After seeing the website Angry Renter, I considered my own position in the matter, because I’m not in favor of bailouts either. I own my home free and clear, and I paid off my mortgage well in advance of when I had to. I own a house smaller than I could afford, and with eight kids, sometimes I wish I had chosen otherwise.
But I love our little hovel, and wouldn’t have it any other way. That said, there would be reason for people like me to be annoyed at any bailout. I stayed within my means; I sacrificed other goals to own my home free and clear of any encumbrances.
Here is my version of the Angry Renter graph, with one major modification. Using data from First American (LoanPerformance), I estimated what percentage of homeowners will be vulnerable if home prices fall another 10% or so. They fall into my “under stress” bucket. My view of the situation is this — over the next two years, with a fall in housing prices of 10%, roughly 12% of the housing stock of the US will be in a negative equity position, and more so, if one considers closing costs.
Remember, default in housing means negative equity in a sale, plus a negative life event: unemployment, death, disability, disaster, or divorce.
The problem is bigger than Anger Renter represents, which is why the politicians will do something (though it will likely be ineffective). Politicians care about the banks, also… bank failures are not conducive to a happy economy. Renters tend to not have much political clout, because they aren’t usually well-off. My view is that Angry Renter as a movement goes nowhere. Now, if you could get the relatively well-off freeholders involved, that could be another thing, but, I still think opposing a bailout would fail politically — politicians care about the banks.
You say “I own my home free and clear…”
In the context of your post I do know what you mean. I’m sure you are aware of the following, but please indulge me:
No-one owns any property free and clear, period.
If you stop paying the fee to live in “your” house (aka property tax) you will no longer be allowed to stay there.
So who really owns the house?
P.S. Nice blog post.
The politics of this strike me as follows:
- Existing freeholders won’t object to the bailout as it will be seen as protecting the equity in their homes.
- Renters won’t object, not only because they tend not to be well organized politically, but also because at a visceral level they think someone else will pay for it.
If either group was really concerned about fiscal distortions related to home finance, why does the mortgage interest deduction still exist?