First off, a sincere thank you to all you who took the time to wager a guess or five on the water contest from yesterday. I have to admit, for all of my water watching skill, I had to check my cheat sheet to remember the order. It was a tough contest, and I didn’t mean it to be quite so torturous. The correct order is, Summer, Summer, Winter, Fall. Sorry it was so hard, but thanks for the effort. I’ll have plenty of other chances throughout the winter to win one of those very cool Neal Aspinall prints, the next contest involving the ice up date. Yes, even though algore said we only have five years left before we all melt, Geneva defies all the manipulated odds, and freezes in the winter.
I wanted to write a follow up from my Strategic Default piece I wrote earlier this week. The trend of strategic default, which according to the Wall Street Journal increased more than 400% between 2004 and 2008, is coming to the forefront as the rest of the world finally figures out that negative equity combined with a social, government sponsored acceptance of the action, is the primary, driving force behind the foreclosure phenomenon. That 400% increase doesn’t even include 2009, and chances are, strategic defaults will escalate through 2010. The thing about these defaults is that the buyer who chooses to do so also has to live with the lasting ramifications of that action. Credit scores are pummeled, and those who default without already owning other homes will be relegated to renting for the next 3-6 years. As lenders tighten lending standards, in spite of urging from Obama (in the same breath that Obama tells the banks they’re at fault for providing too much easy money, with a straight face, he tells them it’s now their responsibility to lend more to bail us out of this mess- don’t blame me, I voted for the war hero), it is going to be more difficult to get a loan moving forward, particularly after you’ve proven yourself willing to walk away from a loan and stick the bank (and its shareholders and your tax paying neighbors) with the loss. In other words, if you default, plan on renting for at least 3 years, but probably more like 5 or 6. To say nothing of every loan you try to get during that time frame, including credit cards, auto loans, the biggest impact on your frame of mind is your forced renter status.
It was just a year ago that I was living in someone else’s house. Staring at their white walls. Annoyed by their carpet color. Angry with myself for erecting a small, fake, decidedly un-festive fake Christmas tree. I was renting, as I have on three other short lived occasions in my life, because I sold my beautiful Geneva National home in order to watch the market from my cash position, hoping to take advantage of the REO properties that would be coming to market. My move, like a strategic default but without the nagging guilt, was made purely based on economics. The move made sense to me, and I felt good about it for a couple of months. Then, after nearly six months in the rental, Christmas came, and I was depressed. Here I was, able to own a home, wanting to own a home, and yet I had my family holed up in a beige and white box during the Holidays. There was no joy in that house, and it had more to do with my ownership situation than my back pain.
Renting is, for many people, a good idea. When I say many, I mean very few. Renting might make sense financially at times. It might make sense from a lifestyle angle at other times. But renting is, in my renting experience, lame. My last rental had a nice pool right in front of a large deck that extended from my rented living room. It was, by all accounts, a very nice rental. The problem with it was that it was someone else’s house. Decorated in a style that someone else thought was nice. It might have been a nice house, but it certainly wasn’t my house. Ownership is a pretty powerful thing, and there’s nothing worse than occupying a rental while pining to be an owner. Strategic default, or those otherwise foreclosed on, forces people to become long term renters, without a reprieve in sight for upwards of five years. Whereas I was able to get sick of renting and purchase a home as soon as I found one that suited me and my family, default renters have no such ownership latitude.
Next time you hear someone contemplating a strategic default, be it in Lake Geneva, Hinsdale, or San Diego, make sure they’ve considered how being a renter for the next five years sounds to them. Financially it may make sense. It may even make sense from a lifestyle standpoint. But once the Holidays roll around, just ask yourself this – Would Clark Griswold have been able to staple all those Christmas lights on his house if he had been a renter?