When people know what they are doing, they do it smarter.  That’s the principle behind biofeedback.

Now, as you can see, reading AHI blogs makes you happier

When people know what they are spending, they usually spend less.  Of the three main costs of sheltering a family – cost of occupancy, cost of transportation (to job and leisure), and cost of operations – people make big choices bout the first two, how and where to live, but the third is ruled by a host of small choices to which people are curiously indifferent, mainly because they cannot perceive that switching on this light or that boombox means thus-and-such amount of money. 

What if we gave homeowners real-time insight into their utility spending?  With smart meters, this is now possible, leading to unexpected consequences, as revealed in this Wall Street Journal article:

What Utilities Have Learned From Smart-Meter Tests…

…And why they aren’t putting those lessons to use

Utilities have learned a lot about how smart meters can compel consumers to save electricity. Unfortunately, too often they aren’t putting the knowledge to good use.

Do you really want to see the numbers scrolling red?

Let’s stipulate, for the moment, that tie Journal knows what ‘good use’ is …

Smart meters are more precise than traditional meters in that they send readings on electricity usage to utility billing departments throughout the day. Not only do smart meters provide customers with a clearer picture of how they use electricity on a daily basis, they also make it possible for utilities to charge more for power when demand is highest—in the afternoon—and less when usage falls off—at night.

Information is a two-edged sword – one edge cutting consumption, the other edge pricing up production.  So too is computing power – when one side gets smarter, the other can too.  All of us encounter this every time we search for airline flights, since it’s quite clear that the Web-based systems are an extended game of ELIZA where we ask, “What does it cost?” and the computer answers coquettishly, “how badly do you want to go?”

Rates are cheaper during the day

But really, it’s hard to argue that you shouldn’t pay more for power when it’s more expensive to produce, particularly if you can shift your consumption. 

By making variable pricing plans possible, smart meters are expected to play a big role in getting customers to reduce their peak-hour energy consumption, a key goal of utility executives and policy makers.

That’s the theory behind everything from the price of reserving a tennis court (which varies by day and week and demand) to the cost of a stadium seat on a stadium (it may be the same game and you may all have the same eyeballs, but not all seats are equivalent).

The better to heckle from

Equally significant, a host of small consumption-related and reversible decisions can collectively aggregate to a single production­-related and irreversible capital decision:

Electricity grids are sized to meet the maximum electricity need, so a drop in peak demand would let utilities operate with fewer expensive power plants, meaning they could provide electricity at a lower cost and with less pollution.

Small increments accumulate into big discontinuities.  The same moral reasoning behind recycling newspapers and plastic applied to the cost of LEDs and HVAC’s.

Utilities have run dozens of pilot tests of digital meters and found that people cut power consumption the most when faced with higher peak-hour rates.

Note the spike at 8:00 pm

People value what they pay for, and if you help them save, they will.

But utility executives and regulators have been reluctant to implement rate plans that penalize people for too much energy use, fearing that if customers associate smart meters with higher bills, they will stall the technology’s advance just as it is gaining traction.

Now we head into behavioral economics – saving $1 and being charged $1 surtax may be equivalent to an economist, but not to a human being.

Only about 5% of U.S. electric meters are “smart” today, according to the U.S. Department of Energy, but that figure is expected to grow to about one-third in the next five years.

I’m growing smarter, Dave

Two lines govern these innovations:

1. The cost of technology, which always declines.

2. The value of behavioral change, which always ascends.

“Efficient technology is like the flu: sooner or later everyone gets it”

In the office where I write this post, there is a motion-detector light switch.  First posited in 1938 by Robert A. Heinlein in The Man Who Sold the Moon (which also prefigured Richard Branson?), it only became commercially viable a few years back. 

Enough bucks, you can find Buck Rogers

And even more economically effective are setback thermostats for hot water heaters, motion-detector sensors in stairwells, auto-shutoff car headlights, and a host of on-only-when-needed devices.

So, many utilities are trying an approach that is less controversial, but also less effective: offering rebates to customers who conserve energy in key periods of the day.

Fuzzy boundaries are bad boundaries: a crude simulation that people observe is better than precision that people flout.  A simpler maritally-imposed decision rule I can remember (”use the Amex in this country, the Visa overseas”) will yield more savings than the more complex rule I’ll forget.

By doing things like turning off clothes dryers and adjusting air conditioners on hot summer afternoons, customers earn credits that can reduce their electricity bills.

Not a good thing

Somewhere I read that for a manager, the proper ratio of praise to blame is 5 to 1.  (For a spouse, it’s 20 to 1, if not higher.)  Something similar works for customer relations – offer people a cookie for doing something positive, and your customer pool will be much happier than if you penalize a sluggard for doing nothing.

