Re-thinking American Dream

When announcing his $800-billion economic stimulus package last February in Fort Myers, Florida, which had the dubious distinction of being the U.S.’s mortgage foreclosure capital in 2008, President Barack Obama, said: “I  know entire neighbourhoods are studded with foreclosure signs, and families across the city feel like they’re losing their foothold in the American Dream.”

A series begun last week by San Francisco-based real estate news wire, Inman News, outlines the extent of the crisis in the U.S. and how the foreclosure wave is causing planners to re-think their views of America’s suburbs and urban and rural environments. 

While the American Dream has suffered a severe blow, many see it as an opportunity. Some of the issues they are discussing can also be applied to Canada, although neither the Canadian economy nor the real estate market has been as severely crippled as is the case in America. In fact, WinnipegREALTORS® reported that February MLS® sales were off by just seven per cent when compared to the same month last year while condo sales remained essentially the same. And the average selling price of a home for the first quarter was up five per cent over the same quarter in 2008. Those involved in the U.S. real estate market would be ecstatic if such strong numbers were being recorded.

The first article by Gilbert Mohtes-Chan uses the troubled Fort Myers suburb of Lehigh Acres as an example of the impact of the crisis. Developers brought thousands of acres of farm land and carved out 100,000 lots, leaving little room for parks, schools and even businesses, according to the article.

“For decades, most lots stayed empty until the housing boom erupted in the early 2000s,” wrote Mohtes-Chan. “Lots selling for $1,000 to $2,000 (all figures in  US dollars) fetched $6,000 or more two years later — even though some outlying sections didn’t even have electricity. There were no sewers, only septic tanks.

“By the end of 2006, more than 28,000 houses were built in Lehigh Acres and investors ran up prices by flipping houses time after time — some homes sold and resold without even being occupied.”

“Then the bottom fell out. Today, homes sell for about $45,000, roughly a third of what they cost to build.”

California is now at the forefront of the American recession with its unemployment rate among the worst in the nation and foreclosures and threats of foreclosures taking a toll upon the American Dream.

In Riverside and San Bernardino counties, 250,000 homes are at risk of foreclosure and another 100,000 homes are in foreclosure or default. To demonstrate the extent of the crisis, there are about 200,000 housing units in all of Winnipeg.

Across the U.S., the glut of foreclosed homes, abandoned houses and half-built subdivisions are a visual reminder of “unfettered zeal” that led to the destruction of the American Dream.  Speculators drove up home prices to unprecedented heights. TV shows such as Flip This House glorified the speculators, leaving the impression that making a fortune required just a few dabs of paint, a new picket fence or oak kitchen cupboards. 

Unrestrained exuberance to accumulate debt in the form of anticipated continued value in homes became an obsession. Mortgages were handed out to virtually anyone. Mortgage lenders filled in whatever salary they wanted to ensure the loan was made, allowing borrowers to purchase homes they were not in a position to afford. People, enthralled with the prospect of becoming part of the American Dream, gladly accepted without thinking of the consequences down the road — and there were dire consequences.  

Time magazine ran an essay in its April 6, 2009, issue using the analogy of the grasshopper and the ant to explain the roots of unbridled excess in the U.S. “The ant, is disciplined, the grasshopper parties as if the good times will last forever — and then winter descends.”

Winter descended in all its fury.

When it was finally realized the housing market was unsustainable, the collapse in housing values needed to maintain the excessive pace abruptly ended, sending Wall Street and banks across the world into a tailspin. Unable to afford increasing monthly mortgage payments — sub-prime mortgages were at adjustable rates which were adjusted into the stratosphere after a couple of years of easy payments — many received eviction notices or simply locked the door and abandoned their homes.

More than 1.2-million homes went into foreclosure in 2008 in the U.S. Analysts are now predicting eight-million more homes will be foreclosed from 2009-12, with the once fast-growing regions in South Florida, the Sun Belt and inland California leading the pack.

In the April 20, McLean’s magazine article, On the Front Lines of America’s Meltdown, writer Jason Kirby, quoted University of California-Merced economist Alex Whalley, who said people are watching California closely because it is a barometer of what will happen elsewhere.

And what is happening in California is not pretty. Kirby wrote of one woman and her husband owing $135,000 more than their home is worth and are barely hanging on.

Yet, there is opportunity. City planners are starting to re-think suburbia, which in the U.S. is becoming plagued with problems similar to those once only associated with inner city neighbourhoods such as abandoned homes; increased crime and vandalism; overgrown yards; and declining home values resulting in a shrinking tax base. According to Mohtes-Chan, families are beginning to re-evaluate long commutes on overcrowded highways and high energy costs when making choices of where to live.

“Picture bustling downtowns with twentysomethings and empty-nesters living in high-rise condos, suburban villages with light-rail lines, quaint shopping districts and scaled-down McMansions and rural towns with public transit stops and high-density mixed-use complexes designed for shopkeepers, home buyers and renters,” said Mohtes-Chan.

The American Dream hasn’t ended, it just has to rewind to another era.