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Has The American Dream Been Poisoned?

The FORECLOSURE EPIDEMIC and the MORTGAGE CRISIS that has rocked our economy to its very core, will be discussed and debated for years to come. Historically, it will forever define this decade, and, along with 9-11, leave an imprint on an entire generation.

Will we remember this as the decade when the American Dream became poisoned? Maybe there will never be a recovery or a return to the way it was. Maybe we are scarred for life.

Have we turned an entire generation into RENTERS? Clearly, a bitter pill has been swallowed.

Last Sunday I came face to face with over 25 people who applied to RENT my daughters little bungalow in Berkeley, California. What struck me the most, what I completely had not expected, was the utter disillusionment voiced by those poeple in the market for a place to live.

Here, right before my eyes, was the personification of the SHATTERED AMERICAN DREAM. Until that day, until I looked into the eyes of these people, I thought the AMERICAN DREAM was only a little chipped. Only scuffed around the edges. That it would all polish out.

Now I see that the AMERICAN DREAM might be beyond repair.

Several of them explained that they had bought houses, had become completely soured with the experience, and would never BUY again. They would be happy just to RENT. I waited for those last 2 words, the "for now" at the end. But those words never came.

They had been burned badly chasing the American Dream.

They became SOUR and felt BURNED because they:

Stuggled with a loan that they could not really afford (got in with stated income and $0 cash)
Stuggled with a payment that was $3500 when they could rent for $1800
Stuggled as they watched the house they bought for $600,000 slide to $500,000

Serveral had been lucky enough to sell and had money safely tucked away in the bank. Several of them had LOST their homes to foreclosure, and offered this information up front, since my daughter intended to run a credit report on each applicant. But all of them had this sentiment in common: Home ownership? It sucks.

They spoke freely, having no idea that I was a mortgage broker. They felt damaged. They felt betrayed. They felt a loss that cuts deeper than I had ever imagined. And I am part of an industry that they feel has LET THEM DOWN and SHATTERED THEIR DREAM. Let me tell you, it is sobering.

And what could I do but agree? Coming home every night to that warm and fuzzy feeling that you "OWN" your own house is nice. But does it make up for everything else? Will they come back to drink from this fountain again when the water was poison?

One of my own beliefs was shattered that day: My long held belief that EVERYONE wants to own real estate. That no matter what, home ownership trumps renting.

Now, I am not so sure.

They may stay away for years to come, and I wonder. Can we blame them?

Written by Janet Guilbault, California Mortgage Expert Based Out of the San Francisco Bay Area

Posted by Janet Guilbault California Mortgage Banker/Broker on 05/16/2008 11:40 PM

Comments (39)

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39 Comments on Has The American Dream Been Poisoned?

MAY

2008

Hi Janet, full disclosure (I voted for GW twice) and remember that one of his big pushes was homeownership for folks previously out of the housing game. Well, he got his wish...the only problem is that Wall Street et al removed too many barriers for entry that were common sense and there for good reason! Underqualified borrowers were able to over-buy, and what was a "fair" idea of helping minorities get into homes sub prime loans has now proven to be their demise. I know that it just isn't a minority issue, but they are disproportionally effected by the sub prime expansion and implosion.

The demand pool of buyers expanded 3-fold between 2002 and 2006...that much, that quick was bound to have negative consequences.

Janet - I can understand their disgruntled perception given the very sad realities going on. There's no doubting the negativity surrounding the housing market and blame can be spread like a wild fire. None the less, my overall perception is a bit different. In my opinion, Real Estate will always be a core component in helping build financial wealth and those whose perception is forever scarred of
Real Esate, will also lose out on that opportunity. Sure, the chance for failure and nightmarish consequences is there, such is anything in life.

Janet: Ditto to Jason's comment above...While I can understand the disallusionment that the people you met felt and I'm sure that they had good reasons to feel that way, I feel that those who subscribe to this negative view of buying vs. renting will only lose more in the long haul.

