We’re creating… an ownership society in this country, where more Americans than ever will be able to open up their door where they live and say, welcome to my house, welcome to my piece of property.
– President George W. Bush, October 2004
h/t Think Progress
As economist Paul Krugman once explained, “[B]orrowing to buy a home is like buying stocks on margin: if the market value of the house falls, the buyer can easily lose his or her entire stake.” And that’s just what happened after the financial sector collapsed during the Bush administration. The housing bubble deflated. Real estate prices are down an average 30 percent nationwide. More homeowners now owe more money than their homes are actually worth.
Wall Street billionaires and real estate moguls go into default when they want to cut their losses on a business deal gone bad. Why not home buyers? When a home’s value falls below 75 percent of the amount owed on the mortgage, the owner starts to think hard about walking away.
The number of Americans who owed more than their homes were worth was virtually nil when the real estate collapse began in mid-2006, but by the third quarter of 2009, an estimated 4.5 million homeowners had reached the critical threshold, with their home’s value dropping below 75 percent of the mortgage balance.
They are stretched, aggrieved and restless. With figures released last week showing that the real estate market was stalling again, their numbers are now projected to climb to a peak of 5.1 million by June — about 10 percent of all Americans with mortgages.
Help is not on the way. The Obama administration isn’t able to subsidize the real estate market– by one estimate, it would cost $745 billion. Also, Senate Democrats failed to pass “cramdown” legislation that would have enabled bankruptcy judges to allow homeowners to renegotiate mortgages.
Victims of the “ownership society” can keep up with the payments, even though there may be better uses for that money, or they can mail the keys to the bank.
Of course, the financial powers that be are counting on Americans to honor their bad mortgage deals. Some people have an emotional attachment to their homes. Others actually believe “personal responsibility” is more than a slogan, and refuse to adopt Wall Street style amorality. Others can’t afford to have a bad credit score. But more and more are walking out. Some who lost their jobs in Bush’s Great Recession have no choice.