The Rich Get Richer. The Poor? Maybe Homeless

Something that not too many folks are talking about in connection with the mortgage and market shakeouts is the divergent impact of this problem on communities, depending on the demographics.

At present, there still appears to be no meaningful harm to the upper end of the housing market in terms of either devaluation or a flattening sales curve.  For the wealthy, real estate business (as opposed to mortgage-backed securities investment, anyhow!) appears to still be booming.  Inventories in some of the more "upscale" (almost all white and Asian) places to live in the Bay Area are just around 30 days - which means that sales are beyond brisk.

While there is a temporary panic over the fact that jumbo loan financing (that which exceeds $417,000, the maximum loan amount that can be guaranteed by Fannie Mae and Freddic Mac) shut completely down two Fridays ago and thus, high end folks had to pony up even more money for closing home deals, the word on the street is that this was only temporary and now business is inching upward again already (no doubt because those who can come up with more cash are doing so.)

Would that the working and middle class had it so good.  With plummeting values and sales non-existent, with some "not upscale" communities (like east and south San Jose, where there are lots and lots of Brown people) now faced with more than a 1 year inventory of homes up for sale, things are grim and California is facing the highest levels of foreclosure activity it has seen in a decade.

At the same time that prices for housing continue to go up - but only if you want to buy in the "right neighborhoods."

In other words, the rich continue to make each other richer, through their homes - median prices continue to rise for them, even as they plummet for those whose only real asset was the equity in their homes.  It at times feels like well-off folks (not to mention the equity purchasers and foreclosure rescuers, for whom RealtyTrac conitnues to be valuable) are presently having an orgy, that they are driving prices up at the same time they know how bad it is out there for more modest homeowners whose struggle to become homeowners far more closely reflects the original meaning of the "American Dream" than the new money which followed the post-Reagan era of personal greed.
The frightening proof in the pudding about what we face here in California as a result of the "mortgage liquidity crisis" is seen in the number of trustee's deeds recorded - after homes were actually sold on the auction block, the ultimate failure of lending that historically both borrowers and lenders have done everything possible to avoid, such that they heretofore were a comparatively rare occurrence in life. 

Not anymore. 

The percentage increase in the most devastating event to occur in a homeowner's life -- one's home being sold at public trustee's sale -- in those California counties which house huge numbers of the poor/working/lower middle-class population in of our state -- particularly in the rural/farmworker counties -- in just one year should bring any decent person close to tears:

San Bernadino County:  986.9% increase

Contra Costa County:  1,154.8%

San Luis Obispo County:  1,200%

Stanislaus County:  1,350%

Monterey County:  1,825%

Yuba County:  2,000%

Kern County:  2,032%

El Dorado County:  2,125%

Merced County:  3,328.6%

Yolo County:  10,200%

(Source:  DataQuick)

That the state's bottom line of trustee's sales is "only" 799.2% more than it was a year ago in light of the numbers I've listed above is something for celebration, only if you're in one of the neighborhoods whose average pulled the listed numbers down to "only" 799.2%.

This is occurring all over the country and while this diary won't post all the data, it isn't hard to find, and confirm.  For those skeptics -- almost all employed by the real estate sales industry at this point -- who insist insanely that all this shakeout of low-income communities is either (a) just a fluke given the high cost of California housing or (b) a natural correction in the marketplace -- I urge them to review ALL of Dataquick's market reports that are publicly available as a starting place: 

For Portland, Oregon (21% fewer homes sold, but at a 2.6% higher price);

Seattle, Washington (23% decrease in home sales yet prices rose 7.6%) 

Miami, Florida (33.3% decrease in sales yet prices rose 5.1%)

Honolulu, Hawaii (in most expensive zip codes, price per square foot rose between 3.7 and 115.2% yet fell in less costly neighborhoods)

Nashville, Tennessee (sales decreased up to 11.8% in most expensive neighborhoods yet prices rose up to 13.3%)

Chicago, Illinois (many exclusive residential areas, such as Lake Forest, Hinsdale, Kenilworth, Glencoe, Oak Park, River Forest, Winnetka and Western Springs, saw sales decrease as much as 39.4% yet prices increase up to 34.3%)

Sure, there were a few communities going in a slightly different direction, where prices were actually going down a tiny bit, but it is (a) tiny and (b) they are all markets which boomed as people fled the central urban areas in the past 10 years -- in search of affordable home ownership:

Denver, Colorado (16.3% increase in sales with 3.3% decrease in price)

Las Vegas, Nevada (43.8% decrease in sales, 3.7% decrease in price)

Phoenix, Arizona (32.8% decrease in sales, 5.4% decrease in price)

Oh well, no point talking too much about the obvious. 

