March 3, 2009

Churn and Burn

A reader writes:

In 1996 my wife & I bought a small twin house in a modest but decent neighborhood near Philadelphia. Our neighbors were contractors and young professionals saving for bigger homes later. One by one they and their families all moved on.

When our next door neighbors moved they sold to a single mom with two teenaged daughters, the older of whom had a baby. The younger one who was about fourteen when they moved in would very often have groups of rowdy teens gather in their back yard which was separated by a fence from our own. We often awoke to find chip bags and other litter thrown over our side of the fence. ...

We decided it was our time to move on and we began house shopping. This was in 2005. ...
Here is the point: I wonder if a significant amount of the real estate activity of that time was driven by people like us who were motivated to move to escape neighborhoods that had become less livable due to the influx of home buyers whose lifestyle choices would previously have not allowed them to buy a home at all. We would have moved eventually, but might well have stayed on a while longer.

I do not know if our neighbors were beneficiaries of CRA-type lending, but I will bet that many of the home buyers who received such loans made less than perfect neighbors, thus prompting flight from otherwise pleasant neighborhoods. This would then put still more upward pressure on prices.

I think of it as just another way our government is making our country a better place to live!

Who profits from rapid turnover in neighborhoods? Realtors, mortgage brokers, developers, etc. Who are most active in and concerned about local politics? Realtors, mortgage brokers, developers, etc.

So, every politician who starts out in politics at a lower level than, say, Dwight Eisenhower, has a retinue of real estate types: e.g., Barack Obama and Tony Rezko.

My published articles are archived at iSteve.com -- Steve Sailer

12 comments:

AC said...

Yes, but realtors operate in a small geographic radius. They would have no incentive to actively reduce the quality of a neighborhood, since their jobs involve trying to sell houses in those same neighborhoods.

Anonymous said...

sad, sad, sad

Anonymous said...

For what it's really worth, I think homebuilders have gotten off easy in the examination of the real estate bubble and its collapse.

They were pocketing amazing amounts of money during the bubble, and they had as much incentive to keep the easy money flowing as the lenders themselves. In my own town the largest builder, Ellis Ivory, has been a major voice for mass immigration. You've mentioned Slim and the Times before, but a similar phenomenon happened when Ivory became chairman of the Deseret News back in '05 - within 7 weeks the paper had run 8 editorials arguing for various open borders positions, plus countless columns and even an article alleging ties between anti-illegal groups and white supremacists.

I suspect that homebuilders were doing as much to keep the loans flowing, too.

Anonymous said...

Question for the original letter writer: Did the costs of moving delay or change your decision to have children?

Chris Anderson said...

Yes, yes, yes.

We've seen the same in our own modest suburban area. This is a neighborhood with a high proportion of starter homes, generally 3 bedroom, 1.5 bath, solid but nothing you would do an HGTV show about.

The CRA types moved in, but I think this was also made possible by the creative financing used by homebuilders in areas farther out. It's my feeling (no hard evidence) that people who would have otherwise chosen an area like this for their first house, instead opted for new construction and the extra bedrooms, baths and garage spaces that they could get. This was made more affordable by a whole host of policies but most importantly the reduction or elimination of downpayments.

Meanwhile, it's not only the new neighbors who don't/can't maintain a house, but also declining schools seem to have made this neighborhood less attractive than it was just 10 years ago.

Mr. Anon said...

"AC said...

Yes, but realtors operate in a small geographic radius. They would have no incentive to actively reduce the quality of a neighborhood, since their jobs involve trying to sell houses in those same neighborhoods."

One could make essentially the same argument about burglers and meth-cookers. Thieves and pushers live off the prosperity of their victims. And yet houses get burgled and meth gets cooked.

Maybe a lot of realtors just aren't that sharp. Or maybe they're greedy and just looking for a quick buck now.

Anonymous said...

AC, one agent might steer marginal buyers to a good neighborhood - the marginal buyers have the incentive of a better neighborhood with enough of their own kind to feel comfortable; the agent would have the incentive of a new market and a defined pool customers.

Other agents would in turn profit when retreating homeowners moved to the exurbs.

Churning is better for agents than stability.

Evil Sandmich said...

Don't forget section 8 housing; the government paying to put people in your neighborhood that you'd ordinarily pay to keep out.

David Davenport said...

The Sandwich is correct.

This sound like a Section 8 rental, instead of a purchase of the house.

Anonymous said...

“Here is the point: I wonder if a significant amount of the real estate activity of that time was driven by people like us who were motivated to move to escape neighborhoods that had become less livable due to the influx of home buyers whose lifestyle choices would previously have not allowed them to buy a home at all. We would have moved eventually, but might well have stayed on a while longer.”

