Friday, July 06, 2007

What Makes a House a Home: Debt and Laundry

Big surprise. The housing boom is not booming anymore, at least in most of the country. During the boom, many homeowners, including a great many first-time buyers, took advantage of easy credit (especially sub-prime loans for people with less than stellar credit histories) and loans that were structured primarily for the benefit of the lender (such as interest-only loans). While property values were climbing and interest rates favored homeowners, many people took out home equity loans to get extra cash to pay for home improvements or, I suspect in a lot of cases, just to buy more stuff.

And now, with money tightening and refinancing interest rates no longer on their side, these folks are stuck and often can't make their home equity loan payments. According to a July 3rd press release from the American Bankers Association, delinquencies in this debt category rose to 2.15% in the first quarter of this year, an increase from 1.94% last year. It's a situation that presents an ironic twist on the old rule about gambling in Las Vegas: the House always wins.

Another ironic twist is that the very next day, "Independence Day," an article by E. Scott Reckard and Andrea Chang in the LA Times about consumer debt indicates that independence is the last thing many consumers are achieving. They cite information from David Jones, president of the Association of Independent Consumer Credit Counseling Agencies:

". . . anecdotal evidence reflects more people under financial stress. . . . [CCCA] members were reporting more debt-ridden consumers unable to make monthly payments, often on mortgages with adjustable rates that now are ratcheting higher after initial teaser rates ran out."

In previous decades, people sacrificed in other areas of their lives in order to pay their mortgages and hold onto their homes. That's no longer the case. Todd Emerson, president of Springboard, a nonprofit consumer credit management organization in Riverside, California, comments:

"People today, in order to keep themselves alive, they're paying off their credit cards first rather than paying off their mortgages first in order to keep an open line of credit. . . . Many of those homeowners bought expensive properties with a 'figure it out when they get there' mentality. . . . Trouble is . . . they never figure it out."

So the final irony is that after reading all about the debt problems plaguing homeowners, I recalled that a recent LA Times (June 28) had featured this Home Section's trend update for those who want to be considered fashionable:

"Is That Evian in the Washer? Conspicuous consumption creeps into the once-humble laundry room, where stone floors, chandeliers and other luxe touches are in."

Writer Janet Eastman's article explains:

"Now that kitchens are equipped to impress a chef, bathrooms look like spas and closets can hold a diva's wardrobe, the laundry area is ready for its close-up. It's moving out of the garage and into a larger space often near bedrooms — the starting and stopping points for most laundry. The room is being outfitted with warming drawers for clothes too dainty for dryers, rotary presses to iron sheets and laundry sinks with whirlpool jets to clean bulky comforters.

And for those who miss the simplicity of a clothesline? A $3,750 indoor air-drying unit promises to deliver something close to a fresh-breeze scent."

Stone floors? Chandeliers? An indoor air-drying unit? After many years as an apartment dweller, when we moved into a house I was thrilled simply to have laundry facilities that didn't require leaving the premises. Now that we're in a smaller townhouse, I'm still thrilled about that wonderful convenience and I cope quite comfortably with a washer and dryer hidden behind louvered doors in the first floor powder room. But, as is often the case, the perspective of the wealthier denizens of the Los Angeles area is different:

"In some estates in Bel-Air and Beverly Hills, the laundry rooms are 400 square feet or larger, allowing a maid and professional ironer to work together — not a concern for most homeowners."

No, most homeowners don't have to worry about the hired help struggling to function in cramped quarters. And because perspective is always important, I have no doubt that plenty of New Yorkers would have a few choice words to share about laundry rooms of that size. Four hundred square feet does make a pretty fine apartment in Manhattan.

So, what we can conclude from all this is that consumers are paying off credit cards first, thereby jeopardizing ownership of their homes, but if they own homes and want to be cool, now's the time to fill up those credit cards to make their laundry rooms elegant. Okay, maybe I do still have one more irony left in me: doesn't it sound like a lot of homeowners are being taken to the cleaners?

(c) 2007 Cynthia Friedlob

No comments: