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Not Adding Up 

by Ted S. McGregor Jr. & r & & r & & lt;span class= "dropcap " & I & lt;/span & s it just me, or did it just get really expensive around here? Used to be that Spokane's ace in the hole was its affordability -- in everything from housing to electricity. Not anymore. The nation's housing boom has hit Spokane and Coeur d'Alene hard over the past few years. It's easy to feel a little flattered -- high real estate prices seem to be what all the cool cities are into these days. And despite the fact that it's helping drive our local economy, there's a dark side.


If you feel the same way, you're not imagining it; the boom is very real. According to the National Association of Realtors (NAR), the median home price in the Spokane metropolitan statistical area was $120,300 in 2003. They're projecting a jump to $172,100 for 2006. If you own an average home, you just made $52,000. But if you're dreaming of buying that first home, the bar just got raised a lot higher. And if you've owned your home for decades, are retired and on a fixed income, your assessed value is likely through the roof.


Here's another way of looking at it: Let's say you work hard, have an average job -- which, in Washington state in 2005, means you make $35,400, according to the U.S. Department of Commerce. So you'd be justified in wanting to own an average home, right? We'd better grab a calculator.


Lenders generally limit you to having monthly mortgage payments that are 28 percent of your gross income, so the bank says you can afford a monthly payment of $826.


Next you find a nice, average home, meaning it's priced around $170,000, according to the NAR. Say you can get approval to put only 10 percent down, so you'll be borrowing $153,000. If you can get the loan at a 6.5 annual percentage rate, on a 30-year mortgage, your payment [cue sound of deflating balloon] will be $967. Sorry, but you can't afford the American Dream.


And you can forget waiting this one out, since real estate prices are rising much, much faster than wages.


Home ownership has long been a cornerstone of America, but today, for too many people, it's just not adding up.





& lt;span class= "dropcap " & S & lt;/span & o how did all this happen? Wall Street types like to say the market has a kind of inherent wisdom to it. But markets have been known to be manipulated. I'm not saying this is pure greed as with Enron, but "the market" has certainly helped real estate to take off the way it has. Consider California, where the only way most people can actually afford a home is by borrowing via financial instruments that were once unthinkable. There's the five-year adjustable rate mortgage, the one-year ARM or, my favorite, the interest-only loan.


Here's how it works: A guy in San Francisco borrows a ridiculous amount of money -- way more than he can objectively afford -- to buy a house. In the process, others see what he has done, think and ARM or interest-only loan sounds great, and jump in, too. Nobody wants to miss out when a land rush is on. So the snowball starts to grow, and his little transaction plays a small part in driving the overall cost of real estate up ever higher. (This all works fine as long as his new home appreciates faster than his payments grow -- though that may all be changing as prices seem to be slowing down and interest rates are rising.)


But what happens next is the important part of our story. He thinks about moving to another house, but the prices are ridiculous, even for a crappy little bungalow. Then, during a ski trip to an old friend's house in North Idaho, he happens to grab a real estate book. After he wakes up from fainting, he makes his move. Sell the little house in California, and move to that killer estate outside Sandpoint -- he's probably a high-tech telecommuter, or maybe he's half-retired, so geography doesn't matter. That's a large part of the reason local prices have shot up since 2003. The rest of the West discovered our charming affordability, and the money started flowing in.


This is no knock on Californians or anybody else -- I love the new energy coming to our communities. It's just that this is all built on fantasy -- though it's very real for the people being shut out of the market. As more and more people start doing the math, and scenes like the mob in the Kootenai County Assessor's office after the new assessments went out last month are repeated, we may find there's a bit of a revolt afoot.


When the world changes this fast, it takes a while for people to catch their bearings, but when they do, as has happened during many a boom-and-bust in American history, there can be hell to pay. And no matter how many people say it's not about class, that's precisely what it's about.





& lt;span class= "dropcap " & A & lt;/span & nother thing people are finally waking up to is the fact that there's an impact to letting the ultra-rich and their stooges run the country. These are the people who own lots of the real estate -- between that and the windfalls from all those tax cuts, affording a home, to them, is like what buying a sofa is for the rest of us.


Which brings us back to debt. Role models matter, and we all seem to be following Uncle Sam's lead these days. The Congressional Budget Office calculates that within 10 years, the nation will have a $12.8 trillion national debt -- a lot of it owed to Communist China. There are absolutely no plans to deal with it; in fact, Congress and the White House want even more tax cuts for the richest Americans. These delusions don't change the hard reality that taxes will go up someday because of all this. Somebody is going to get the bill.


Our Treasury is in about the same state as that average guy who spends more than he makes and still buys a new home via an interest-only loan. The bank owns his future. If rates go up, as most are predicting, he's bankrupt -- and that's only if the new laws passed by Congress allow him any protection.


That guy, like millions of others just like him, is really, really hoping the market is, like they keep saying, truly wise.

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