The Spark

“The emancipation of the working class will only be achieved by the working class itself.” — Karl Marx

Their crisis is costing us our homes

Apr 16, 2007

Sales of new homes are in a definite downward slide – and perhaps the beginning of a collapse. This comes as no surprise, since the financial markets have poured vast sums of money into real estate speculation in recent years. The bottom was bound to drop out some time.

With the slowdown of sales comes a real drop in housing prices. Many people who bought a house in the last two or three years now discover that the value of their house today is many thousands, if not tens of thousands less than what they paid for it.

People who bought homes recently are not the only ones to be hit in this downward spiral. So are many of those people who didn’t buy a house, but only refinanced their mortgage – in order to take money out of their house to cover expenses – or to cover growing credit card debt.

For the past two decades – as our wages fell progressively behind inflation, as good paying jobs dried up, replaced by low-wage jobs – more and more of us have fallen deep in debt. At the beginning it was credit card debt. Then, as credit card debt mounted to tens of thousands of dollars, the big mortgage companies began to push “debt refinancing” – trade in your credit card debt for a bigger mortgage on your house. Seeing no other possibility, many people did it, hoping that the future would bring a good change of fortune.

Well, the future is here, and it didn’t bring that good change.

It is bringing a collapse of the housing markets. And this has produced a situation where the equity many people own in their home is less than what they owe the bank. And the banks have one standard answer to that: pay up or get out.

Last year, nearly a million homes were foreclosed on. This year, experts expect it will be a million and a half, perhaps more.

All of this was made worse by the kinds of mortgages the big lenders pushed on home buyers or even on those who refinanced their mortgages: low introductory interest rates – often combined with no money down. But that was only the lure – and it was followed within a few years by increasing interest rates. For example, people who started out paying 5.5% on a mortgage two years ago find themselves paying 8.1% today. In another year, they may well owe more than 10% interest – enough to push payments beyond what many people can afford.

Many of these houses were seriously overpriced because the same financial interests giving out home loans were speculating in real estate – buying and selling houses, tracts of houses, big apartment buildings – and driving up the price with each purchase and sale.

Today, significantly over half of all people carry a mortgage that is too big for them to be able to pay it off should they run into any problems: a lost job, an illness, an unexpected expense on the house itself, or a fall in the price of their house.

We are living not only on borrowed money, but also on borrowed time.

And it’s not because we are spend-thrifts. It’s because, on the one hand, our jobs don’t pay what we need just to support a decent life; and on the other hand, capitalism is more and more a speculator’s paradise. Prices of gasoline jump skyward because the financial markets are speculating in barrels of oil. Prices of houses jump up for the same reason. Corn, water, even oranges – these are all the subject of speculation. And so everything costs us more as a result.

Our labor makes this capitalist society run. We have every reason to expect that, in turn, this society should provide us with all the necessities of life, including housing.

A system that turns the very necessities of life into the realm of speculation ought to be torn up and tossed aside.