Nearly fifty years ago, the populist sociologist C. Wright Mills wrote a famous essay in which he explained that many difficulties in life that individuals attribute to their own failings are actually attributable to broader-scale changes:
When a society is industrialized, a peasant becomes a worker; a feudal lord is liquidated or becomes a businessman. When classes rise or fall, a person is employed or unemployed; when the rate of investment goes up or down, a person takes new heart or goes broke. When wars happen, an insurance salesperson becomes a rocket launcher; a store clerk, a radar operator; a wife or husband lives alone; a child grows up without a parent. Neither the life of an individual nor the history of a society can be understood without understanding both.
For the past six months, I’ve been witness to an illustration of Mills’ point about the impact of the larger scale on the small. The condominiums you see in the picture to your right were built in 2004 and 2005 during the height of a bubble in housing speculation — one that even reached as far as my neighborhood of the Short North in Columbus Ohio. The condos on the corner of Hunter and 5th have been for sale at least since April of this year, when I first walked past them looking for a place to rent. Not one has sold in that time, even though the asking price has been dropped down to $279,000 a piece.
What’s wrong with these condos that keeps them from selling? You might pin it on the garish design that stands in contrast to the understated Victorian homes of the neighborhood. Who in their right mind, I’ve found myself asking, would pay $279,000 to live in one of these boxes when for just $10,000 more on the same street one could live in a well-maintained Victorian home? You might pin it on the trash that never seems to get picked up in the narrow strip of grass outside the condos. I write “strip of grass,” but there isn’t really so much a strip of grass as the occasional idea of grass, surrounded by lots of bare dirt. Perhaps prospective buyers look at the developer’s poor maintenance of the exterior of the property and ask what might be wrong on the inside.
Perhaps. But I’m told by neighbors that up until this year, a lot of people in their right mind were buying garish condos for a whole lot of money, even if they stood next to well-maintained Victorian homes, because the well-maintained Victorian homes were already snapped up by quicker buyers willing to pay a lot more money for them. They’d buy them even if the landscaping wasn’t perfect, even if there was trash strewn about the property. Where I used to live in Durham, North Carolina, people were snapping up overly large McMansions shoved on overly small lots by builders with bad track records for quality, snapping them up for more than 300,000 a pop. When I interviewed for a job in Orange County, California in the year 2000, people were buying dilapidated shacks for half a million dollars just so they could have the privilege of tearing them down and erecting entirely new homes on the spot. People would buy these places whatever their condition because everything was selling quickly, because property values were on the rise for houses and condos alike, and because that led to the expectation that a person could pocket a load of cash just by buying and waiting a few years to sell again.
Given this buying environment on the large scale, it was not at all individually “stupid” for a developer to slap up gaudy condos and neglect the landscaping, because the property would sell no matter what the developer did. Any special effort was unprofitable. But the large-scale environment changed, and changed quickly. The median price for a home fell in the spring of this year in Ohio and other northeastern states, and many economists are predicting that the median price (the price point at which half of homes sell above and half of homes sell below) will drop next year for the United States as a whole. It wasn’t individually “stupid” for people to buy, expecting that the value of their home would increase — after all, if the median price of a home does drop next year, that will be the first time it does so since the Great Depression, an ominous sign.
The behavior of developers and home buyers isn’t explainable by individual “stupidity,” but rather as a reaction to a large-scale factor: the opportunity of housing market. Indeed, their behavior was “smart” under the old conditions. But due to the change, “smart” individual behavior has become “stupid” nearly overnight. And what would have been considered rather stupid individual behavior last year is now smart again. If that developer wants to sell those condos down the street from where I live, she or he will have to put in some new sod, plant some cheery annuals in the spring, and lower the asking price. Those little things matter again. When moving to Columbus, my family had to decide whether to buy. Last year, that would have been a no-brainer. Buy now, wait a few years, reap a tidy profit. But now, with the prospect of home values actually going down over time, we decided that the hassle of home ownership just wasn’t worth it. Instead of laying down $279,000 for a condo or $289,000 for a little house and paying a mortgage of more than $1,500 a month, we’re renting a little house for $850/month and letting our landlady do (or, unfortunately, not do) the repairs. Renting has become smarter than buying a home — and an exodus from homeownership to renting has lessened demand for homes even more, in a large-scale cycle that reinforces itself.
And woe unto anybody who fell for the marginally-dumb schemes of the old system, like buying an interest-only mortgage on a house with no money down as a way to make money when the house appreciated in value. As the value of the house actually declines, that behavior starts to look downright idiotic. But such a change in the esteem held for a real estate strategy isn’t due to any difference in the individual, because the individual is the same. The idiocy emerges only when the economy changes. Society, as they used to love to say in the sixties, is to blame.
What’s stupid is expecting the large-scale environment to stay the same. It’s not as if this is the first housing bubble we’ve seen.
No, but it’s possibly the first decline in median house price since the Great Depression, which is how many generations, John? Previous housing bubbles in the mid-to-late 20th Century “burst” in the sense that median house prices ceased to go up so much; that’s different. My point is that people operate on the basis of what they expect to happen, and for most people that’s based on what they’ve seen happen in their own social environment (the “well, everybody I know is voting for Kerry!” phenomenon), or what their parents told them is normal. A great number of people alive today, especially in the generation buying their first houses within the past decade, don’t have their own experience, the experience of their neighbors, or the experience of their parents, to tell them that investing in real estate is a risk.
Or didn’t, at least. They sure do now, too late.
When I returned from the middle east in 2001 there was a housing shortage. especially low income housing. I realize there is some disagreement about what is low income. I nearly bought a house not becasue i wanted one, but becasue I was renting a room from a professor friend and really, really wanted my own place. It took me 4 months to find anyplace to rent. I was tracing down 700 and 800 one-bedrooms, but finally found one for $430 in a neighrhood that is less than desirable, but generally considered safe for whites. so the increase in rentals might just reflect an easing of the shortage so that people who really want to rent can find a place.
Another reason for the emplty condos might be location, location, or location. We have nice condos two blocks down, but they are on the same block as crack houses. They are now being used to house people from the projects in the nearby black neighborhood whose places are being renovated. In my old neighborhood, a similar problem building, the building looked nice, but was section 8 so there were drugs, noisy people, lots of problems, you can’t live in a place like that if you are expecting to work or go to school. so maybe as you sniff around, (don’t jump if you hear the n-word but just listen as people might have legitimate concerns), and exchange more rumors you will find out more.
I have always heard that the value of a house NEVER goes down. the median price of houses declining (and i don’t see how you got that out of the link) is not the same as one particular piece of real estate going down.
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