...like a housing bubble being reinflated.
One of the more shocking moments (at least when you first heard it... It's not surprising anymore) of This American Life's hour long episode on the housing crisis, aired in 2008, was hearing about the "No Income, No Asset Verification" loans that were being made. They brought in a guy called Clarence Nathan who was given one of these loans. This is the transcript Clarence Nathan: Call it $540,000 for round figures. Alex Blumberg: You basically borrowed $540,000 from the bank, and they didn't check your income? Clarence Nathan: It's a no income verification loan. They don't call me up and say, how much money? They don't do that. I mean it's almost like you pass a guy in the street, and you say, will you lend me $540,000? He says, well what do you do? Hey, I got a job. OK. It seems as if it's that casual, even though there are a lot of papers that get filled out and stuff flies all over with the faxes and the emails, and all like that. Essentially, that's the process. Alex Blumberg: Would you have loaned you the money? Clarence Nathan:+ I wouldn't have loaned me the money. And nobody that I know would have loaned me the money. I mean, I know guys who are criminals that wouldn't lend me that money, and they'd break your kneecaps. So [LAUGHING] yeah, I don't know why the bank did it. I'm serious. $540,000, a person with bad credit.And it turns out even the people who got them found them confusing. For example, a guy I met named Clarence Nathan. He worked three part-time, not very steady jobs, and made a total of $45,000 a year, roughly. He got himself into trouble and needed money. So he took out a loan against his house, a big one.
Got a couple friends. They sold their half-million-dollar condo in Playa Del Rey and with a little help from their folx, bought an $800k SFR in Manhattan Beach. It's across from the cemetery, on a busy road, with a postage-stamp yard and 900 square feet of space. THEY'RE SCHOOLTEACHERS. Also lovely people. Also with three kids. It's super-awesome that their eldest now gets his own bedroom and it's grrrreat that they have a yard big enough for a swing set (just) but it's a true mark of the insanity at play that (A) this house rounds up to a million dollars (B) our financial system puts schoolteachers in it (C) schoolteachers have to take on that kind of debt to live within an hour of where they work. It cannot continue.
I would like to see the mortgage interest deduction destroyed. If they want to replace it with a home ownership tax credit, fine. But the fact that we all subsidize the realty and mortgage industries via this ridiculous deduction is immoral and leads to all of us taking on way more debt than a sane person otherwise would. And I say this having paid $16,000 in mortgage interest last year, which roughly translates to a $5000 gift from the renters of America to my wife and I, who really don't need the money.
We have a similar freeze here in MI, although it's a little higher than 1%, if I'm not mistaken. One downside is that it's really difficult to know what your taxes will be the year following the year in which you purchased a home. If the owner has owned for a long time, you can bet they'll be a lot higher.
"It cannot continue" is an accurate way of describing it, but what do you think the way out is?
Raising interest rates back up to 3%, enacting zoning laws that allow for more density and mass transit options, pushing home ownership back down to about 60% and encouraging more rentals, all the while not killing the job market, not pushing poor people out of their homes and preserving the character and style of the city/area in question. I'll get right on that. /s The suburbs are in trouble and not at all sustainable; the only people really having that conversation are people like us on the fringes.