US Housing Crisis Officially As Bad As Great Depression - CNBC

US Housing Crisis Officially As Bad As Great Depression - CNBC

The good news just keeps coming.

Desperate Homeowners Make Lousy Landlords

Yeah, it's true. That's my conclusion after two months of looking for a new house to rent in my Chicago suburb.

Of course, it should also be noted that most former homeowners are less than ideal renters. We are hard to please, believe we are being asked to pay too much for substandard housing, and are subconsciously always comparing the homes on offer to our lost but not forgotten home. Like the lover who got away, the lost house shines brighter in the memory than perhaps it deserves. Hey, we're all human.

But the fact remains that even today, several years after the popping of the real estate bubble, it is mostly the worst of the unsaleable homes that enter the rental market. They are the ugly ducklings of suburban housing: located on busy streets, abutting a big parking lot, next to the train tracks, etc. The cheapest ones have not been renovated for decades. Those on the next rung up are either comically small for either families or unrelated housemates, or have been haphazardly updated. The place I live in now, for instance, has a beautiful master suite that was added about a decade ago, but the rest of the house is straight out of the 1970s.

And yet we committed yesterday to extend our one-year lease for another 10 months. Why? I can give you three excellent reasons:

1) Better the devil you know. Both the house and our landlords are known quantities. The latter are very decent people who live down the street and respond quickly when anything goes wrong. The house, well, at least now we know that half of it is a frozen wasteland in wintertime, and can plan ahead. We have also received permission to repaint some rooms. Heck, I may even throw up some curtains to hide the awful metal mini-blinds. It's amazing how creative you can get when the alternative is hauling twenty years' worth of stuff across town in a U-Haul truck.

2) Families should only move when they have to or if there is a clear advantage to doing so. Our family moved last year for two reasons: we could no longer afford our house, and our son's school was unresponsive to repeated complaints about abusive classmates. Alone, either of these situations might be remedied. Together, we decided it was best to get out of Dodge. We were right, too, at least for us. Our children are much happier at their new school. And our house was sold a few months after we negotiated a deed-in-lieu for half what we paid in 2004! That means we were hundreds of thousands of dollars underwater, and no bank would ever modify that mortgage in a way that could justify staying. We are saving thousands of dollars a month, which can go into family activities, college accounts, etc. But if we move from this house to another rental, we will not only have to shell out thousands in moving costs. We would also have to double pay for at least a few weeks (likely a full month) and would almost certainly pay more in rent. If we had found a great house during my two months of tireless looking, we probably would have done it. But that was not to be, which brings me to the third point.

3) Reluctant landlords are not good landlords. Necessity may be the mother of invention, but the need to generate some income off your family home seems to be the mother of schizophrenia. Here is what I saw in my rental search. One owner had his house on the market for about four months, either for rent or sale. When we offered to rent it he asked for a day or two to find a place to move to. He came back the next day saying he needed to stay because the rental options looked terrible. Another homeowner who had moved out of state had to choose between us and a couple with no kids, no dog, and no foreclosure on their record. Guess who won? A third guy was recently divorced with two small kids living in a distant suburb with their mother. It was hard to view his house (which was lovely, if small, and definitely priced right) because any praise for the house reminded him of dashed dreams of family togetherness. I was going for upbeat optimism, but every word of mine seemed to cut him. He told us of a friend who rented out his house to a guy who stopped paying after a few months, and when he was about to be evicted tore out everything that wasn't nailed down. Needless to say, we never heard back from him. I bet he opted to stay in the house, like the other divorced father.

Quite a few of the rentals available in our town are owned by a developer who got caught up in the housing frenzy a few years back and bought too many tear-downs. Then the bubble popped, and he was stuck with plans he could not execute, mcmansions he could not sell, and a bunch of overpriced "bargains" he needed to rent out to generate some ready cash. Now, if someone bought a bunch of houses with the sole intent of tearing them down, what kind of shape do you think they are in? The correct answer is, not good. And since they're just looking to keep cash flow positive until the market "turns around," what kind of improvements will reluctant developer landlords make to their properties? That's right: none.



So the bottom line is, don't believe the hype about this being a new golden age for America's landlords. Most of the new landlords are clearly as scarred (and scared) as the people who are looking to them for temporary housing. Many of them are overwhelmed by the initial rush of responses to their ads and believe this means the media reports are true and they will have no problem finding qualified middle-class renters. Sadly, this usually doesn't turn out to be true. One house we looked at and rejected as too small continues to sit on the market a month later. There are, in fact, lots of rentals available at bargain prices, but few that middle-class families with steady income want to live in.

In short, there is a dreadful mismatch between renters and would-be landlords. We have different needs and expectations, which are hard to reconcile. And we have, for the most part, taken opposite bets in the crapshoot that has become the great American housing market. Renters are increasingly the people who either lost a home or refuse to buy one (for now), while landlords are betting that things will start going their way soon. We can't both win. Our landlord keeps trying to talk us into buying the house we live in. As if. But you can't actually say that and remain on good terms. That would be like having the guy your daughter is dating say he will never ever marry her. It'd be hard to be on speaking terms after that one.

Hating on "Deadbeat" Homeowners

As the housing crisis stretches into its fifth year with no end in sight, what little sympathy existed for people who have lost or will likely lose their houses is evaporating.

I find this odd because, really, nothing has been done to help the vast majority of these people. HAMP was a sick joke. Government efforts to keep people in their homes have done nothing of value. Banks have not cut realistic deals with underwater or delinquent borrowers. Instead, they sit with billions in bad loans on their books at peak market valuations.

But the bad guys in this story are increasingly the borrowers themselves, who have been waiting for a reasonable solution for so long, that people have forgotten they are the most powerless players in entire bankrupt system. Inevitably, they are being portrayed as the reason for the endless "downturn" (depression).

This is akin to blaming a cancer patient for her body's failure to respond positively in the face of botched diagnoses and substandard care. As if healing is the responsibility of the patient, and not of the various experts hired to cure her.

A Nation of Squatters

Last week financial blogs all posted a story from CNN about the hundreds of thousands of Americans who were effectively squatting in their own homes. Many have not paid their mortgage for at least a year; some last sent in their monthly check five years ago. That's a long time not to pay rent or house payments. Resentment of freeloaders by people who do pay for housing month after month, year after year (e.g. the vast majority of us) is natural.

But there is more to this anger than first meets the eye. Judging by the hundreds of comments made in response to this article, it is clear that a lot of Americans now blame their "deadbeat" neighbors for the fact that they are now, or may soon be, underwater themselves. And we all know that sympathy for others tends to go down sharply when the other is perceived as a threat to your own well-being.

Ironically, this uptick in anger towards "squatters" conveniently leaves off the hook both banks and government agencies who had long since promised to solve the crisis (but have done no such thing). There is even a new argument creeping into the chat boards to the effect that banks may have been the original cause of the crisis, but two wrongs don't make a right. At this point, this chain of logic continues, it is the quitters who are threatening the security of the majority.

Things I wish I knew last year about renting after foreclosure

Okay, so it sucks to rent after owning. And it really, really sucks to rent after losing your house to foreclosure. But there are ways to make the process less, well, awful.

Here are my top tips for soon-to-be renters:

1. Don't wait until the last minute to line something up
2. The prime renting season is different from the prime buying season
3. Rentals tend to become available in early spring or the fall
4. If you have kids and need proof of residence, you may not be able to wait for fall rentals

But here is the real kicker, the single most important "take-away" from this post

1. The ideal rental is one that you can stay in for more than a year

When you are upset about the prospect of leaving your home, you don't necessarily think these things through logically. You want a nice place. A place that reminds you of your old home. A place your kids will be happy in. A place you can invite friends to. A place that doesn't scream: "wow, you've really come down in the world."

Sadly, this isn't always possible. I hate the house I am living in. I would love to move. But the rental market in my town is bizarre. There are lots of low end places and a few luxury rentals I can't begin to afford. But the places in between are snatched up instantly.

Moving out of your home is traumatic. But moving out of your first rental (to another rental most likely) is just a pain in the butt, and an unnecessary expense to boot.

And there's one more thing you probably don't know. Your credit score may look WORSE a year after your foreclosure than it does while its going on. That may make it harder to rent in the second year than it was in your first post-foreclosure.

Something to think about. I sure wish I had known.

What to expect AFTER you walk away

I love the phrase "you walk away." It's less lyrical than "jingle mail," which is what you send to the bank before walking away.

Wait. I think we need some musical accompaniment. That's better.

Okay. So, this is a blog about what happens after you lose your home to foreclosure.

There are thousands of websites, blogs, and organizations dedicated to helping you stay in the home you love but can't afford. There are even some whose aim is to guide you through the foreclosure process. But after? Mostly you are on your own.

I have a problem with this, because I think few people can visualize what happens after. And if you can't visualize what happens after, then you're much less likely to take the steps that may be needed to get on with your life.

There aren't a lot of movies that end with bad things happening to good people. Movies end with good triumphant over evil, and bad people getting what they deserve. But real life isn't like that. Good people get screwed all the time. And they have no choice but to make tough decisions between a bad option and a worse one.

The foreclosure crisis is happening all around us to good people (and schmucks, criminals, the unwise, the unlucky--you get the point). And it will go on happening for years to come. This is a slow-motion disaster.

I want to give people going through this process hope that their tomorrow might be brighter than their today. To offer insight to their friends and family into their state of mind. And to give the media and outside observers a heads up: you people are largely missing the boat. But then, what else is new?