My House, My Greed: A Market Fable
MELISSA BLOCK, host:
Here's a story about a financial venture that has had some problems lately. Commentator Steve Lopez bought a house in Los Angeles in 2001. It doubled in value, but then the Los Angeles housing market began to falter.
STEVE LOPEZ: We used to be rich. It wasn't that long ago, either. The money was pouring in month and month, year after year - ka-ching. Had we made a smart investment in the market? No chance. We were perennial losers in the game of asset growth and could only look on with contempt at all the people who turned smart ideas into vast empires or picked the right high tech stock.
But then we made a move of our own that was pure genius. We bought a house. We bought a house in Los Angeles at the right time in history, namely the year 2001. Okay, call it dumb luck. Our interest rate was next to nothing. The land rush had begun, and our equity was growing faster than the bougainvillea. We had stumbled blindly into wealth.
It didn't hurt that our house was in an allegedly hip and happening neighborhood called Silver Lake. Even though I've never personally felt hip, who was I to argue. With a view of the Hollywood sign, our three bedroom stucco and wood was money in the bank - at least on paper.
A mere four years after buying the market value of our house had doubled -yahoo! We were as fat and happy as bank robbers, and my wife and I couldn't help but have The Conversation - that's capital T and capital C - I'm speaking, naturally, about the purchase of our second home.
Wealthy people have an image to uphold, you know. If you live in New York, you need a little something in the Hamptons. If you live in Los Angeles, you might go for a weekender in the Malibu colony. Or should my wife and I buy something far away and dreamy - a flat in Paris, say, or a bungalow in the Caribbean. Paper wealth can be such a burden.
Wherever we ended up buying, should we rent our second home to defray the cost? No way. As newly wealthy Americans, we should honor the tradition of keeping out the riff-raff. Paradise would be ours and ours alone. But as we made our grand plans, a funny thing happened on Easy Street. For Sale signs suddenly seemed to hang around longer, interest rates were climbing back to normal levels. The local real estate agent suddenly had much more time to walk his dog, and the neighborhood suddenly looked so - I shudder to say it - middle class.
Sadly, a measure of sanity had returned to the market, and people who had paid $1 million for two bedroom fixer-uppers suddenly looked like dummies rather than investment wizards. I began to fear that Jerry Brown would make another run for president, dusting off his old song about lowering our expectations.
Okay, so our bubble hasn't exactly burst yet where we live, but our dream has come in for a rewrite. For instance, we downgraded the idea of a garden apartment in Paris to a condo in San Luis Obispo. But a weekend condo hunting trip put the kibosh on that plan. We'd have to rent the place out, but it wouldn't bring in enough to cover the monthly nut. So now rather than investing our equity, we'd be grateful just to hold on to some of it.
If there's any consolation, we've got lots of company, what with all the other fleeting millionaires whose soaring dreams collided with reality, but I don't take much comfort in that. Greed was good while it lasted. Even if we were only rich on paper, it felt all the sweeter for having come without a stitch of hard work.