There's an old joke that begins by asking: What happens at a dinner party in San Francisco?
Well, first people talk about what they had for dinner the night before. Then they talk about what they're about to eat tonight. Then they talk about what they plan to have for dinner tomorrow -- and finally, everybody talks about how much they hate Los Angeles.
These days, an L.A. dinner party follows a similarly predictable course: First, everybody makes a ritual denunciation of the wretched traffic they encountered on the drive over. Then they talk about real estate, and then they talk about real estate some more.
The not-so-funny thing is that -- except for the obligatory moans over traffic -- that's pretty much how things go these days in Miami, Charlotte, Austin, Phoenix, San Diego and Portland as well. Our collective obsession with the rapidly deflating property bubble -- the annual median price of an American home has fallen for what may be the first time since the Depression -- is so powerful that it decisively shaped the economic stimulus package just worked out between the House and the Bush administration.
Along with the traditional tax rebates designed to spur growth through spending, the plan proposes to lift the cap on loans insurable by the Federal Housing Administration from $367,000 to a whopping $729,750. Depending on how things come out in the Senate, the federally sponsored loan buyers Fannie Mae and Freddie Mac may have their mortgage cap lifted from $417, 000 to $729,750. The FHA increase is particularly significant because the agency was set up to provide mortgages to first-time buyers, including those with spotty credit and down payments of as little as 3%.
There's more than economics at work here -- there's politics. In fact, it's hard to imagine the bitterly divided House reaching bipartisan compromise with such alacrity -- let alone reaching an agreement with so narrowly partisan a White House -- were this not an election year.
According to every reliable poll, the economy has overtaken Iraq and Afghanistan as the top issue for voters. Last week, according to the Pew Center for the People and the Press, 42% of Americans said they were following the economic news "closely," and one in five were following it more closely than any other story -- including the latest Britney Spears coverage.
"When asked what one economic or financial problem they have been hearing the most about in the news recently, a plurality of Americans point to problems with the housing market," Pew reported. "More than 3 in 10 (31%) mention the sub-prime mortgage crisis, the increasing number of home foreclosures or falling home values. This is more than twice the percentage citing any other economic problem, and more than five times the number who cited the stock market during a week when the market lost more than 500 points."
With numbers like that, it's no wonder that the Democrats' leading presidential candidate, Sen. Hillary Clinton, has proposed a moratorium on foreclosures until some more comprehensive intervention can be devised. ("It's the economy, stupid.")
The unusually large number of Americans who own their own homes is more than an economic engine, it's one of the jewels of our democracy. Thomas Jefferson understood that a nation of freeholders is a nation of stakeholders -- people whose individual interests are enmeshed with those of their community. In other words, they vote and pay taxes and worry about whether there's a stoplight on the corner next to the kids' school.
Over the past couple of decades, though, what was once part of the American dream has been -- like nearly every other aspect of our lives -- commodified. People's houses went from being their "homes" to being their "largest personal investment." That trend accelerated when ingenious financial institutions, always eager to find new ways to profit from monetizing investments, devised ways for people to tap their home equity like piggy banks. In the blink of a trader's eye, your house was transformed from the home in which you planned to spend your life into a long-term investment into a fungible asset.
The sub-prime mortgage debacle may have turned the American dream into a shell game, but as the congressional stimulus package suggests, there's little impetus for Washington to do much of anything -- but double up the bets.