Since I was originally born in Dallas, I have always paid attention to economic trends in the Texas economy over time. Looking at some of the recent economic data, I can’t help but crack up as I see how much the members of my birth-country love to shovel all the wealth they get their hands on during the good years into bigger and bigger homes.
For Texans that belong to households earning in excess of $150,000 per year, the average home price is $387,211. The average mortgage debt is $328,000. Guess when the last time Texas mortgage values for the top 20% of earners was less than half the total mortgage amount? That’s right, 2005-2007, right before the financial crisis slammed down and Texas foreclosures among this high-earning group spiked from 4% to 12%. It was the only state in the union to suffer a double-digit foreclosure rate during the financial crisis from concerning its top earners right before the crisis.
It’s just such a….crazy cultural difference from here in Missouri. Comparing the 2009-10 real estate data, only 2% of Missourians earning in the top 20% of the state’s income during the year prior to the financial crisis ended up losing a home to foreclosure. And it happens over and over again, even with warning.
In 2006, Texas A&M put out this study “Home Investment: Residential Property Prices and Inflation” that pointed out Texans bid up properties in the mid-80s as their income expanded, lost 8% of their homes during the 1986 recession, and based on this author’s birds-eye view in 2006, she saw the same conditions manifesting and then the wipeout cycle happened all over again. These are not people who get caught up in heeding Charlie Munger’s concerns about ever having to “go back to go” on the Monopoly board.
Here in 2019, Texans are carrying the same mortgage debt that they did in 1983-1985 and 2006-2008 right before the recession slam occurred. True, correlation is not causation, but eye-popping mortgage debt among the high earners during the tenth year of common expansion does speak for itself regarding the risk it portends. A few years from now, I’m sure we will have another case study on our hands in which the current residential real estate debt levels in Texas contribute to the study.
But the reason why I say that it cracks me up when I see this data is because these Texans have the best attitude while the adversity occurs. If they lose their homes to foreclosure, they just shrug it off and figure they have to go out and earn more next time, swearing they’ll be back again bigger than ever. Downsizing is just a temporary setback until they can come back five years later bigger than ever, this time with a half-a-million dollar home. There’s not even a statistically significant spike in divorce in Texas after foreclosure, as the mantra seems to be, “Honey, this rodeo ain’t over yet.”
I wish my fellow Missourians had that same attitude. In 2010, the whitepaper “Foreclosures in Missouri: Causes, Consequences, and Solutions” profiled some of the Missouri families that lost their homes to foreclosure during the economic crisis, and it’s surrounded by tales of health woes, job loss, depression, and divorce. It’s an identity-shattering event that completely saps their life of good nature. If they lose their home, their creative energies and dreams as it relates to their families, employment, and communities all suffer.
Most of the time, I am always thinking about optimizing behaviors to and trying to get the best risk-adjusted outcomes with the situation that presents itself. But that analytical framework is incomplete. It’s also important to have the right orientation so that when consequences of poor planning and bad luck manifest, you happily move on to the next opportunity.
Personally, my preference is to be methodical about the process and trying to stack the probabilities as much in my favor as I can from the start, but also maintaining the frontier spirit that if failure comes, the story ain’t over yet.
The cheery rationalist is the rarest bird, but it builds the strongest nest.