I’ve been told by people I respect that this is the wrong article to carry a New Year’s message of hope. They’ve told me the message is way too heavy, and not fun. But if I care about the reader, and feel strongly about the message, may I be excused again for bringing the elephant in the room into the conversation, just briefly, even if the elephant weighs down the discussion?
That being said, please hear this, and if the message if poorly said, help me by understanding that it comes from one who cares.
I have done too many closings this year in which sellers are surprised to learn that they have no money coming from the sale of their home, or worse, that they must bring money to sell the home they’ve been living in for years. That happens so frequently that someone must ask why.
I think what’s happening is that all of us have gotten accustomed to spending just about all we make, and generally speaking, enjoying it, and by doing so, contributing to what we are told is the “American way”. When we spend more than we make, our real estate has gained in value, and we are told when we listen to the outside world, by TV, radio, any way we get messages, that we can just put things on our credit card (that we didn’t ask for). (In a very real sense we rationalize, without really verbalizing it, that our “income” is not just the amount we get paid, but also the amount by which our real estate is thought to have increased in value. Even if that theory ever had validity, and it did not, it has none in this market.) When the credit card gets full, we are told to put the balance on our home mortgage, and the whole process is not only painless, but we can then start all over again. The local result is that we are being urged (through constant, clever, compelling, advertisements) to buy things we really don’t need, whether or not we have the present income to pay for whatever we fall for, and pay later.
Remember the constant sound that we never really listen to, but when we do, we can’t believe we hadn’t already heard? Every glitzy consumer advertisement is beginning to be that sound for me.
I now also see the pattern in a terribly distressed real estate market. We are in a very real sense selling our future every time we get sucked into buying some consumer item we don’t need, unless we can afford to pay for it, now.
In 2007 we learned the big picture that maybe we had not learned before. When we mortgage our homes, the balance gets wrapped up into million, then billion, dollar packages that are sold, somewhere. That sale makes thousands of dollars for someone on Wall Street, who makes millions of dollars per year selling your mortgage to someone in Asia or in the Middle East (where they have our oil dollars from driving cars that get too little mileage). Those people make millions in year-end bonuses for convincing investors that those bundles of your debt are a foolproof investment because Americans consider their home to be sacred, and therefore would do anything to avoid foreclosure.
Osama could not have designed a system more convenient for his purpose. We overspend because we can’t say no to our own compulsions, then mortgage the expense, then sell our homes for far less than they should be worth because we over-mortgaged them.
This New Year’s message then, is for all of us; Madison Avenue is making addicts of all of us.
One of the magical things about free enterprise is that it is absolutely uncontrolled, except by those affected by it. That means the only one ultimately in control is each one of us. If the only one in control is out of control, the system doesn’t work. There are those who feel differently about the national economy, but individually the evidence is that we can’t borrow our way into a lifestyle.
Understand finally, that it’s unfair to generalize that everyone in foreclosure simply over-spent their income. Some speculated. Some invested. Some got caught in the ponzi spiral. The same motive that compels me to urge readers to discipline consumer spending compels me to tell you that investing is entirely different from buying a big screen TV. Borrow money to invest carefully, but do not confuse an unnecessary consumer purchase with an investment.
We in real estate and in the closing business wish you a wonderful New Year, and God’s blessing in your decisions. It is my personal wish that those who need it get this message before its too late. If you get a wish, wish please that this lawyer listens to his own advice.