For years I have watched in amazement at the type and style of the new houses being built. I remember often saying things like, “I wonder how people can afford these houses?” or “What will happen if the bottom falls out of the market?” Well, it won’t be long and I believe we’ll have a good answer to both of those questions. For the most part, I believe hardly anyone can (or desires to) afford the really nice house around where I live. Now, I do live in an area that was once “rural” (actually, it still is, you just wouldn’t notice by looking at the homes – it’s just that they’re all on acreage) and where half a million dollar homes were selling in a matter of hours – not days or months. Now, virtually every house I’ve seen for sale for the last year or so, is still for sale. The house I live in has lost about a third of its value and we are in an area that is supposedly one of the better areas regarding the “Location, location, location” rule of real estate. But the grim reality is that most of the homes close to where I live are listed – even in these horrific times for home sales – in excess of $500,000. People have to have good jobs and be secure in their jobs for there to be any kind of market for these types of homes.

The question then becomes, “When will the market return?” Or should I say, “Will the market return?” So far, around us there aren’t any “bank owned” signs that I’ve seen, but there has to become a point where people say “enough is enough” as far as keeping homes that continue to drop in value and have no prospect for sale. I have friends who, even they would admit, got “sucked in” to the “sub-prime” scandal and they have a home that they can’t afford to keep. The thing that is a bit frustrating is that they paid $375,000 for this home and today it’s probably worth about $250,000 and the banks don’t want to work out a deal with them. I’m not sure they are in a position to even do that, but if they were, wouldn’t it be in everyone’s interest for as many people as possible to stay in their homes. I keep thinking about the CNBC rant by Rick Santelli calling the people who are losing their homes “Losers” and telling President Obama “We don’t want to pay these losers’ mortgages!” Well, I’m having enough trouble paying my own, but as long as we’re bailing out the banks to the tune of a trillion dollars or so – it seems that preserving as much of the home market as possible makes sense to me.

Now, I wasn’t in favor of the bank bailouts in the first place – certainly not under the “no strings attached” terms with which they were granted. But, as long as we’ve gone down that path, it makes sense to me to try to stop the hemorrhaging foreclosure problem. I mean, how much will the banks lose if the reported ten million homes are foreclosed on? Or, is the plan for the taxpayers to prop up the banks so that they can withstand these huge losses, and then capitalize them so that they can profit off of the losses of the foreclosed homeowners – because the homes aren’t going to go away – someone, eventually is going to buy them and live in them. I suppose the Santelli theory is to keep the banks viable (his buddies on Wall Street) and then make the killing on the homes that will be sold for a fraction of what it costs to build them – but if the banks are being paid for the losses from making the bad loans in the first place, and then they get all the homes that are foreclosed as well – to be eventually sold again – it seems like maybe we’re propping up the wrong people here. I really don’t understand how this works, I’m only speculating here, but I would be happy to hear from someone who better understands how this works – what I REALLY DON’T WANT TO SEE HAPPEN is for the banks to get a double benefit here – and the mortgagees get screwed (any worse than they already are).

The other day I heard a radio show (The Peter B Collins show) where they brought on a series of guests who were “underwater” in their homes in California. What was the most interesting to me was the fact that almost all of the guests were current on their payments. They certainly weren’t acting like the “Losers” Santelli portrayed those who were looking to the government for some relief. The sad reality for most of them was that they purchased a home in the previous two years and the value of the home had dropped in half. For example, one lady that I remember had a home originally purchased for $550,000 with $250,000 down – and the home is now worth $300,000. Well, in my mind, instead of saying “tough luck – Loser” – I believe it makes sense to assist this woman in renegotiating the mortgage on the home so that the bank shares with her in the loss. As the home dips under the balance on the mortgage, and she owes more than it’s worth – it seems reasonable to me that the bank would rework her loan to make it worthwhile for her to stay in the home. If we allow 10 million foreclosures – as a nation – we are continuing the “me, me, me” philosophy of the previous 30 years of Republican rule (with a very slight “blip” during the Clinton years) – and home prices could fall another 50% or more. Buying a home might no longer be the “American Dream.”

This overbuilding and over-loaning was “pushed” by the banks and by those in positions in the government to want to perpetuate the false economy of the past decade almost exclusively built upon borrowing. And the banks that are saying they are making a profit today (Citibank claimed today they made 8 Billion in the first two months of the year – in this age of creative accounting I can virtually guarantee you there is a caveat to that number that the CEO didn’t want anyone to know about) haven’t even begun to deal with the credit card bust that is sitting on the horizon. If you were wondering why the banks pressured Congress to pass the bankruptcy law of a couple years ago, you will soon know why. I believe there’s going to be a growing and growing number of people defaulting on credit cards in the months ahead – I’m not sure if it will be as severe as the housing crisis – but I believe it is inevitable.

So, what do we do? Well, if you’ve read any of my previous posts on this site – I support President Obama and hope he succeeds – but I’m not sure I agree with some of his “plans.” However, I believe the best chance we have going forward of slowing down the “meltdown” of our economy, is for Obama to be able to pass legislation without having it “glutted” by recalcitrant Republicans in the Senate. Then, once the policies have a chance to work or not work, we know where the buck stops. With Republicans “muddying the waters” I just wonder, what if? What if the Democrats could just pass the progressive legislation the voters wanted. I feel almost totally certain (I truly hope I’m wrong) that the so-called stimulus package was too small and contained too many tax cuts which will have a negligible effect on our problem. I don’t believe we need to give people like me another 30 or 40 dollars a month to spend – I believe we need people to have jobs that would motivate them to be customers of the stores that are closing down once again. I listened with dismay a while back at the CEO of Home Depot railing against the idea that his employees might have an easier path to forming a union because of the “Employee Free Choice Act” – as if it would cause the end of the world almost. What seemed strange to me at the time was that I kept thinking workers earning union wages create customers and, without customers, businesses like Home Depot keep failing,which causes less customers which causes more businesses to fail, etc. Obama is going to have to come back for more “stimulus” in my opinion (again, I hope I’m wrong) and, If Obama can pass true “progressive” stimulus legislation, maybe the economy will revive and our homes will still have some value.