You have hit bull’s-eye as the real estate situation exists in Prince William County (PWC)VA, one of the worst hit areas in VA. PWC is a bit farther out than Fairfax County VA, which is famous for its excellent schools, jobs, etc, mostly as a result of its proximity to Washington, DC. Fairfax County (FFC) grew up as a result of the expansion of government starting in the 60’s and it and Montgomery County in MD became a magnet for ambitious, often well-educated government workers and workers in areas that complemented and serviced the government employees. Even 25-30 years ago a house in a good school district in FFC could cost you $50,000 more than a similar house elsewhere in the VA suburbs or even in the lesser areas of FFC. The general understanding of PWC was that many people living there were people who either couldn’t or wouldn’t pay the high costs of living in FFC.

Some years back, a good 4 or 5 years before the housing bubble popped, a friend who lived in one of the areas next to PWC most affected by the illegal alien invasion described the situation in his neighborhood like this: A single-family house (SFH) goes on the market and quickly sells. A couple of weeks later, the moving trucks show up. They leave but 5-6 cars and trucks remain in the driveway, at the curb and sometimes in the front yard. Several adults and sometimes several children seem to live in what formerly held a single family or a couple.

A quick drive through the surrounding neighborhoods reveals several other houses like this one. In a month or two, "For Sale" signs start sprouting like mushrooms in the neighborhood as the smart homeowners get out early. That would be YOU, Reader.

It wasn't hard to figure out even then that what was going on was that SFH's were being sold to people who couldn't afford them except by sharing the cost with a number of other people and/or taking in renters or they were being bought as investments by people who rented to as many people as they needed to in order to make a nice profit. Either way the remaining residents saw their neighborhoods slide downward.

At the same time, the school population, especially ESL classes, increased and costs soared while quality declined, making it even less likely that single families with children would move into the neighborhood. The results were inevitable, especially as mortgage payments increased.

The housing crisis in Northern VA, especially PWC was driven by two situations:

1-The "purchase" of single-family houses by people who could only afford them by combining several people's incomes and/or taking in renters or by investors who bought these houses and then rented to whole groups of people, some of whom also rented out rooms. This is the now empty - formerly overcrowded houses in the affected areas.

2- When these overcrowded houses started appearing in these neighborhoods, many home-owners started leaving the neighborhoods, figuring – rightly - that soon the only people buying into the neighborhood would be those who were creating the overcrowded conditions. SFH's in the better parts of Fairfax, Arlington, and Alexandria - those areas not affected by the illegal alien invasion - were priced beyond the reach of most of these people who were of more modest incomes (at least for the NoVA area). Consequently, they usually moved even farther out. The houses they bought were newer and naturally over-priced, often in developments just being built. This is a lot of the overbuilding in the exurbs of NoVA.

The thing is this second group would have stayed put if not for the deterioration brought on by the overcrowded housing. This whole mess could have been prevented by enforcing the immigration laws in the first place and lowering the boom on overcrowded houses in the second. The problem is, of course, that anybody trying to do either was called a xenophobic racist and/or sued by the ACLU.

As Steve mentioned in one of his postings, the locals were buying houses in areas that the illegal aliens were building to get away from the neighborhood that the same illegal aliens had trashed.

D Flinchum

Anonymous said...

AC said

Yes, but realtors operate in a small geographic radius. They would have no incentive to actively reduce the quality of a neighborhood, since their jobs involve trying to sell houses in those same neighborhoods.

Realtors are not restricted to certain neighborhoods.

Our realtor sold us a starter house in a Jacksonville "starter 'hood" 10 years ago. A few years later, the very same realtor working in the very same position in the very same office sold us an historical house on Amelia Island (and handled the sale of the first house as well). It was by coincidence that we met up with her the second time - she was the official realtor of the Amelia Island home.

Realtors broker deals from all over. She got more from the second deal than the first (Amelia Island versus starter 'hood). In her case, I'd say there was a real incentive to see starter 'hood decline and Amelia Island fill up with white-flighters. (Dunno to what degree she was conscious of this interest, though.)

Anonymous said...

The social function of high prices is:

"To keep the riff-raff out."

But the government decided the riff-raff must be let in, and they were. So the non-riff-raff left.

When in 2003 my neighborhood of new houses browned out (20% or greater) and the loud music and hostile stares increased, I blew that popsicle stand.

Interesting that white riff-raff also flocked into that 'hood. Once, the storm drains got backed up (the diversities swept cut grass into the drains...) and flooded the street. What to my wondering eyes did appear but a fat redneck woman and her fatter teenage son, both roaring drunk and hollering: they were in a rowboat, paddling down the street Splashing muddy, dirty water on themselves. Son, who had a mullet, toppled in a couple times.

I looked at my wife and said "We have to move."