As individuals we've accumulated too much debt driven by too easy credit resulting from too little knowledge about personal financial decisions.
And let's not leave out the huge role played by government. Wrongheaded government policies which were aimed to help achieve greater home ownership by poor and middle class Americans have created a catastrophe whose lingering effects are still reverberating throughout our nation and much of the rest of the world today. It's an ugly picture, and it's not a problem that will disappear anytime soon.
So today we'll take a brief look at the lingering troubles with 'underwater' housing in Lithonia, Georgia and then Ewing, New Jersey.
Why The U.S. Housing Recovery Is Leaving Poorer Neighborhoods Behind is subtitled 'Home prices in wealthier areas are rising, but many poor communities are stuck with a housing crisis that drags on:'
"The housing rebound may have lifted home prices across much of the nation. But cities like Lithonia, Ga., are still waiting for the bounce.
Along with other communities in the Atlanta area, the small working-class suburb saw prices run up during the housing boom a decade ago, followed by an epic bust. While nearby wealthier areas are now rising, or even fully recovered, poorer towns such as Lithonia are stuck with a housing crisis that drags on.
Roughly 10,000 homeowners in Lithonia—or 54% of all families with a mortgage—owe more than their homes are worth, according to the online real-estate tracker Zillow. That is a stark difference from wealthy Atlanta neighborhoods like Buckhead, where about 12% of homes are underwater. House values in Lithonia at the end of the first quarter were still almost 35% off their peak, while in Buckhead they were off by only 12%.
Signs of a disproportionate housing recovery appear across the U.S. Nationwide, about 15% of homes worth less than $200,000 were underwater as of the end of March, according to CoreLogic, a real-estate information firm. Meanwhile, just 6% of homes worth more than $200,000 were underwater during the same period.
To be sure, homes across the price spectrum are still below their boom-time peaks. Between January 2006 and May of 2015, the median value of homes in the bottom third of the market has dropped 13% to $101,900, according to Zillow. The median in the middle third is down 6% to $172,600, while in the top third it is off 4.5% to $325,800.
And yet many middle-class and high-income communities are now seeing home values that are close to those before the crash. Robust activity in some markets has spurred the return of bidding wars for hot properties.
Lithonia illustrates the growing divide in the recovery in the U.S., where large swaths of the housing market—from Trenton, New Jersey to Memphis, Tenn.— remain bleak.
Places like Lithonia “were hit with foreclosure first, the longest and the hardest,” says John O’Callaghan, chief executive of Atlanta Neighborhood Development Partnership Inc., a nonprofit that buys and rehabilitates foreclosed homes. Residents there “don’t have good access to mortgage credit,” he says. “They don’t have wage growth. Everything is going wrong.”
Today in Lithonia, boarded-up homes with overgrown yards dot the streets surrounding Shirley Jones, who bought her early-1900s home in 1996 for about $80,000. Ms. Jones cashed out some of her home’s equity to do repairs in 2005, when her lender said her house was worth $325,000. Now, she owes about $172,000.
Needing to make more repairs, Ms. Jones a few years ago asked a real-estate agent to assess what the home might be worth. The agent, who is also her friend, said the home wouldn’t sell for more than $50,000. . . .
Economists say lower-income communities have been hit by a confluence of events and factors that have left their communities stuck in a vicious cycle. It starts with falling home values, which trigger foreclosures as homeowners can’t sell their property for a price that would cover the outstanding mortgage debt.
Banks are reluctant to lend to the lower-wealth borrowers with shakier credit histories who would normally buy homes in those neighborhoods. That reduces demand, leading to more foreclosures and a higher supply of vacant and decaying homes—leading to further price drops.
The cycle has been hard to break in large part because low-wage workers have seen little, if any, income growth during the recovery—putting them in weak position to qualify for mortgages. . . .
“Negative equity preys on the less affluent,” says Zillow chief economist Stan Humphries. He said that even underwater homeowners still current on their mortgages suffer, because they often face trouble refinancing to capture a lower interest rate. “It’s a double-whammy for them, because they’re paying higher than they should on their mortgage costs and they owe more than they would if they could re-buy their home now,” he says. . . .
Even in relatively wealthy counties, the lowest-priced communities are suffering. In the town of Ewing, N.J. in Mercer County, the median home value is $176,000 and about 29% of homes are underwater, according to Zillow. In tony Princeton, which is about a 20-minute drive away, the median value is $788,000 and roughly 5% of homes are underwater.
For residents of Ewing, the problems are taking a toll. High-school teacher Adrienne Stanley and her husband moved into a $279,000 Ewing townhouse in 2007, making a 20% down payment, with the idea of starting a family. Soon after buying, prices started to drop but the couple assumed that prices would soon recover as the economy picked up strength.
Now, eight years later, prices still aren’t even close to prerecession levels. Some nearby townhomes recently sold for between $150,000 and $190,000. Ms. Stanley would like to move to Princeton to get stronger schools for her daughter, but her family is stuck.
“I lose sleep every night thinking that my lack of foresight is the reason that she will not get the education I so desperately want for her,” says Ms. Stanley.
But few places have the difficulties of Lithonia."
While we can't rewind the clock and turn back time, we can go forward knowing that a basic understanding of financial matters is an essential ingredient of a life well lived.
Our debt ridden society didn't get that way without the active involvement of We the People.
However, that failure to do our duty financially was in large part attributable to a lack of personal knowledge and understanding related to basic financial decisions involving taking on excessive levels of debt.
The government gurus and 'sellers' (general retailers, credit card companies, admissions' offices of colleges, car dealerships, realtors and builders, stock brokers, banks and other lenders, insurance agencies, and government sponsored entities offering student loans) aren't there to help us lead financially responsible lives. That's very much our self assigned job to do.
It's very much a caveat emptor world, and it's left to each and all of us to be guided accordingly.
And while the necessary knowledge to guide ourselves properly is all too often lacking, filling that knowledge gap is our individual job as well.
The sellers won't do it, the lenders won't do it, and neither will the government. It's absolutely up to us. So let's help each other.
That's my take.