The sad fact of this "crises" is that it's man made. Even in markets such as the bay area where prices did run rapant, there was a reason that areas such as this appreciated the way that they did. That is that areas like this were the ones that people wanted to live in!

The housing markets weren't the problem here. Lending money to people who had previously been excluded from home ownership wasn't the problem either. Wall Street obsuring the nature of these pools of mortgages by having them rated higher than they deserved was the problem.

Once we either work through the foreclosure mess or a meaningful workout plan is put into place, the real estate markets will come roaring back. Mark my words! As long as the population and the number of housing formations continues to rise (which demographically is almost a certainty - barring any major pandemics) people will need housing. The economic fundamentals are such that owning your own home will continue to be a better "deal" than renting for most people and the American Dream will once again reign supreme!

Bob Mitchell

ValueList Real Estate Services, Inc.

Janet,

It is eye opening. It is sobering. But the fact still remains that the pros outweigh the cons for buying a home. Just because you got in a car accident doesn't mean you're going to walk the rest of your life or ride a bicycle to get around. People have been scarred and hurt. Will this keep people from owning a home. Sure. Bur for the ones that know better, they know that the positives of homeownership certainly outweigh the bad.

Janet, a lot of food for thought in this post. We're not really hearing a lot about the cost of the psychological wounds people have when they have been through the ringer with the home ownership process. That impact on our economy has not been quantified, but like your post shows...it's clearly very real.

So Lola: I was making a comment on the psychological wounds, not making some sort of case that renting is better than owning. We in the real estate business mainly come into contact with the believers...meaning, the ones that want in.

We do not get the opportunity to speak with those that are disillusioned. They will not be calling us.

The wounds are very deep, and it will take a long time to heal. Even my own children are asking why they should risk buying when they can rent for so much less and take no risk.

These are the realities.

James: I hope you are right. A car accident is clearly someone's fault. You would not feel betrayed by something you do not understand. You do not feel failure because after all, it was an "accident".

My point is that our Grandparents still are very frugal because they went through the Great Depression.

This has wounded our nation is ways that we do not yet clearly see. But someday we will.

Bob, wow. You really think "roaring back"? What would need to happen for the market to come back like this?

How will we handle all the people with ruined credit?

How will banks stop qualifying people as if they are a foreclosure waiting to happen?

I hope you are right, but sometimes I wonder this...if it were not for the tax deduction....how many people would actually own? In Calif. the house my daughter rented for $2300 would have a payment attached to it of $4500 or so.

Jason: Hi. I guess most people would not consider their real estate a core component in building financial wealth at this point in time.

It is eroding wealth in California as values continue to slide and owners pay far more than renters.

Owning is about MORE than just building financial wealth however. And I have every hope in the world that we hold on to the core VALUE in our culture that says home ownership is better than renting.

Current circumstances say that the risk is greater than the reward.

Rich, agree with your what you have written here. Too many renters became owners too fast, and should not have been owners in the first place.

You may be interested to know that although my daughter's house is in a racially mixed neighborhood, there were no minorities that came to apply. I am not sure why.

Hi All,

So many wise comments above, there are disillusioned people out there.

One of the key jobs of a good Realtor is to educate. When these people bought, no-one educated them to the market and the financial realities of home ownership. That is a pity.

If you can rent for $2300 what would cost $4500 to buy, it seems your prices are way out of line for realit; they are in for an adjustment.

The market throughout the United States has gone up too far too fast, we are in for an adjustment.

We saw it before in the 1988-1992 market. We came back from that and then went up from 1995-2005 and now we are adjusting again.

It seems to me when middle income people can no longer afford a starter home then the prices have to adjust.

If people hang in there even through the tough market, they usually make out much better than renting.

All the best!

