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The Sub-Prime Demographic Shift

April 22nd, 2008 | by Jet Netwal |

 

Focusing on the foreclosures shows only part of the sub-prime fiasco’s effect on our country. Yes, we’ll have displaced people, a swelling poverty base, and an overall loss of consumer wealth. It will impact our businesses, manufacturing sectors and economic stability. Rising food and gas costs (along with housing costs) make up the bulk of a consumer’s static monthly expenses. As the burden weighs in, some people are forced out of their homes, and others are selling rather than stay and die of the slow pinch, regardless of the type of mortgage they have.

We’re about to witness the death of urban sprawl.

(David) Stiff says home buyers’ attitudes have changed. The old rule was, “Drive ’til you qualify” - meaning they should go out from the city until they could get what they wanted at a price they could afford. — NPR

What’s happening now is completely different. Homes closer to cities with short commutes to jobs are selling well with tons of buyers and their home prices up 10% or more in some areas. The farther the home is from the city and the jobs it holds, the greater the plummet in prices.

Realtor Danilo Bogdanovic surveyed two rows of neat, new, brick townhouses on Falkner’s Lane. “These were selling for about $550,000 at the peak, which was about August ‘05, and they’re selling right now for about $350,000,” Bogdanovic said. “Fifty percent of this community has been ether foreclosed on or is facing foreclosure.”

For residents who work in the city, their commute is around an hour on trouble-free days. But that can extend upward toward two hours. - NPR

I hate to be cynical here, but the so called “white flight” is coming home to roost. The majority of homeowners who fled the city to the outlying areas are about to take a big spank on the bottom line.

Of course, other scenarios may unfold in conjunction with the suburban exodus. Businesses could begin relocating to outlying areas to tap cheap prices and available labor. We might see a rise in crime in suburbs as the money base shifts back to the city, further lowering the value of suburban homes. Hopefully we’ll there will be a better blending of nationalities as cities repopulate with the influx of residents.

I hope that city managers throughout the county see this for the opportunity it is, and work to improve their offerings to the suburbanites headed back into their fold. That means safe, affordable housing for the displaced as well as for those who are still able to buy, and the infrastructure to move them around quickly. Provide universally good, plentiful schools, adequate parks and enough grocers to keep the gouging at bay. Deploy an evenly distributed police presence. Make your cities rock, and you won’t lose this tax base in 20 years when they can afford to leave.

Learning from your mistakes is the key to success, and a potential silver lining to the ruination of so many American dreams.

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  1. 4 Responses to “The Sub-Prime Demographic Shift”

  2. By Ken Grandlund on Apr 22, 2008 | Reply

    As one of those suburbanites with a long commute, I can agree with your conclusion-and in fact said much the same thing in a post years ago- how we create our living centers has a direct effect on the environment as well as on our use of resources and our collective community make-ups.

    Flight to the suburbs was a direct result of cheap energy and land. This is not the model for the future.

    Now my family, though still managing to stay above the water, will soon be facing a similar economic quandry- stay and hope for the best, try to sell and not take a huge loss, or take the loss and start anew. For now, we’re sticking with option 1, not because we have our heads in the sand, but because the other two options are too untenable to digest. But in the back of my mind, I fully realize that a change is a-coming, and we’ll need to do some serious re-evaluating in the not too distant future.

  3. By Jet Netwal on Apr 22, 2008 | Reply

    My husband’s commute is becoming unsupportable, Ken. He is looking for a different employer. Hopefully, he’ll find a good fit. This is bad time to sell in Florida.

  4. By Jersey McJones on Apr 23, 2008 | Reply

    I heard the other day that British home values have declined up to 10% recently. This real estate thing could be just the tip of the iceberg. This is how the international dominoes tumble. Real estate crashes start in a few particular bubble areas. In the 80’s it was Houston and a few other cities. This time it’s whole swaths of the southwest and Florida. As with the ‘87 crash, these developers were backed internationally, but this time the level of development is exponentially expansive and all the more backed internationally. Good news for us Floridians, at least we’ll probably be aonmg those who come out of this first (a few years from now).

    And Bernanke had better be careful with this. His endless rate cuts - and otherwise obliviousness - will only exaserbate the problem. It’s time to tighten the belts and face our economic reality - and reality. ;)

    All you Barack and Hillary supporters should rally for them to CHANGE THE FED (and the SEC and all).

    JMJ

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