How to Gain and Lose a House in Ten Months

by Mike Plunkett

In a sign of perpetual political irony, Congress passed a resolution celebrating April as "Financial Literacy Month." This came as the President decried Congress for not doing anything to pass his legislation to boost the economy (aside from drilling in the Arctic National Wildlife Refuge and making tax cuts permanent, no one is fully sure what the legislation does), while Congress decried the President and Republicans for stonewalling legislation. Meanwhile, more people are feeling crappy about the current state of stuff and will be taking it out by using most of their rebate checks on paying off debt and eating Baja Fresh.

To commemorate the month, various sites and publications featured articles on financial literacy and most financial institutions whipped out the sorta annual "how to be financially savvy" pieces, complete with advertisements for whatever products they want to sell.

Irony aside, financial literacy is important, and included in financial literacy is housing literacy, particularly house-buying literacy. Not to read cheesy, but I would put financial literacy under the umbrella of "living literacy." In some capacity, all the articles on FourStory deal with some form of living literacy and, as our vision states, affordable housing is a major component. I submit that affordable housing isn't just an issue of public housing for low-income citizens, but also the ability to own housing at a proper value with financial tools that promote asset growth and stability. If there is anything the current housing "crisis" is showing, it's that the process of owning a home within the past 20 years was based on speculation and instability. Ultimately, the current standard of living literacy is deriving from a false narrative that those of us pushing for sustainability must rectify.

This is a personal issue for me because, like so many other people, I entered the housing market in 2006 to buy a nice house in Los Angeles County. I purchased the house in January and was bought out of my share in October. I'm sure that's a record. In signing up to write for FourStory, I knew I would be compelled to confront my own experience with housing. Honestly, it's something I'm not proud of, and it was a difficult and painful time navigating the mess that was buying a home and the bigger mess of getting out of a bad situation.

During the zenith of the housing boom in 2005, I was on the cusp of making major life decisions. I was set to start my masters program and was beginning the transition out of the newsroom. In the midst of this came an opportunity to do something incredibly dumb and stupendously brilliant. My good friend, who was at the time was unemployed for about nine months, was looking to sell his condo and buy a house. We schemed to buy a three-bedroom, two-bathroom house together in the eastern tip of the San Gabriel Valley. He would make the down payment from the sale of his old condo and I would help with the mortgage. My plan was to use the profits to pay off my grad school loans, once we sold the house for a hefty sum.

The buying process was quick and painless, complete with a no-document sub-prime ARM loan from Countrywide (even though we could have qualified for a traditional fixed loan with me on the ticket with my friend), a friend from school acting as our real estate broker, and a nice family who would make more than $300,000 by selling of the house to us.

Just like that, I became a homeowner.

And, just like that, I realized what a stupid, stupid idea that was on so many levels.

Aside from the personal complications of my partnership, there was the systematic BS that encapsulates the ease of buying a house and the hell of trying to sell one. For the record, I highly recommend and extol to those buying a house that they not sell after ten months. In fact, I'd say don't sell a house after a short time and hope the equity will be high enough to offset only paying interest on the loan.

I said this was a really stupid decision.

For the approximately 97% of homeowners who are making on-time mortgage payments, I feel for you. It's the little yeast that gives rise to perceived chaos. Unfortunately, our economy is based on inflated wealth, perceived stability, and hope. Lots of hope, or what investors call futures.

The current foreclosure rate is much higher than desired; 47,171 houses were foreclosed in L.A. County and 113,676 received default notices in the first economic quarter. That is bad, but it's always more dramatic to read about foreclosures rising 327% compared to a year ago, as our society has become dependent on context-less percentages. Those numbers came from the L.A. Times, who was quoting housing research firm DataQuick.

Yet, the crisis rapidly becomes worse because the perceived deflation of property value for one is directly proportional to the perceived deflation of property for others in proximity.

Nevertheless, the real crisis isn't that the housing bubble is bursting or that there's a credit crunch, although those are important and urgent situations. The real crisis is that the telling of the societal narrative is no longer rooted in actuality. Let me elaborate.

Like many other people, I fell headlong into a false narrative about homeownership. It goes something like this: Owning a home is the surest indicator of achieving the American Dream and also is the soundest investment for long-term wealth stability. In addition, homeownership is a vehicle for supplementary investing and an avenue for extracting monetary value to offset other debts and obligations. On top of that, housing is the most reliable source of continually increasing profit and compounding value.

In other words, buy, borrow and hope. Enter the housing market, even if you might not be financially prepared at the start, borrow against the house if you hit a rough spot or to pay off other bills, and hope the market will continue upward.

Granted, all of those statements are essentially true. Owning a home is the highest-priced investment for the majority of people and owning a house does provide equity and asset strength. And yes, some people make a lot of dough flipping houses and using real estate as investment. But for every Donald Trump and Charlton Sheets infomercial that lulls insomniacs toward another bad hair day, there is the simple point that most people have no business trying to play "Real Estate! The Board Game."

So what is the false narrative? If all these things are true, what's making it untrue? It's this: Affordable isn't American anymore. If one starts under the pretense that s/he can purchase a house that is out of his/her financial range because they CAN and they SHOULD to keep up, then the rest of the story isn't going to be true. Under that filter of expensive obligation, the American Dream is all about pursuing that which is almost within reach. Countrywide and other mortgage companies that are offering high-risk loans are giving the narrative legs, under the guise that is what the customer wants.

Also, let's have a moment of honesty here. Affordable housing is perceived as poor housing, and if one is poor in America, it's either because they aren't working hard enough or they are solely dependent on "the system." To tone down the populism in this paragraph, that is the extreme position for sure. Yes, most homes in Los Angeles or Washington, DC or most metropolitan areas are almost unaffordable. But it's a good neighborhood with good schools and good property values, so it's worth the risk. Yet, when the foreclosures hit the block, all the value slides down.

My problem wasn't that I bought a house; it was that I didn't need it. I didn't need a three-bedroom, two-bathroom house, and I especially didn't need to try a feeble attempts at real estate investment. Frankly, if I keep up my nomadic trend, buying a house won't really work. In Who's Your City? Dr. Richard Florida mentions an interesting idea in creating a lease-like system for homeownership. We do it for cars; maybe it could work for housing. Moreover, homeownership isn't for everyone. There are many who are in a better position in a rental situation. That doesn't mean they haven't reached the American Dream; it just means they won't join the current American Nightmare. While there might not be a front yard to tend, at least there's property management to fix the plumbing.

On the issue of living literacy, the American Dream should be a story of the ability to pursue personal dreams and the awareness that the structural safety net is strong enough to enable me to keep on after any failures. In a way, that's true peace. Peace is the awareness that you have everything you need to live life well. Not peace through brute military strength or peace through indifference, but peace through individual ability and collective capacity.

In the end, my housing crisis was my financial education and my education continues today. Unfortunately, literacy often comes by trial and error. So, if you don't care what monthly pronouncement Congress offers, then at least take it from someone who has been there. If you want to buy a house and buy it now, make sure it's affordable and you can pay for it. And make sure to read the entire contract. Literacy truly works.