Tuesday, January 08, 2008

Causes of Housing Recession: Tancredo?

I use Tom Tancredo as the symbol of the crusade against illegal immigration. The question is whether the crusade is responsible for the recession in housing, which appears likely to evolve into a general recession.

What's my logic? Over the course of the housing boom, the percentage of people owning homes rose from about 66 percent to 70, if memory serves. Most of that increase is probably people at the lower end of the income scale. My guess, based mostly on the activity in my mother-in-law's neighborhood and my neighborhood, is that many immigrants bought at the lower end. By doubling up (or tripling or more), people could split the mortgage payment and still make it. Many of these immigrants were working home construction. Many were eager to have a piece of the American dream.

So it was a virtuous circle. My next door neighbor sold his townhouse in 1999 for $93,000. The new buyers, D'Amico, did a lot of fixing up and sold it at the end of 2001 for $167,000. They moved to a new house in a new development, probably stretching their money as far as it would go. The buyer was Salvadoran, who shared the house with others. (Good neighbors, not that I'm particularly outgoing.) He paid a high price, at least in terms of the history of the unit since it was built in 1973. But the high price was necessary for the D'Amicos to buy the house they did. It's quite possible some of his roomers built the house that the D'Amico's moved to. The process worked--the Salvadoran family lived there for 5 years and sold for $367,000 in 2006!

So far, everyone is happy. Everyone has ended up with more house and a bigger net worth than they had before. Even I feel good because the value of my townhouse has soared. But now comes Rep. Tancredo and Lou Dobbs and all the others who want to build a fence at the border. All of a sudden it's harder to find construction workers and people who will rent a bed in a house for ridiculous prices. So people pull back, and the bubble starts to pop. And when the gas goes, it goes fast. Zillow.com shows the most recent home sales in the cluster down about 25 percent from their high. And Juan, who paid $367K, is moving out today.

I exaggerate, the housing bubble was a bubble which would have popped even if Tancredo had never existed. But there is a real connection between economic growth and immigration.

[Added] The point is that the demand at the bottom of the ladder pushed up prices all the way up. Now the people who bought late face foreclosures, as described in this article.

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