Janet, I'll bet that was somewhat uncomfortable and alarming to say the least. That being said, I believe that the American Dream is alive and well. Available as always to those who plan their work and work their plan of Home Ownership. For a few years, home buying became an impulse buy along the lines of Big Screen TV's during football season and candy at the end of the check out line in grocery stores. Many Renters took advantage of wearing home owners clothing for a breif period of time. Much of what we see today can be attributed to those folks being striped of that clothing. No doubt there are some sad stories out there for some REAL home owners.

In 1982 I bought my 1st house. It was difficult. I had a plan and worked it. Looks like our industry has gone full circle. Yet, the dream lives on. Have a great weekend!

Ha ha Scott. I bought a house before you did. And I paid 5 digits, not 6, and yes, it was in the Bay Area of California. You now must think I am 80 years old...right?

Scott: I had no plan. I fell in love with a little red cottage surrounded by bright yellow daffodils with fish pond in the back yard that I came across one Sunday afternoon quite by accident. I had no money, but I did have a Corvette, brand new, the same color as the daffodils.

I sold the Corvette for the downpayment, and emptied every bank account I had for the closing costs. Rent, even then was 1/3 less than the house payment, and I honestly figured I would be eating beans the rest of my life.

But it was thrilling. It was romantic. It was profitable. One of those great life experiences.

It is so sad to know that others were robbed of this.

Hey Kevin: There has always been a very large gap in California between rents and house payments. See my comment above...this was true in the 80's and it is still true. Renting costs less!

Why do you think for the most part investors go out of state to have properties that will cash flow?

My point is with the added risk and the added cost, why would someone buy?

I do hope the dream stays alive.

Janet,

I think the difference is that you were willing to sell the red corvette to get the house. What I was seeing were people that didn't have a clue about budgeting and financial planning.

You don't get the dream for nothing. That's what I was seeing a lot of. Something for nothing.

And to this day I would sell any car if the exchange were to have real estate.

My weekend house I bought after staring at my red BMW (paid for) for about 5 minutes.

Hunk of steel or million dollar view of the lake?

The choice was oh so obvious.

Janet - Great perspective you and your commentors give to us. I believe Homeownership, like most major life decisions, is about choices. Certainly, we need to educate ourselves to the best of our abilities during these decision making processes using every available resource... and some times after all that deliberation we have to "Just Do It!". There will always be those that are not willing to eat beans to reach their goals, and those that are willing to forego homeownership so they may eat Lobster. The dissillusionment comes when the choice is made to go for homeownership AND eat lobster, when the budget supports a 2 bedroom apartment with no view and the beans.

Oh Karen, you really are funny. But what is really funny is later I turned into a vegetarian who ate alot of beans anyway.

Real estate has never bitten me in the behind. I still am in a state of disbelief that ANYONE would rather rent.

I am only questioning this perspective after hearing about the bad experiences that many have had in recent years. I have always been in love with real estate and would own gobs of it like some crazed collector if only I had the chance.

Hopefully, time will heal a lot of wounds. And home really is where the heart is. People are going to have to rent for a while, but they CAN make a home in a place where they rent. I hope that people will appreciate the things they do have instead of holding onto the wounds that right now are fresh and raw, but over time, can actually bring families closer together if they let them.

Many of us in the industry are struggling right now, but God can teach us valuable lessons through these times. And yes, I honestly believe this.

MAY

2008

Lisa: We all will learn from this, but I feel we will be scarred for many years to come.

Yes, renters can have a home, but the American Dream is to own that home. Always has been, always will be.

But there is a stain on that dream from everything we've been through.

Good post, Janet. There is another reason why renting in California may be better than buying for the next few years: renting lets you get the heck out of dodge. California is on its way to experiencing a financial crisis that has possibly never been seen before, and the state government's attempts to deal with this crisis are going to be painful for everyone living in the state. This article gives some of the the ugly details:

http://www.iht.com/articles/2008/05/15/business/rtrcol16.php

Some people are too easily damaged. I lost a home in the last market downturn but it didn't ruin me. It made me smarter and I'm weathering this downturn just fine.

The American Dream was turned into the American Greed and now those that made decisions based not on fact but on emotion are paying a very high price. The American Dream is still alive. California always hits the highs higher and the lows lower.

Janet, You really have a great post..We are facing the same thing here in Florida. I think it will take years before we see the dream come back

Thank you, John for sending that article. I read it and must say, I believe this to be correct. Everywhere I go, every one I speak with, is talking in one way or another about the spending freeze they have imposed upon themselves. It is a market mentality that spreads like wildfire. High gas prices are more like gas on the fire. But why do Californians really feel poor all of a sudden?

They have lost the equity in their homes OR if they have equity....they do not have the ability to access it because lendin guidelines have changed so dramatically.

This is part of the reason everyone I spoke with last weekend was SOUR.

Joe: I am glad to hear you say this. Learning from things that go wrong and becoming smarter as a result is obviously a good thing. I do think this downturn has some players in the drama that the last one did not, assuming you are talking about the early 90's????

We almost lost our family business during that one. We survived, but certainly learned that for every run of good business, a bad one is lurking. You never get too high on the hog, right?

Jo, well said. The real estate frenzy following close after the stock market frenzy all happened as my kids went to high school and college. While it was nice, since it meant we had plenty of money to send them to college (as a result of our business booming) I have always wondered how coming of age during all of this would impact them.

Subject for another post?????

My one daugher who will complete her MBA next month will be coming back to live in San Francisco. While I think the time couldn't be better for her to snag some real estate, she thinks I am nuts.

She can rent a flat for about $1500 in San Francisco, or buy for a much higher payment, risk prices will go down even more, and have alll those responsibilites like fixing a stopped up toilet.

She has said Thanks, but no thanks.

Other daughter owns a house in Berekely (the one I referred to in this post) but doesn't live there. only rents it out, then rents from someone else.

See what I mean?

Matthew: It will take years, but there are plenty of people who are not ready to admit this.

Perhaps in Florida and California it is easier to see.

Janet, I came back to say Congratulations on a well deserved Feature. The genius of a forum like this is that we can have discussions on topics such as this one which are often not addressed in the wider media.

What is going on makes me sick to my stomach. In our market you would have had renters getting foreclosed on appear at your daughter's home also.

That has become such a huge problem here that it has turned people who never thought of buying before into a buyer so they can control their destiny.

We can change perception only one buyer at a time. It is sad that so many dreams have been shattered for whatever reason.

Renee: I guess I never thought a about what a tough times renters have had as well. You have told us about the flip side of this coin.

I should have thought of this myself. We have a new client over at our auto leasing company who has 6 rental houses. The ones that he has owned awhile are all fine. The ones he bought over the last few years are in foreclosure.

I know other investors as well that are "letting the house go".

You are right to say dreams have been shattered for multiple reasons. We will be dealing with the aftermath of this, and the scars of the housing crisis for a long time.

Lola: That is what I like about AR as well. To offer up a real life experience like this. Let's face it, if these people were interviewed, or it they knew I am a mortgage professional, they would not have poured out their hearts to me.

It was Mother's day, and they thought I was just another mom hanging out with my daughter, and enjoying a sandwich under the lemon tree.

Little did they know they were BLOG FODDER.

