The Great Depression Online




Great Depression Online Archive Issue:

Being Donald Trump

Great Depression Online
Long Beach, CA
May 16, 2008

Inside This Issue You Will Discover…

*** A Polished Lump of Coal
*** Being Donald Trump
*** The School of Hard Knocks
*** And More

A Polished Lump of Coal

Some amazing, extraordinary, and remarkable things were done to some not so amazing, extraordinary, or remarkable houses over the last several years.  This stark truth became starkly obvious last Saturday when we walked up the walkway to view and open house.

From the street, the house looked clean, modest, well kept, and entirely simple.  We liked it.  But we didn’t like the $600,000 price tag.  How could it be, in the midst of a bust, that a house of this stature could be offered at such an alarming price?  Then we ventured through the front door and we got our answer.

Granite countertops, hardwood floors, ornate maple cabinets, and much, much more.  The entire house had been gutted and refurbished with all the high end, home remodel upgrades you could imagine.  It was extravagant and fit for a king.  Yet it was evident that all the refurbishments had out priced the price of the house.

At first take this may sound like a contradiction; but it’s not.  For example, if you had a beat up pickup truck, with a bluebook value of $1,000, and you were in a fender bender…  Would you spend $3,000 on bodywork repair?  Probably not.

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You may take it to your buddy’s garage, hammer it out a bit, mickey mouse the headlight in place with a scrap bracket and some chicken wire, and call it good enough.  Because you know that spending $3,000 on bodywork repair would not somehow make the truck worth $3,000…plus for that price you could buy three trucks of equal value.

Why should a house be any different?

That’s not to say that we’re against remodeling your house.  Because we aren’t.  If you like where you live, and want to make it more luxurious…if you have the money…go for it.  Similarly, if you want to take a $100,000 condo and put $1-million dollars worth of upgrades into it…do it.  Just don’t assume you’ll then be able to sell it for $1-million dollars.  Because anyone who comes to look at it will consider it a really nice $100,000 condo.

For you can polish a lump of coal.  And then you can polish it some more.  But no matter how much you polish, it will never be more than what it is…a lump of coal.

Being Donald Trump

Still, in this respect, a house must be thought of in the proper context.  A house is, first and foremost, a place to live.  Secondly, it’s an investment.  Yet in the madness of the recent housing mania, many individuals reversed the order of these important tenets.  Then their minds went soft.

First they thought of their house as primarily an investment…then they forgot what an investment is.  They were to busy envisioning themselves as Donald Trump.  Before they new it, their main investment had become a dangerous speculation on ever rising prices. 

But then something truly unexpected and extraordinary happened…house prices didn’t go up; they went down.  And after years of feeling they were savvy real estate tycoons, it was painfully revealed they were aspiring failures. 

For the homeowner who thinks of their house as a place to live, what do they care if its value goes down?  While they may not necessarily like it, if they like living there, then it really doesn’t matter.  Presumably, at some point, it will go back up.

The School of Hard Knocks

But the inadvertent house speculator, who was counting on rising housing prices to fund their consumption and bail out their debts, or who used an adjustable rate loan to buy a bigger house than they could afford, now has a magnificent problem.  A problem that’s spreading to more and more homeowners each month…

“More U.S. homeowners fell behind on mortgage payments last month,” reports AP Business Writer, Alex Veiga, “driving the number of homes facing foreclosure up 65 percent versus the same month last year and contributing to a deepening slide in home values, a research company said Tuesday.

“Nationwide, 243,353 homes received at least one foreclosure-related filing in April, up 65 percent from 147,708 in the same month last year and up 4 percent since March, RealtyTrac Inc. said.

“One in every 519 U.S. households received a foreclosure filing in April.

“The combination of weak housing sales, falling home values, tighter mortgage lending criteria and a slowing U.S. economy has left financially strapped homeowners with fewer options to avoid foreclosure.  Many can't find buyers or owe more than their home is worth and can’t get refinanced into an affordable loan.”

The school of hard knocks can be brutally callous, yet poetically just.

Sincerely,

M.N. Gordon
Great Depression Online

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