Especially since I didn't write this diary to talk about homeowners. 

What prompted this diary was not the ongoing crisis in the news about housing.  What prompted this diary was this week's effort to help my young son, a hard worker but just starting out, find an apartment for himself, his lady, and their baby who is coming in January.  Because of the sticky wicket of pregnancy discrimination against his woman (another diary in and of itself), my son is currently the sole support for his family.  He makes $21,000 per year.  After taxes, he will bring home around $19,000 of that, since you can't avoid social security and disability taxes no matter what you do.

In the Bay Area, other than living in dangerous neighborhoods or dilapidated housing (and I know what they are, living in the 'Hood myself, so my standards are not the traditional bougie standards) this week I could find no 2-bedroom rental unit on the market for less than $1,350 per month.  $16,200 per year.

(Subsidized housing, you say? Not even - our local county has not had any available Section 8 vouchers since 2001 and their waiting list is, yet again, closed; now nearly every county in the Bay Area is in the same position. )

Fortunately for my son, I can and will obviously be helping his new family with serious financial subsidies, even if it won't be easy for any of us since my income is not All That.  But it is better than them being in the streets; that they at least won't have to face  Yet even when his partner returns to work after the baby in 6 months or so, even between the two of them they will make just barely enough to afford the cheapest unit for their new family which is available right now here in the Bay Area.

That gave me serious pause, but not as much pause as the next question that popped into my mind, which was this:

What is the rental market going to be like in in six months to a year, after the country is fully engaged in the *practical* fallout of the mortgage meltdown crisis? What will rental housing markets look like after hundreds of thousands, if not millions, of families are forced to move when they are evicted following foreclosure?

It is that question which caused me to almost stop breathing.

Obviously, folks have to live somewhere when they lose their homes and, just as obviously they will be renters (nobody is going to allow their home to be foreclosed if they have any ability to avoid it; since they won't be homeowners again for at least 2-5 years simply because of the credit impact of the foreclosure).

But where?

Superficially, at least, one can take some comfort in the 9.6% rental vacancy rate nationally.  But only cuperficially.  But if you scratch that number, two things become clear.  First, in urban markets, the vacancy rate is nowhere near 9.6% - it's been less than 4% for years.

Second, most of the existing rental housing vacancies are higher priced rentals.  One-third (1/3) of all rentals in the United States cost more than $800 per month.  As housing is considered affordable only if it costs less than 25%-30% of gross income or using the most free-market friendly percentages30% of net income, an $800/month rental unit is affordable only to a family who grosses $3200 a month - $37,000 per year.

Before you say "Big Deal, that's not that bad" remember that the median family income in the United States as of the last publicly released data set (2005) was $46,242 per year. And that median family income continues to decrease as it has since the dot-com bust, especially for lower income workers. As of 2005, nearly 1/2 of all US households reported earned income of less than $30,000; 2/3 reported less than income of $50,000. Of the 111 million households in the United States at that time, 42.5 million (38%) of them had total household income of less than $35,000 per year in 2005, despite the "average/mean" income in the United States exceeding $62,000 at that time. 

What does this all mean? Well, it means if nothing else that in 2005, rentals at an $800 rent level were unaffordable to a large number of families.

But it also means that in urban erntal markets, where folks would have signed over their firstborn for a rental at $800 a month two years ago, since many rents were multiples of $800 in price at even that time, most working folks can't really afford to both have a nuclear family and keep a decent roof over their heads.  Take a look at the Bay Area as an example:

Bay Area Housing Affordability Data

This was the case all over the country in 2005. 

Don't believe me? Well take a look at this map, created with the last-reported national data. .  The "lower income colors" predominate all but small financial oasises (oases?) nationwide:

The third thing that one needs to remember is that (according to the reports linked above) nearly 50% of multifamily housing units (apartments, the only thing that's affordable in urban markets) stayed on the market less than 60 days.  This meant that it was rented as soon as availability was announced, practically. 

