Too Soon?

My wife hopped in the car and got some pre-paid fresh vegetables put in the trunk at our “food desert” farm store and then went for a drive around the neighborhood. Construction was moving forward on MGM’s Wahlburgers, and the new Wayfinders building just north of the railroad arch looked finished. Nothing was boarded up that wasn’t boarded up before Covid-19 hit Springfield, and most storefronts were open as convenience stores, phone stores, and take out restaurants are “essential businesses”; I suppose if we had a Gucci store it would be draped in plywood right now.

I was contemplating the state of landlords and their tenants on my block over the last few days. My neighbor to the north purchased his 4 unit building 20 years ago for 30 some odd thousand dollars, he’s had at least two of his tenants since before I bought my building 10 years ago, one unit has been empty since the Day Spa closed, and the other unit is occupied with a relative newcomer. A friend owns the unit just on the other side of that; The Springfield GIS map says he paid $125,000 for his four unit structure not quite a decade ago. On the other side, the attorney purchased the two buildings, one commercial, the other residential, for a combined $185,000 twenty years ago. 

The point is, of course, none of these buildings were purchased at heroic valuations requiring tens of thousands of dollars to amortize; my guess is that none of them have a mortgage and that the rent is likely at or under the $1,000 a month level per unit. The larger apartment building behind the house was sold for just over a million dollars two years ago and has been undergoing renovation with about half the units remaining occupied; I think the idea was to capture a slightly more upscale clientele with renovated kitchens and bathrooms, and access to off street parking through another property they own across the street. There could be some danger in those properties, but two million dollars combined for around 50 units isn’t exactly Park Avenue.

The church and the school are solid, while the Develop Springfield properties across the street will soon be available for pennies on the dollar I’d wager as DS seems to be a zombie non-profit whose time has clearly passed and its corporate backers will seemingly be looking to sell-off and be done once the renovation of the seminary building is completed. 

That’s the lot. It’s not a random sample, but it does circumscribe the properties of greatest concern to me coming out of the Covid frying pan and into the post corona depression. Crashing early and getting a head start may not have been a conscious choice for most of my neighbors, but it still stands us all in good stead moving forward. 

I saw some kind of ad for an on-line home selling app where the purported home owner was talking about how to begin the process; the home was a suburban ranch with a two car garage surrounded by a white picket fence. Value in this simulation: $801,000. Or about the same as a 20 unit apartment building in my neighborhood…with a chain link fence though, there’s the key!

I still see $100,000 as a little on the high side for a house. Sometimes Liz and I have debated whether or not my Springfield Strategy is scale-able; If everyone were willing to live here, wouldn’t home values skyrocket. Maybe. But if everyone looked at a price tag of $200,000 for a single family home, with or without a picket fence, and openly scoffed then maybe not. 

Liz’s job was actually a product of the last recession so we’re holding on to the expectation that her employment will continue. Teaching is acyclical so I could see some reasonable community requests for give backs if deflation occurs, or wages coming no where near the rate of inflation should that appear sooner rather than later. We can last a couple years on our savings even if our jobs were to disappear.

I’ve always rejected the boo-hoo “it’s impossible to make it on one income” narrative that’s constantly pushed by the mainstream. It’s impossible to make it on one income if you tie a rope around your waist and then to the bumper of the Jones’s BMW, sure.  Doing the math, we could get by on 25% of our current income without renting the basement apartment.

But what about my neighbors? I see the same people going to the same soup kitchens as before. The schools are distributing 3 meals per day, including weekends, and still are giving out about half as many as during a usual school day. They’ve made clear that “the student doesn’t need to be present and no ID is required to get food; “Wink, wink”. We’ve got being poor and needy down to a science! The MEDIAN…HOUSEHOLD… income in my zip code is in the mid teens, a $1,200, $2,400, $2,900(!) stimulus check would go a long way. 

My people here aren’t much for social distancing, I’ll say that. The coronavirus could hit pretty hard, but the population in the Hispanic community also skews pretty young with, again, only Boston in all New England having a larger school age population. This is a great place to be poor, which makes being middle class here feel like being rich. I’d be lying if I said I’m confident regarding the future, but the crash was inevitable given the fiscal, monetary, economic, and logistical decisions that have been made over the last 50 years. Covid-19 was the pin, but this mother of all bubbles was always looking to pop. I am hoping that being a fair distance from center, like down near the wrinkly blow hole of a balloon, makes our experience of the sudden deflation less explosive, and less damaging, and gives us better opportunities to respond.

(Values didn’t follow that little red trend line either, they skyrocketed!)

If this essay feels like a bit of an I told you so to anyone sitting in a half a million dollar home with no means to pay the mortgage going forward, then I’m happy to know I’ve hit the mark. Housing has been over-valued for 70 years and ridiculously over-valued for most of the last 40. That’s ok, so has my job. Don’t get me wrong, I love what I do, and it’s important, but I’m not sure society will be able to afford the current going rate in the future. I take it now because it’s being offered but I do assume the relative value of my wages is about to decline, and my “pension”? If the value of what I get is 30% of what I’ve been promised I’ll be fine. I hope 30% is a reasonable expectation. We’ll see. 

I recommend that everyone start with the mental readjustments now. If I’m just an alarmist, what’s the harm? Is it too late to sell the house in Armonk and buy the place in Poughkeepsie? Probably. But that’s not my fault, that’s yours.