Wednesday, September 8, 2010

The Death of an American Dream?

An article a few days ago in the Toronto Globe and Mail newspaper said the slump in the U-S housing market, now more than three years old, is the most severe since the Great Depression, and the author of the article, Joanna Slater, seems to believe that a part of the American dream has died with the decline of the housing market.

She talked to a lot of American experts in writing the long article, which I’ve seen shared by a lot of my friends (and institutions) on their social media sites. Things have changed dramatically and will likely settle to a “new normal” which will be quite different. It seems certain, and the experts agree, that no longer will our homes be used as an ATM to fund college tuitions, boats, fancy cars, second homes, and travel.

The Madison housing market was an incredible engine of growth for years, and hasn’t fared as poorly as much of the rest of the nation during the past three years. In our little corner of the suburban world, the assessed value of our home has gone down nearly 20% in the past two years (nationwide average is 30%), with the big drop coming in 2009. But before that, we were on the same rocket-ride as everybody else in the Madison metro area.

In 1989, my former wife and I bought a 3-bedroom ranch in the Burr Oaks neighborhood for just over 60 grand. Nothing special; just a nice 1300-square-foot house that was close to work for both of us. When we divorced in 1996, a professional appraiser determined the value of the home to be 128 grand. We’d put in a new kitchen and added a 12 by 16 sun room and a huge deck and pool, a total of about 40 grand in improvements, but the rest of the increase was a steady annual climb in value.

Toni and I bought the house we live in now in 1999, and early in 2008 it had, according to the professional appraiser, doubled in value. In both cases – ten years apart, in 1989 and 1999 – we bargained hard and got relatively low prices. But as everybody knows, the days of doubling your home’s value in 9 years, even in Madison, are gone, and likely gone for good. Most experts now say when this thing settles out, you’re looking at maybe 2 to 4 percent a year growth. Maybe.

According to the article, one in four homeowners in the U-S now owes more on their mortgage than their home is worth. A scary number of homes, even in the Madison metro, are in foreclosure. This is a fundamental shift.

It may not be the death of an American dream, as the article says, but it’s a very different ball game.


  1. Are you telling us that "the American Dream" consists of annual increases in the value of housing?

    Those increases simply did not exist until the mid-'60's, or perhaps they were around 1 or 2 percent.

    Take a look at the demographics, which are FAR more compelling a market-driver than almost anything else, and you find that LBJ's social revolution--"equal pay"--was the point from which housing values accelerated like a rocket.

    NOW we have exactly what one would expect: men's earnings are declining rapidly (as they are, frankly, more expensive), and housing prices are also on the decline.

    Yes, there are other factors, but ignoring the Dual-Income factor is simply wrong.

  2. Point taken, Dad - one to two percent a year is more like the historical average, and that's probably where it's going to settle for the next couple decades. I'm not sure "equal pay" from LBJ was the launching point, but agree that the dual-income factor can't be ignored. A few minutes tooling around Madison's near-east or near-west side neighborhoods, with all the homes built with ONE-car garages, illustrates the dual-income point nicely.