“Most CEOs struggle over this issue more than anything else,” says Ted Craver, chief executive of Edison International, the Rosemead, Calif., parent of Southern California Edison, which is in the midst of a massive smart-meter rollout.

“You could have a real rebellion” if smart meters push up customers’ rates, especially if utilities’ other capital expenses are increasing, he says.

Fixation on rates is foolish but human, because people’s perceptions of expense relate to how a thing is priced.  It’s always seemed to me nonsensical that in the aggregate cost of driving a car, we fixate on gasoline prices to the exclusion of capital costs and depreciation. 

“Your Mileage May Vary”

The average price of an American car is $25,000 or so, and the average American car is driven 12,000 miles a year.  Say it lasts five years and is then traded in for $5,000.  That’s 33 cents a mile even before considering anything else – tires, maintenance, repairs, insurance, financing costs. 

At least we disclosed it

Conversely, even with gasoline at $3.00 per gallon, at (say) 25 miles to the gallon that’s 12 cents a mile.  In other words, gasoline is less than one-third as price as the car costs, yet the American public goes bonkers when gas prices go up.  Why?  A combination of the difficulty of equating the effective cost of the large-purchase choice versus the constant reinforcement that for gasoline, the only thing relevant is price at the pump.

How about, NFW?

Pacific Gas & Electric Co., a unit of PG&E Corp., got a taste of the public-relations risk last summer when it installed smart meters in Bakersfield, Calif., as part of a broad upgrade in its Northern California service territory.

What do you do when your meter start tattling on you?

Especially not an electronic one

When customers—who weren’t participating in any sort of experimental rate plan—received dramatically higher bills shortly afterward, they blamed the meters for what they assumed was faulty billing.

When in doubt, blame someone else!

The San Francisco utility investigated and concluded that the meters were functioning properly. It found that the higher bills were simply a case of unfortunate timing: An increase in conventional rates had taken effect just ahead of unseasonably hot temperatures.

How then to get people to embrace a smarter meter without going ballistic on selectively higher rates?

We’ll just not tell you the score …

[Continued tomorrow in Part 2.]

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Sitting here in Limbo
Waiting for the tide to turn.
Yeah, now, sitting here in Limbo,
So many things I’ve got to learn.
Meanwhile, they’re putting up a resistance,
But I know that my faith will lead me on.

– Jimmy Cliff

And then the harder they come, the harder they fall, one and all!

Whither the GSEs?  A year and a half into their conservatorship, nobody knows – and we could easily wait another whole year with no progress.  As reported in the Washington Post:

The federal government has spent the past half year seeking to roll back its emergency efforts at propping up the financial markets – with the notable exception of its involvement in mortgage giants Fannie Mae and Freddie Mac.

Taking over Fannie Mae and Freddie Mac wasn’t about propping up the financial markets, but rather keeping upright the housing markets.

Houses, not banks

As recently as December, the Obama administration said it expected to release a preliminary report on how to remake Fannie Mae and Freddie Mac around Feb. 1.

The best laid schemes of mice and Administrations gang aft agley.

But no plan was produced, and in response to questions from lawmakers, Treasury Secretary Timothy F. Geithner clarified last month that it would be another year before the government proposes how to restructure the firms.

That’s for me not to know and for you to speculate about, isn’t it?

Sixteen months after they were seized to prevent their collapse, the companies remain wards of the state –

Regarding the GSEs’ continued limbo, I’m of two minds:

1. Don’t risk open-heart surgery.  The GSEs are a lifeblood of the American housing finance system – and hence of the global capital markets.  Tinkering with them now risks a disruption we simply cannot afford.

Don’t tug on that … you never know what it might be attached to

2. Doing nothing is unacceptable too.  Because the GSEs are so important, they cannot be left with no hand at the strategic tiller.  The GSEs should be part of the solution, not simply a metronome ticking away on momentum.

Further, lack of management isn’t just bad strategy, it’s bad governance, and dangerous:

– running a tab that has now exceeded $125 billion in what has become the single costliest component of the federal bailout for the financial system.

Lack of transparency means lack of practical oversight … and we know how well opacity worked for them before, don’t we?

It looked really good until it failed miserably

Some members of Congress have complained that the huge public commitment is unsustainable.

It is – and without transparent reporting, we have no way of knowing whether the GSEs are rebuilding their balance sheets and net equity or continuing to run up losses not of their past executives’ making.

But the administration has been reluctant to start reforming Fannie Mae and Freddie Mac, officials and analysts say, because the firms in their current form play an essential role in supporting the housing market at a time when it is still under severe stress.

Absolutely, categorically true – we cannot allow the housing market’s financial heart to stop pumping liquidity.  Even if it’s artificial.

Don’t worry, your Federal government is at th econtrols

As other financial firms have exited the market and credit has seized up, Fannie and Freddie have been behind the vast majority of mortgages made since the start of the financial crisis. The companies now own or back more than half of all U.S. home loans.

