Like many of you, I know people who have flipped out over house flipping. For those of you who don’t know what I’m talking about, let me explain. “Flipping” is the practice (some would say an art) of buying houses and selling them for a profit. The “flip” comes from not owning them long enough to do anything to them other than sell them.
I don’t know if you have given this much thought other than being amazed at how much money these people, i.e., the flippers, are making. Depending on what part of the country you’re in, you can make upwards of a 30 percent profit in one year for just house sitting. Buy it, move in and sell it next year for a bigger, more expensive house. “Home sweet flip,” if you will.
If this isn’t atypical enough, many people are financing houses through what would conservatively be called “non-traditional means.” At the top of the list is the “don’t sweat it, we can get you into a house even if it’s way above your meager means” interest-only loan. It’s a loan based on a bet that the prospective home owner will be able to afford a too costly house somewhere down the road, which, incidentally, comes up in a quick two or three years. That’s when the home owner becomes home groaner and has to start paying on the principle. Oh yeah, the principle. That minor detail.
With the lure of the first few years of home ownership being virtually free, realtors are lulling consumers into thinking that they can live the American dream by not much more of an investment than paying for the moving truck and the beer and pizza for the friends who help do the moving.
Who’s not going to like the sounds of Easy Street financing? Gone is the drudgery of the 30-year loan. That’s old-fashioned. Dumb, really. Just too difficult.
But the definition of difficult is relative. When the principle kicks in, the payments may double or triple. The well thought out strategy going into an interest-only loan is to keep your fingers crossed and maybe you’ll get that big raise you’ve always wanted.
The interest-only loans make it a lot easier for realtors to sell the American dream so that they can live it. (Please don’t run out and sign up to take the real estate test.)
Of course, there would be no interest-only loans without the “help” of banks and mortgage companies. In fact, if you’re looking for the root of the problem look no further. They stand to make money on the front end of the deal and, since they just happen to be in the default business, too, they can come by and sweep up at the other end. I guess you could say they are house flipping at the back end of the transaction.
The whole business of buying and selling houses is reminiscent of the dotcom era of the ’90s. Profits have grown to unbelievable proportions. Too good to be true always turns out to be exactly that. The house flippers are about to learn about the proverbial bubble burst.
Paul Krugman, New York Times columnist, recently summed up this phenomenon, “...we make a living by selling each other houses.”
Unemployment statistics make his point. “Since December 2000, employment in U.S. manufacturing has fallen 17 percent, but membership in the National Association of Realtors has risen 58 percent.”
This is disturbing. My question is: Have we reduced our economy to “house swapping?”
But we’re adding jobs, aren’t we? Other than the obvious housing jobs, most of the job growth comes from the service sector. Our local paper, and I bet yours, too, is full of menial jobs. Have we reached the point where people must accept that their career ambitions be no higher than flipping burgers or cleaning toilets at a hotel chain?
In order to subsist, you need to be working two or three of these service jobs. Worse, you have little or no benefits, which means you have to rely on the government (translation: taxpayers) for health care. That may keep the balance sheets healthy for some companies, which purposely shortchange their workers, but the practice is sucking the life out of the workforce and the economy.
What I’m getting at — finally! — is that we as a nation need to ask ourselves, “What the hell happened to our solid and mostly predictable manufacturing economy?” Remember when we weren’t dependent on any other country per se and we employed a workforce that made goods and then turned around and bought them? How did we get to the point where we are relying on the housing industry boom, which has a foreseeable end? Why didn’t we learn from the dotcom disaster?
It’s time we faced the hard, cold reality. We have an economy where millions are living from paycheck to paycheck, have no health care coverage and rely on the state lottery as their investment portfolio.
It worries me, and should worry you, that there are only two fully-owned American car manufacturers left...that our community stores continue to dwindle, while their behemoth replacements concentrate on selling products mostly manufactured from overseas...that our country is in debt to China and other countries. (Strangely, a good share of what we have borrowed is for the war we’re waging in Iraq. What I want to know is, who’s going to pay those notes back when they’re due in 20 years? My kids? Your kids?)
What else is there to say? Not much other than it’s time to rebuild our economy from the ground up before this house of cards collapses.