In other words, there has historically been nowhere near enough affordable rental housing for who needed it, when they needed it.

But that was in 2005.  Before the bottom fell out of the mortgage markets and credit markets, and folks started losing their homes. 

You can probably all guess where this is going.

Things are going to get very very ugly.

Because at some point, those homeowners who are being now wiped out (and wiped out they will be, for they will expend everything to try and save their homes) and will be in direct competition for rental housing with those who are lifetime renters, already competing in a expensive rental housing market that has lately required 2-3 minimum wage jobs to keep a decent roof over their heads. 

We all know what that means.  As is always the case in "free markets", those who have more to spend on rental housing will begin to displace those who have less to spend.  Since, in a free market in which there are many renters, few "affordable" units, and almost no governmental controls on landlord pricing or landlord evictions, landlords can afford to "pick and choose" who to rent to.  And why would a landlord take or keep a tenant that only just makes the rent payment, who could be late at any moment if they lose their job, when the landlord is now being solicited by families that have more income (even if not enough to be homeowners?) Why would any landlord not do what has been the tried and true method to success in the residential real estate rentals market:  rent to the highest bidders with the "best" credit ratings and the most disposible income?

(After all, it's not like we have a right to ask those fortunate enough to earn property to actually *choose* to make less profit off of it for the good of society, or anything socialist/communist like that.  This is America, damnit.)

Since we know the past, we know the future, once former homeowners start flooding the rental marketplace again.  The poor, with nowhere else to go, because God isn't presently building any more land and the land that was previously built already is built to capacity, will be outmaneuvered, and thus out of the few secure and decent places to live that are available to them.  In numbers that nobody knows yet - but will likely rival the dot-com boom, where in places like the Bay Area working folks slept in barns and in cars and in shifts on other people's floors, because there was simply no housing available at all that they could afford to rent.

But who cares about the working poor?

After all, if even before the mortgage crisis hit, many poor renters were still already largely being left out, and across the country decent safe sanitary and affordable housing continued to be out of reach for many working folks, there is no question that as the mortgage crisis continues, the poor will become the transient, the discarded, the homeless, in a free market that encourages property owners to maximize their profits.

The housing crisis dialogue has so far been solely at the owner and investor levels, and Lord knows there is plenty to talk about and to fear at those level, where long-standing working class neighborhoods and communities -- many of color -- are standing on a rug that is slowly being pulled out at one end with everyone standing on it listing and on the verge of toppling.  But the analysis can't stop there, because all those millions of homeowners who are facing possible displaement have to have somewhere to go when they don't have homes anymore.  And the only place they can go already doesn't do its job of housing working folks at a price most can handle.

Those who are seeing and trying to cope with this crisis know this, which is why after a couple of weeks of watching the financial markets masturbate their players with billions of dollars to keep each other standing, all while those markets are pulling up access to credit faster than a moldy carpet -- and thus guaranteeing that millions will be in crisis when their mortgages reset, are speaking up just a little bit louder about the bottom line:

If this crisis is to be solved, it is the homeowners who must be saved.  And fuck the banks, hedge funds, lenders and brokers, unless they are coming to the table to sacrifice of some of their previosuly windfall level profits to make it happen.

Yes, things are so devastating that, at least here in California, non-profits from all sectors, financial to legal, have banded together (which is the Ghostbusters' equivalent of dogs and cats living together; trust me) and called for a six-month moratorium on *all* foreclosures in California until solutions are found. This call was first made in May, when the recorded defaults (the first step in the California foreclosure process) were at around 54,000 for all of 2007.

How time flies in the blink of an eye:  With 179,559 new foreclosures being initiated in the United States in the month of July, 2007, California managed to contribute 39,000 foreclosures (72% of the previous annualized total) to that total in a single month.

I'll end with a rant, one that I have been dedicated to for the past 26 years and continue to believe to the depths of my soul:

Decent, Safe, Sanitary and Affordable Housing is not a commodity.

Decent, Safe, Sanitary and Affordable Housing is a Human Right!

Even if you're not a homeowner or investor.