Archive for May, 2014
“Those who fail to learn from history are doomed to repeat it.” It’s a well-known axiom and its wisdom is both simple and powerful. If we don’t learn from our mistakes, we will make them again, and again, and again. As I’m watching the real estate landscape these days, I’m wondering if we are setting ourselves up for another foreclosure and mortgage crisis.
I will begin with the disclaimer that I am not a realtor and I’m not an economist. However, I am observant and I hope I have at least an average amount of common sense. As I flip through the TV channels at night, my choices are starting to look eerily similar to those from 2006 and 2007. We have Flipping Boston, Flipping Vegas, Flipping San Diego, Flip This House, Sell This House, Sell This House: Extreme, Love It or List It, Property Brothers, Selling New York, Million Dollar Listing: New York, and Million Dollar Listing: Los Angeles, among others. My commute to work is peppered with radio ads to refinance, cash out, or consolidate loans. Our national obsession with buying and selling real estate is back and stronger than ever.
While real estate prices plummeted during the Great Recession, they have made a strong comeback in the last few years. Every month I read about double-digit increases in home values. Anecdotally, my next door neighbor just sold her house within a week of listing it and received about 20 percent more than she bought it for a year earlier.
Now don’t get me wrong, I don’t think that we are where we were in 2007. But are we headed there? As home prices skyrocket, they move out of reach for more and more Americans. Or at least they do under conventional finance. But no one makes money off of not selling houses or not making loans. So the loans start to get tricked up a little bit at a time so that people who probably can’t really afford that dream house can now get it. The process doesn’t happen overnight, and it didn’t happen overnight in the 2000s. But little by little, we start to creep back to the irrational exuberance that pre-dated the Great Recession. Where there is seemingly fast, easy money to be made, there will always be someone willing to ignore the long term consequences.
I hope that we have, in fact, learned a lesson from the mortgage crisis. Have the big banks and the brokers and everyone else who stands to make a buck? Probably not. But I hope that on an individual level, people have learned. I hope they have learned that if it sounds too good to be true (i.e. “I can really buy this dream house on my salary?!?!?!”), it probably is. I hope that people have learned that the future is uncertain–so matter how sincere and intelligent-sounding someone may be about it (i.e. don’t assume that your job will go great and you’ll get raises and be able to afford the new mortgage payment that goes up by 20% when the adjustable interest rate re-sets in 3 years). And I hope people have learned that keeping up with the Joneses is both overrated and probably impossible (i.e. your reality will never compare with the carefully crafted but probably fake lifestyle image you see other people put on Facebook).
If people don’t learn from their mistakes, then I expect that my business as a foreclosure defense lawyer will be good.