plane had crashed into the Pentagon in Virginia, realizing that my graduate school career was probably about to be interrupted! 

Suffice it to say, I was mobilized/federalized, but only, at the outset, for domestic duty.  My boss at my Guard unit was incredibly and thankfully accommodating to me - I was pulling the night shift in the command post at my unit, waiting for message traffic from the National Guard Bureau, Air Combat Command, or, directly, from the Pentagon, that I, and my unit, should be forthwith mobilized for immediate deployment to Afghanistan or God knows where else, tasked to perform close air support of ground troops against the Taliban, Al Qaeda, and all other foreign jihadist forces.  It was a really strange time in my life, waking up from more or less quiet night shifts for a month or so, leaving the base in uniform to go back to my parent's house, switch into civies, head up to UMASS to listen to David Kotz' lectures on Lenin's theories of imperialism (the highest stage of capitalism), and head back to the base, switch into my BDUs, write and transmit the unit SITREP of the day, and call it a night, hoping nothing came down from higher headquarters at one in the morning and that I would be able to do it all over again the next day. 

In all the confusion, I lost track entirely of my house up in Turner's or the place in Greenfield that apparently had a lead paint problem that I would have needed to address.  It was lucky that what happened actually did happen, in hindsight.  I wasn't ready to be a homeowner.  I was by myself (and still am), I didn't know much about taking care of electrical or plumbing issues, and still less about mortgage financing.  Under the circumstances, the bank was probably very willing to lend me money, secured by FHA through Ginnie Mae, Fannie's former Siamese twin.  It would not have been a good move.  My future income potential was uncertain, as was my geographic mobility as a PhD candidate.  Time flies when you're pissing your life away in graduate studies that don't end up getting you where you wanted to go.  Oddly, I'm still working in the butcher shop where I have been working since high school, and I've bounced around between various living conditions trying to find something affordable that will let me continue to live in Northampton, my location of choice (if you understand anything about Western Massachusetts, you'll know why), even if I'm no longer pursuing a graduate degree or entirely certain about where my life is going or what is going to maximize my income potential. 

Having said all of this, I do not think that I had any business being in the market for the purchase of residential property.  Like many other potential buyers in the high tide of American home ownership, I sported a naive faith in possibilities of a home, including the image of what the organic garden in my back yard might have looked like.  Luckily, I never found out.  It would have been a tragedy to find myself in a home and then find myself in default, if not because my mortgage reset (my loan offer was for a fixed rate, prime mortgage) then because I lacked any good income opportunities that would have reliably secured my monthly payments.  Over the period since, I've become quite satisfied with my apartments.  Renting works for me. 

This is not necessarily the place to compare and contrast the virtues of home ownership against those of renting, but there are of course very good reasons for individuals or households to invest in property ownership.  The ability to borrow from accumulated equity has come to be the biggest conceived advantaged of ownership in the contemporary U.S. economy, often as a means of paying for big ticket consumer purchases or to pay off large college tuition expenses for children.  If, in this sense, borrowing against equity has become a financial condition of existence for contemporary middle income U.S. families, then it emphatically demonstrates the reality that lagging real incomes for the majority of Americans in the face of a need for enhanced consumption and investment (e.g. education, personal retirement) expenditures is forcing tens of millions of households to take on massive quantities of debt and to transfer interest payments to the same income strata in the global macroeconomy that should be paying more in labor compensation to workers and in taxes to governments to expand the common wealth on which they rely and to which they should be contributing their fair share.  Ultimately, lower and middle income Americans and both professional and relatively unskilled manual workers throughout the global macroeconomy deserve a much larger share of an increasing pie made possible by contemporary technology and the global reorganization of production if only because, as consumers, their spending makes the world go round.    

