Tuesday, January 3, 2012


There has been plenty written about America’s four-year foreclosure epidemic, and it’s undeniable that the impact has been felt from Main Street to Wall Street to the entire world.

From media portrayals, we often see “subprime borrowers” and lower middle class Americans (who saw the biggest growth in homeownership rates during the boom years) as the “big losers”.  But consider the following:

- What percentage of this buyer group actually made a sizeable down payment?
- To continue, what percentage made little or no down payment but then pulled freshly created equity out of their homes as values soared?

- And what percentage of these foreclosure “victims” lived for two, three or four years without making a payment as overwhelmed and politically targeted banks dragged their feet on the foreclosure process?

I am not saying the banks are blameless (hardly).  And I am not denying that’s it traumatizing to lose your home, no matter how long it takes for the banks to actually foreclosure or what kind of neighborhood it's in.
But what is the percentage of buyers who had legitimate credit and income… who put sizeable down payments into their home purchase… who didn’t pillage their equity like a piggy bank… who today have lost tens (or hundreds) of thousands of “after tax” dollars as their values have plunged?
Do they have a lobbying group?  Do they picket and protest the banks?  Do we see them interviewed on “60 Minutes”? 
The point is… everyone should think a little more deeply about this whole crisis, how it started, and what lessons can be learned from it.  Because the guy with lousy credit putting no money down wasn’t really having much of an impact on the economy anyways… but the guy whose 401k has been wiped out, who lost his management job when it was outsourced, and who put $150,000 down on his house only to see it vaporize… that's the person whose not taking vacations, not buying new cars and generally living a much more fiscally conservative life. 
Chances are he's still in his home, stewing about all this.  And one thing is for certain:  he's not buying another one any time soon!
One reason I am so bearish on the high end of the market is because there's no way the homeowner who fits this profile is going to sell and move up.  He's been toasted, his equity is gone, and the last thing he is thinking about is buying a bigger home.
Every market is different, but in Colorado, our housing market has slammed into a wall around $500k.  There is just no demand for anything above this point, and I don't see it changing for a long, long time.