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The Cul-De-Sac Syndrome Excerpt from The Cul-De-Sac Syndrome

by John Wasik

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The Unattainable Home

Even before the home bubble burst, homes cost too much for more than four out of ten Americans. Only 56 percent of Americans could afford a modestly priced home in 2002, the first full year of the bubble. And as Americans went deeper into debt to finance their dream, they accumulated less and less of a tangible ownership stake. Home equity as a percentage of market value peaked in 1982 -- at 70 percent -- after a brutal recession. More than half of American homeowners with a mortgage would owe more than they owned at the end of 2008. About 7.5 million were spending more than half of their income on housing costs.

The craving for upward mobility through home ownership escalated even as families on the edge of "making it" were falling behind economically. The think tank Demos said that 23 million families became "economically insecure" from 2000 to 2006, while 4 million experienced economic decline. This erosion in prosperity was triggered by a 22 percent decline in financial assets (following the dot-com bust), loss of health benefits, and an overall rise in the cost of homeownership (up 9 percent during that period). The reaction to this backsliding -- buying a home as an investment -- was the equivalent of a couple on the verge of divorce deciding to have a child in hopes that it would save their marriage. For more than 3 million in or facing foreclosure in 2009, this thinking proved financially catastrophic.

The housing bust represents a profound loss of wealth since few households had significant savings outside of their homes, as values dropped to a median $200,000 in early 2009 from $221,900 at the height of the bubble in 2006. In California, always on the fault line between profound innovation and multiple disasters, the boom and bust was a tragic manic-depressive episode. The median home price in Southern California alone slid to $285,000 by the end of 2008, 44 percent below the peak of $505,000 in 2007. Although the decline allowed more people to afford homes, even during the bust only one-fifth of Los Angeles residents could afford the median-priced home -- up from 2 percent during the boom.

The Bust's Fallout

The housing bust created a firestorm of collateral damage.

The above is an excerpt from the book The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream by John F.Wasik. The above excerpt is a digitally scanned reproduction of text from print. Although this excerpt has been proofread, occasional errors may appear due to the scanning process. Please refer to the finished book for accuracy.

Copyright © 2009 John F.Wasik, author of The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream