Make Offer

So it’s come to the end of another gorgeous holiday weekend, right here in the middle of the summer of our discontent. I don’t know what happened—from everything I read and heard, I had come to believe the third quarter would usher in the recovery, albeit mild-mannered, from just whatever it is we’ve been going through. Hey! We’re almost a week into the Q3, 2009! Where’s the recovery?

Well, perhaps as Jeff Immelt said, this is not so much a recovery as a “re-set.” To me that always conjures the picture of returning all the Monopoly money, markers and cards back to the box and starting all over again—it’s the same general setting and rules, but maybe fortune will smile on me differently this time around. Perhaps at best it is at least a new hand in an ongoing card game—see above for details.

OK, then. With this concept in mind, I’ve been thinking about the possible advantages that could emerge from everyone taking a new position at the card table. As Chris Thornburg recently pointed out, while the dizzying drop of home values has caused real pain to many, many people at the same time, it has re-created an environment of “entry level housing” for a bunch of others, even here in pricey southern California. The data would prove this out, as more and more first time buyers are moving on properties whose prices make it feel like 2004. And good for them! (Even though many of these homes were sadly lost to foreclosure by the departing former owners.)

The dark cloud out on the horizon, as I hear it, is the large number of prime mortgages that are moving ever closer to default and ultimate foreclosure. In this case, more middle-of-the-road families, or even “up-and-outers,” are gazing down the barrel of bank action on their properties. Probably some of these folks over-leveraged their homes in the financing frenzy that affected all of us to a greater or lesser extent. Or even more unfortunately, someone has lost a job and ends no longer meet. For whatever sad reason, many homes will need to be given up. In some cases, there are no buyers for these properties due to the high price tags and inaccessible credit. It’s another big mess waiting to happen.

So, call me crazy, but I’ve been seeking for some upside in this approaching cranky cumulus, and I think I may have come up with something: better garage sales. Seriously, I’m saying this without the least bit of cynicism or sarcasm. In my first dwelling following college, if it weren’t for garage sales and charity I would have lived like a monk—sleeping on the floor and crafting my late night missives longhand by the glow of a bare lightbulb. Over a period of few weeks I managed to upgrade from futon (hand-me-down) to a chaise lounge (rummage sale) that got me up off the floor. (This piece of furniture–believe it or not—is still with me. It has such a great form that some years after we purchased our house my wife had it recovered, and it is still essential to our décor.)

Anyway, in the early years of our marriage, we often shopped at yard and garage sales, and occasionally scored some real finds. Then it seemed, over the years, the general quality of the content of these impromptu swap meets seriously declined, and eventually, we stopped looking. (One could argue that our tastes changed as our incomes grew, but that would be quibbling.)

Now, I see the same experience opening up for a whole new generation for first time homebuyers. As some of the prime-mortgage homeowners need to either “stage a liquidity event”, or in dire cases move out to smaller quarters, I have to believe that some of the stuff that was acquired in the “house-as-ATM” stage will find its way to the driveway or curb. Young “garage salers” (as we used to call ourselves) could pick up some great bargains on quality merchandise. Not only would this be a good deal in many cases, but it is also certainly more sustainable than sending stuff to a storage facility, or, worse yet, to a landfill.

Some of the dislodged owners will probably need to rent for a while, and I’ve heard they typically look for somewhat higher-end rental properties. This migration may help take some of the pressure off dropping rents, which would be good for the multifamily sector.

I would never want to make light of anyone’s misfortune or hardship, but sometimes these things just have a crazy way of sorting themselves out.

(Daniel Gehman is principal at Thomas Cox Architects. He can be reached at DanielG@tca-arch.com)