Created on 23/1/2008
I had a bad feeling about the property market long before it became fashionable to do so. This was because I saw the beginnings of the collapse of the sub prime mortgage business in the States at first hand.
Yesterday I checked out the local property market by popping my head into the door of a couple of estate agents (realtors) and they confirmed what we all know. There’s virtually nothing good to report, with sales now a pathetic percentage of last year’s size and prices tumbling.
More scary was the news one of them shared in which he told me that the lenders are repossessing the defaulting properties much faster than previously. He felt these repossessions are, in some instances, a first rather than last resort. In his small local agency he had been given 4 repossessed homes to sell this week, whereas he used to get, perhaps 1 per month last year. This is an alarming rise, made more so by the fact that the agent told me he and the lenders know he has no realistic chance of selling these properties in the present market conditions. Ask yourself the question, so if you repossess the property but can’t sell it, who is benefiting?
This morning I had the opportunity to listen to BBC radio 4 at breakfast. The discussion revolved around the various views as to whether there was a purpose for blogging, now, or in the future.
The usual arguments were trotted out which I shall précis by stating the obvious, we write because we have to, its in our bloodstreams, and the upshot should be that in doing so we communicate to others our personal views.
Sometimes, like yesterday, a writer, using this medium just wants to share a mood, in that case, joy and happiness to lighten the general gloom, and sometimes, like today, to warn of some impending peril, and to make sure my audience is aware of the danger.
One of the major catastrophes of modern times is coming to pass, and its being misunderstood and relatively relegated in importance on our news among the welter of horrible economic news. I am addressing the issue of home repossessions. Let’s examine that sentence again, we are talking about taking away people’s homes, not a few, not hundreds, not thousands, but if this slide continues it could be hundreds of thousands.
We cannot let this tragedy happen, we must not allow it!
The main reason I make this statement so emphatically is not because I care any more than any of you about the individuals and families affected, because no one wants to see people suffer arbitrarily. No, although this is terrible, more awful will be the ramifications to our societies and countries if we allow a new underclass to develop. This will be the inevitable result if hundreds of thousands of people are to be effectively made homeless.
The same people will, to a very large extent feel disaffected and disenfranchised, cheated and abused. They will be angry, and a great many of their number will suffer social and educational disadvantage from this starting point. An increased and growing number of the dispossessed to support, nurture and assist would thus burden the remainder of the population.
Ironically the property market collapse has come at the precise moment when we require more housing to meet the growing population needs. Whereas we should be finding ways to encourage house building start ups we find ourselves with some of the lowest ever recorded numbers.
The government has again made the right noises about keeping people in their homes as much as possible and has issued a directive to the courts to make sure they point the mortgage companies towards this end. In practical terms this means that they are now going to be compelled to write a couple of letters to the people in arrears and make a phone call or two. It doesn’t mean directing the courts to put a stop to all repossessions for a hiatus period, of let’s say 6 months. That is what this situation demands.
Many of my readers will be reaching for their electronic pens to send me a message condemning me for not pointing out that a great many defaulters got themselves into this situation and therefore, being responsible for their own actions they should have to deal with the consequences. There are, obviously, some people that fall into that category. While protecting the innocent victims of global economic catastrophe some of the indolent and crafty will, by definition crawl through the cracks like such people generally do. But right now there is a greater good that must be served, even if it means some of these social cockroaches surviving to be found out another day.
However, and we must not lose sight of this, the population did not suddenly sprout a tail and become indolent and devilish. The lenders encouraged, in fact enticed borrowers to take up their totally irresponsible offers of funds that could never be repaid if any of the economic circumstances prevalent at the time changed. And they changed big time! People are beginning to lose their jobs, loans are no longer available, and property values have plummeted. As a result you have the iniquitous situation in which, in many instances, as low cost, fixed rate interest mortgages fall due they can only be replaced by variable rated principal and interest mortgages. This can mean an increase in cost of double at exactly the same moment when the property in question goes into negative equity! That is an insupportable conundrum for any homeowner and the natural inclination will be for them to simply give their keys to the mortgagor and walk away.
If you take a moral stance on irresponsible borrowing how about taking an equally moral position on irresponsible lending that created the situation. And, following this logical yellow brick road, how about blaming the government and FSA for failing to stop it, in fact encouraging this lunacy?
Again I repeat, we cannot let this property eviction campaign of rampant repossessions to happen or we will all suffer a terrible a whole series of long-term consequences.
It would be to our huge advantage to find ways to keep all these families in their homes over the next two to three years and stop these hugely damaging outcomes before they begin. It’s vital that we act now to prevent total property market disintegration fracturing the cohesion of our societies long term. If we take a longer, more enlightened view it will benefit everyone, not least all the families who will otherwise be out on our streets this winter.