Controversial, I know, but I ACTUALLY BELIEVE THE AMERICAN DREAM IS COMING BACK! Living out here in California was certainly an experience while property prices were soaring through the roof. I personally met with many people who wanted to buy PURELY FOR THE PURPOSE OF GETTING RICH! I remember many homes having 12 different buyers all getting into a bidding war to get the property. This atmosphere actually turned a nice little real estate market into more of a stock market roller coaster ride. Many middle income and lower income families were crying... "We're being priced out of the market. We'll never be able to afford a home". Now a valuable lesson has been learned... 'When properties jump 40% in value in 9 months, there will be a severe backlash'. Bear Stearns, a big mortgage securities outfit yesterday announced that they will be laying off 14,000 people. Let me tell you something you can take to the bank... "This roller coaster deal is not going to happen again for a long time, if ever". Banks and Investment Firms have lost too much money. Companies that are giants in the financial world have taken 30 billion dollar losses. Mortgage backed securities insurance firms like MBIA and AMBAC have taken an absolute blood bath with their companies value. All because of several factors that allowed prices of houses to go through the roof 'without merit', resulting in their falling back down to earth 'with merit'. Do you really believe these firms are just aching to lose another 30 billion dollars, lay off all their employees, and see their stock tumble to near 'worthless paper' lows. I don't think so. The problem was... Properties going up way too fast because people wanted to get rich, and were able to buy property at unrealistic prices by lying about their income via Stated Income loans. This artificially inflated prices. Now prices are tumbling down to a level where people can honestly buy and afford them. Middle income families are seeing reasonable home prices again, and payments on FIXED rate loans they can actually afford. (I would personally like to hang in town square any loan officer selling anything adjustable right now when we have 6% fixed). What I see in the future is a STABLE realistic real estate market where properties appreciate modestly and steadily, and more people than ever being able for afford the real American Dream... Buying a home to live in, instead of fighting off investors and getting into bidding wars to try and buy a home because investors are trying to get rich quick.

Don't throw out the baby with the bath water.

I had a doctor tell me something.

If you are having a heart attack, asprin can save your life. If you have internal bleeding, asprin can kill you.

It thins the blood. the very same thing that is the right prescription to save you in one instance makes it deadly in another.

People that had internal bleeding in their finances bought homes thinking it would help. It isn't the homes, or the dream that was bad. It was that these people mostly shouldn't have been buying homes. They weren't ready, or they weren't walking in with their eyes open.

One thing you forget is you are living in one of the more prosperous areas of the United States. You have to put things in perspective and have an idea of how the people in the South live. Most of New Orleans could never begin to have a decent place to live in , 62% of the people have always been renters. High gas prices and Mortgages have little effect on the everyday person here. Its just a different perspective. None seems to care about the Polar bears and caribu here.

These peope have a real struggle. Prices coming down can be a boom for these folks. I know this is more of a rant since the mortgage meltdown is having little effect as many never had an opportunity to be an owner or a decent job. There are few Republicans here so this cannot be blamed on Bush.

Janet, It feels as if we as a country are taking a big step backwards to the day when a select few could actually fulfill their ideas of "The American Dream" . All of us have a different view of what that means in our lives, but home ownership has always been at the core of that dream. Sad to say it is slipping away as we speak. There is plenty of blame to go around on this one.

I blame Bush, pretty much for everything. My 15 year-old blames Cheney; she called him the puppet master yesterday; I think she is brilliant beyond her years with that statement.

I live in Michigan where gas is $3.95 per gallon (last fillup...record profits for the oil industries), HUD alone had 7000 foreclosures on their tally per the officials who visited my realty office last week, and where my formerly affordable mortgage is now $1000 more than what I would pay to rent the same accommodations. I am not giving up on home ownership and am encouraging plenty of others to jump on board when able but when the economic policies of this administration have been so anti-middle class, you have to blame Bush.

Sorry Janet - I had a much more coherent response until I saw the "don't blame Bush" comment. If "war" and gasoline and taxes and credit card companies weren't getting first dibs on the middle class, then maybe home ownership wouldn't be in the crisis it is in. We won't even speak of health care costs (or the lack of health care) or education. "Poison" was the word that caught me in your title. Well done.

MAY

2008

I don't think we can blame them. There have been many "mortgage professionals" (quotations intended to imply light usage of the term) that have taken advantage of the consumer and have given our industry a bad name. We will have to EARN their respect and trust in the future. We can do it but it will be an uphill climb.

AUG

2008

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