The point is that the privilege of owning residential property in the U.S. is becoming more rarely accessible, and the mortgage market meltdown has much to do with the shrinking access of many Americans to this aspect of the "American dream."  Since 1965, the rate of owner occupancy as a proportion of total housing stock in the U.S. has oscillated around 64 percent, with occasional peaks (e.g. 65.6 percent in 1981) and troughs (63.7 percent in 1988).  In 2005, at the height of the housing price bubble, the rate of owner occupancy reached an all time high (at least in available Census records) of 69.1 percent.  It has since tumbled back to 65 percent, and, in my opinion, it should be expected to fall farther (see Census Bureau, "Housing Vacancies and Home Ownership (CPS/HVS)," Table 14, "Home ownership rates for the U.S. and regions: 1965 to Present," at: http://www.census.gov/housing/hvs/data/histtab14.xls). Conversely, vacancy rates for owner occupied residential housing stock, a rate which oscillated around 1.7 percent for much of the 1980s and 1990s, inflated to 2.9 percent in 2008 before coming back down to around 2 percent by 2012 (see Census Bureau, "Housing Vacancies and Home Ownership (CPS/HVS)," Table 2, "Quarterly Homeowner Vacancy Rates: 1956 to Present," at: http://www.census.gov/housing/hvs/data/histtab2.xls).  Like unemployment rates, however, vacancy rates on owner occupied housing conceal at least as much as they disclose.  They do not include vacant housing stock removed from the market or transferred into the rental market. 

We can derive a better measure for the scale of the problem using U.S. Census data from the Current Population Survey (CPS) estimating the total housing stock in the U.S.  If we take the annual CPS estimates for total "Year-Round Vacant" housing stock and subtract "For Rent" and "Rented or Sold" categories to eliminate the influence of these categories, we get an estimate of the total year-round vacant housing strictly for sale or otherwise withdrawn from the market ("Held Off Market") (see Census Bureau, "Housing Vacancies and Home Ownership (CPS/HVS)," Table 7, "Estimates of the Total Housing Inventory of the United States: 1965 to Present," at: http://www.census.gov/housing/hvs/data/histtab7.xls).  We can then add these totals to the estimates for total owner occupied housing units ("Total Occupied: Owner") to derive an estimate of the total housing units for sale, withdrawn from the market, and occupied by owners.  The vacancy rate is a ratio of these two calculations (Total Vacant and Withdrawn/Total Housing Stock for Owner Occupancy).  The results here are interesting.

Estimates of Vacant For Sale and Held Off Housing Units in the U.S., 2001 to 2012
Year            Total Housing Stock           Total Vacant and             Vacancy Rate
                   for Owner Occupancy    Withdrawn from Market
                             (Thousands)                   (Thousands)                    (Percent)
2001                         79,424                             6,831                               8.6
2002*                       77,860                             6,582                               8.45
2003                         79,033                             6,979                               8.83
2004                         80,666                             7,091                               8.79
2005                         81,688                             7,135                               8.73
2006                         82,994                             7,614                               9.17
2007                         83,457                             8,298                               9.94
2008                         84,371                             8,805                             10.44
2009                         83,771                             8,757                             10.45
2010                         83,893                             9,102                             10.85
2011                         84,259                             9,168                             10.88
2012                         83,918                             8,989                             10.71
*2002 Estimate is derived from a CPS Revision based on the 2000 census. 

Certain things should be fairly evident here.  First, the growth of the number of vacant for sale and withdrawn housing units has continued relatively unabated since 2007.  Moreover, the only evident reason to me why this total and the total housing stock for owner occupancy decline in 2012 is that over 1 million units previously designated for sale became rental units (the estimated total increase in occupied rental units between 2011 and 2012 is 1.14 million).  Accounting for this apparent shift, the percentage of vacant housing for owner occupancy has remained above 10 percent since 2008 and there is no reason to expect it to decline significantly in the immediate future.  Over one in ten homes in the U.S. that could be occupied by a home owner are currently vacant, collecting dust, and exerting downward pressure on housing prices as a function of supply and demand (however reinforced or counteracted by other market processes).  Again, where is the recovery in the housing market? 


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