The Microeconomics of Suburban Subsistence (February 7, 2005)

[Thirty-six (36) Senators voted to reject the nomination of the legal architect of torture; there is hope.]

Seven years ago at the age of 30 the prospect of paying off a 30 year mortgage was incomprehensible, so they did not comprehend it.  She liked it, the kids liked it, the dogs liked it.  $150,000 was a lot of pizza and beer but with a few sacrifices not much more than the monthly rental payments.  Empty photocopy paper boxes still served well as end tables.  Seven years have passed; seven summers, with the length of seven long winters. They are finally retiring some of the interest obligation and will retire the mortgage before they retire at age 65.  They don’t expect to be able to retire until the house is paid for.

The news states that the value of the place has gone up and interest rates have come down.  $250,000, for the bungalow?  But the equity was just sitting there.  A friend who is a broker provides a broker’s opinion of value (BOV) for $275,000; the friendly bank provides the money.  They are now seven years older paying more on the place for another 30-year sentence.  67 isn’t all that old.

For what?  Some of the money pays off credit card debt which is not what the homebuilding industry intended when they constructed the mortgage interest deduction.  The couple’s decision is rational to the extent that the interest payments for the mortgage are deductible, whereas the interest payments for the credit card debt for his beer and her shoes are not.  Someone once observed that one should never ever ever ever ever ever ever finance something for longer than its useful life.  His beer has a useful life of one night and her shoes have a useful life of a fortnight.  They do not even sell replacement shoestrings for women’s shoes.  Those living on a shoestring budget discover that credit cards are the crack cocaine of the middle class.  An over-leveraged mortgage is its Methadone.  Methadone cures one addiction and creates another.

The news states that his company is downsizing.  Everyone hates his job except when he does not have one; how he loved the job he hated.  Life was never “easy come, easy go,” but “hard come, easy go” worked while he worked.  They say there may be some rehires in two months, but they are two paychecks away from bankruptcy.  If they skip the mortgage payment for a month or two, they can buy more time.  The foreclosure process takes three months anyway.  Another credit card solicitation arrived with today’s bills.  The problem and the recent solution are delivered in the same box.  The finance company won’t repossess three-year old furniture with negligible salvage value; caller id allows them to continue ducking the calls from the collection agency.  He had the better health care plan; she opted for the better retirement plan with her company.  It worked so well when it worked.  Little Egbert is not well.  Loss of a job, an illness not covered by health insurance, and divorce are the three horses of the suburban apocalypse.  The Surgeon General has determined that unemployment can lead to illness.  Unemployment and illness tax a marriage.  Taxes and money issues really tax a marriage.  All three horses are chomping at the bit.

The news states that the company is taking an extended overseas vacation.  Housing prices drop 30 percent in the community.  The estate is now worth $175,000 on a good day.  Why continue paying off a $275,000 note on a $175,000 house?  The adjustable-rate mortgage (“arm”) sounded good at the time, but with rising interest rates it now has them in a headlock.  An “arm” could be a shorthand word for “costs an arm and a leg.”  And the rising interest rates drive up the actual cost of a $175,000 house to the few otherwise curious buyers.  Why not return the keys and rent a place?  Last year’s thought that the equity in the house might be part of the overall retirement plan is quaint and distant.

Home ownership is one of life’s joys.  Home ownership is part of “the pursuit of happiness” even if the roof, the faucet and the foundation leak.  This piece is intended to be analytical rather than judgmental.  Who is at fault and what to do is another concern.  Our friends in Suburbia are under “economic house arrest.”  Visiting them in six months may not be pretty.

Ontogeny tends to recapitulate phylogeny, they say.  These economic decisions are also the core of the current business plan guiding the Republican government.

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