I Feel A Rant Coming On ...

So I'm reading this rather humorous (to me, since I don't live in Florida or have a subprime mortgage) Bloomberg story, about a Miami suburb where the homeowners are finding themselves having to tighten their belts. One guy's cut his weekly grocery bill by $70. Okay, that eats into the necessities, depending on what he bought in the way of groceries before. A neighbor canceled his cable TV subscription. Not quite a necessity, but something most of us take for granted.

Then we move to the theatre of the absurd. Another woman cut her 14-inch-long tresses down to three inches so she wouldn't have to shell out for "Japanese-style thermal straightening" treatments at the salon, and she's kicked her $400-a-month shopping mall habit. The poor thing: she "hasn't bought any new clothes or shoes since October." October! And another poor soul cut out his $50-60 a week Guinness habit. Brilliant!

The local homeowners' association finds itself in a pickle due to the area's housing woes (Miami tied for Las Vegas for the ignominous title of biggest loser in US home values among the 20 metro areas covered by the S&P/Case Shiller survey, down 19.3% year-over-year as of January). Eight of the neighborhood's 153 homes are in foreclosure and 15% of those that aren't are delinquent on their homeowners' dues. So the homes association is cutting back on landscaping and other improvements to cover an anticipated shortfall of at least $20,000.

Brief aside: in the Tampa area, one school district is facing similar shortages due to lower property tax receipts, and the fact that it has some of its cash management funds tied up in the state short-term fund that invested in long-term subprime debt, tried to cover it up until it was too late, then reported major losses. Those losses are so severed that they've blocked withdrawals from the fund until at least September, meaning those that used the fund for monthly cash management have to find money elsewhere. So the school district is switching from hot dogs to turkey franks for the remainder of the year, which will save $25,000.

Back to the Miami suburbs. Now, normally I might be able to feel somewhat sorry for these people. (I certainly feel sorry for the Tampa kids who have to eat turkey dogs, though they'll probably live longer for it.) I wouldn't want to have to pare the grocery bill by $70 a week, though I'm sure I could. I doubt I'd miss cable, but my wife and daughter would. And while I don't feel sorry for the lady who had to cut her hair, I applaud the move. My hair's about a half-inch long, and I use coupons from Great Clips to get it cut.

I have no sympathy, however, for her foregone monthly shopping sprees, or for the guy who was dropping $50 every Friday night on Guinness. But there's something even more disturbing about these stories. Something about which I must rant.

From the haircut lady: "I looked at my house as a bank account that was going to accrue interest on a daily, monthly, annual basis. I'm looking at not gaining money on this stock that I call a house, and may actually lose money."

Uh, lady, there are a couple of important lessons here. First, you should always look at a stock as something that, if you invest in it, could result in your not gaining any money, or actually losing money.

Second, and more important, you call this "stock" a "house" because ... well, because it's a house. Not a stock. Not a bank account. It doesn't accrue interest. And it doesn't have to go up in value. As Pumbaa said in "The Lion King," "Home is where your rump rests." It ain't a portfolio, unless you're a speculator, and you live someplace else.

That's a big part of the problem. People look at their houses as things that will always go up in value, that they can cash out on at a profit, that they can continually suck equity out of like an ATM with an attached garage.

It's none of those. It's a place to live.

Need more proof that these people aren't the hapless "victims" of predatory lenders that Hillary et al would have you believe?

The haircut lady, a single mom, moved into the neighborhood from L.A. in 2004, "lured by the lower costs and slower way of life." She bought the house - "her first, for about $350,000 and she intended to sell for a higher price after five years ... Her house hasn't appreciated since January 2007, when it was worth about $425,000."

What's wrong with this picture? For starters - your first house costs over a third of a million bucks? What's wrong with a nice starter home, something in the $150,000 range? Second, why was she planning to sell in five years? Most likely, because she leveraged herself into more house that she could afford with a subprime ARM that would reset in five years, and she was counting on her "bank" paying enough interest to sell at a profit and actually be able to afford the next house she bought.

And third, she realized price appreciation on non-interest-earning residential real estate of $75,000 over three years or less. That's a return of better than 7% in an environment when inflation averaged about 2.5% or less. What goes up too much, must come down a lot. But a year later, she's still sitting on a 5%+ return, which is still pretty good, unless you're being piggishly greedy. And as the old Wall Street saying goes, bulls make money, bears make money, but pigs get slaughtered.

One resident is "a 34-year-old executive assistant." Her husband's sister moved next door, buying a $330,000 house "with no down payment in 2006." Last August, her mortgage payment went from $1,900 to $3,000, and the house went into foreclosure. The sister-in-law's profession? Manicurist. I don't get manicures, but I can't imagine many manicurists who make the coin to drop a third of a million bucks on a house.

The Guinness guy? He's an energy analyst for the Coast Guard. He makes $69,000 a year. These houses apparently went for anywhere from $330,000 to $400,000 a few years back. That's roughly 5.3 times his salary. Whatever happened to the old rule of thumb that you shouldn't buy more house than a price of 2.5-3.0 times your salary will get you?

The grocery guy was smarter - at least at first blush. He was a trading assistant at Dean Witter (trading assistants don't make squat, by the way, unless the traders they assist cut them in on their spoils). He paid $201,000 for his home in 2001, and nearly scored a three-bagger within six years, as its value appreciated to $595,000. Even today, it's worth $450,000, well over twice what he paid. So why's he cutting back on the grocery bills?

"He took out a home equity line of credit in 2006 to refinance a second mortgage with a variable rate."

In the immortal words of Charlie Brown, "AAAAAUUUUGGGHHH!"