Yesterday's Washington Post carried yet another article on the woes of declining housing prices, entitled "An ATM That's Out of Money." People are discovering that home values don't always increase. Not much new here that hasn't already been said many times - among its tidbits is the observation that economists are increasingly dividing into camps of either "the slightly pessimistic" or "the highly pessimistic" - but, I was taken by the description of one of the concrete effects of this decline on one Washington D.C. family. According to the article, the Woodhull family - who have been spending home equity on home improvement projects and additional real estate like there's no tomorrow (oops, turns out there IS a tomorrow!) - recently had to hold a family meeting in which the parents disclosed some bad news to the children. As stated in the article, "Now the pot is dry. The Woodhulls are feeling squeezed by bills, but with interest rates up and home prices down, they're reluctant to touch their home equity again. They called their six children into a family meeting recently, and Amy laid down new rules: No more impulse purchases or frivolous shopping trips. 'We're going to have to save our pennies,' she declared."
Now, this is pretty admirable - teaching a bit of financial discipline. But, it seems to be a discipline forced by necessity born of overextension, not choice and example. It is implied that this (representative) family has been engaging in all kinds of impulse purchases and frivolous shopping trips until now. The children - some nearly college age - are now being taught that you can't always get what you want. They are stand-ins for most of our 25-year and younger set. Too bad for them!
The economy will now increasingly force such discipline upon people and the nation as a whole, but it will not come easily after decades of binge spending. The Woodhulls have lots of bills - "multiple mortgage, insurance and property tax payments for their four properties, as well as costs of upkeep and utilities. Plus, they have six children to feed, dress, educate and care for." Their bills are a microcosm of the national debts we owe, and illustrate how such debt insidiously arose from a momentary spending spree by one generation at the expense of another. Writ large, we are about to tell future generations that they can't act like we have. Indeed, they are going to have it much worse. Sorry about that! We used up all the good stuff - the temperate air, the water, the petroleum, the topsoil. But, good luck anyway! Learn some discipline, kids!
Our predicament was summed up in a candid moment when Amy admitted that the spending binge was going to make it difficult to provide for their children's future: "'Jeez, we've got all these payments every month,' said Amy, 48, a radio network executive. 'Now, when I look at sending my son to college in a year, I can't refinance again. Rates aren't falling. . . . I'm kind of stuck. What are my options? Sell a property into a down market? I'm really feeling quite caught -- like panicked caught.'"
As our growth economy grinds down - as we discover that our 50-year post-war party was fueled by a one-time reckless fossil fuel burn out - increasing numbers of families will feel blindsided in just this sort of way. Our "wealth" is increasingly born of leverage and debt, with the to-date justified expectation that the wager would repay amply with the passing years. As the air begins to leak from the liquidity-inflated real-estate and leveraged hedge fund markets, the sources of actual wealth will need to be rediscovered - most immediately in the form of savings, discipline, and real work, and thereafter in the resources built and shared in concrete communities. Is this a future we have been preparing our children for? Or, more likely, is it the lesson that challenging and even dismal events of the future will end up teaching our children for us? If so, it will be a painful lesson, and a sad legacy that their parents and the greatest generation will have left them.