With FHA right behind, and itself weakening.

Moreover, the companies are helping the administration pursue policies designed to make new homes more affordable, ease the burden on struggling borrowers and direct funding to parts of the country especially hard hit by the downturn.

Allow us to be crystal clear here – by continuing to supply liquidity, and to “ease the burden on struggling homeowners” [translation: forbear – Ed.], the Administration is almost certainly increasing Fannie Mae’s and Freddie Mac’s losses. 

A rising tide lifts all boats?

Their bet is simply that the gains to others (e.g. homeowners, other banks, securities holders) and the macroeconomic benefits (lower interest rates, support for employment) outweigh the costs. 

Any initiative to remake the firms could distract energy from these programs or, in some cases, put an end to them.

By their actions, Fannie and Freddie are taking a concentration of the pain that would otherwise be diffused throughout the economy. 

The companies have also been tapped by the Treasury Department to rewrite the terms of home loans for struggling borrowers facing foreclosure. But this program – carried out by Fannie, Freddie and other firms – has had less success. Although 1.3 million borrowers have been eligible, only about one-tenth have had permanent mortgage modifications.

Many of those eligible are under water in all scenarios; most of them should never have been homeowners in the first place.

And keeping the companies solvent has been costly. To cover their losses, the firms have both said they will need additional federal money beyond the more than $125 billion already committed.

As a taxpayer, I think and hope their strategy has been right for the country – I’m willing to pay more if it serves to strengthen the economy.  Were I a director of either institution, I’d want explicit exculpation from breach-of-fiduciary-duty claims.

Yes, something like that

Nor is the administration eager to foster a debate over Fannie Mae and Freddie Mac in an election year, according to analysts and lawmakers.

As a policy wonk, I had overlooked this.  Yes, raising the GSEs’ future now has to be a net loser for the Administration.  With all their current political tribulations and pitched battles on Capitol Hill, the Democrats can ill afford to open another political front.

The pair have long been lightning rods for criticism by many Republicans, who call them [1] an intrusion into the free market and [2] a Democratic patronage haven.

Yes on [1], probably No on [2].  Democrats and urbanists like housing subsidies more than Republicans do, so the leadership of Fannie and Freddie probably veers toward the liberal. 

Many Democrats, even as they faulted companies’ excesses, have defended the firms’ role in fostering homeownership.

Well, if the GSEs haven’t done that, why did we give them all those awfully big advantages?

And with Obama’s campaign to overhaul financial regulation facing resistance on Capitol Hill, administration officials don’t want to add another divisive issue to the mix.

Especially if the Administration is unsure what it wants to do.

“We’ve obviously had our hands full, as has the Congress,” said Michael Barr, assistant Treasury secretary for financial institutions. “We’re just beginning to see some positive signs in the housing market, but we’re not out of the woods yet and so we want to be careful to be sure that we had an appropriate, paced process.”

There’s a Barr in them financial woods

Barr said Treasury officials have been meeting informally with their counterparts at the White House and the Department of Housing and Urban Development and exchanging policy papers to develop principles for overhauling Fannie Mae and Freddie Mac.

All well and good – maybe it starts to coalesce a thought cloud – but a far cry from actual progress, particularly as the Republicans will weigh in strongly before anything happens.

These principles include, for instance, that the government ensure borrowers could still get mortgages even when the private market is no longer offering loans.

A laudable principle if the reason the private market isn’t lending relates to a credit crunch.  But if the private sector is sensibly pulling back from risk, and the GSEs zag when they should have zigged, we will be much worse off.

You are here …

But whatever replaces Fannie and Freddie, it should not be allowed to grow so large that its failure could threaten the financial system.

Oh, brilliant …

“And that’s how there’ll never be any financial crisis ever again.”

“Great, Jackie.”

“They weren’t planning to do much about it,” said Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, in an interview. “They’re busy, and it’s hard and it’s complicated and they’re trying to put it off.”

So the Administration, understandably, put GSE reform into the too-hard-revisit-later basket.

Where did I file it?

Frank said he is “forcing” the issue by scheduling a committee hearing later this month, summoning Geithner and other officials to discuss options for reforming the firms.

A hearing, useful though it may be, will not force the issue, but at least it will raise the issue.

Once among their strongest supporters, Frank has more recently called for their abolishment.

As independent entities, that is. 

“Independence may be overrated”

Future scenarios for reforming Fannie Mae and Freddie Mac range widely – from total privatization to total nationalization. But no consensus has emerged over the best fix.

Nor will it any time soon.  This is guaranteed to be divisive. 

Spokesmen for Fannie Mae and Freddie Mac said their current focus is on keeping funds flowing into the mortgage market and helping distressed borrowers remain in their homes.

As it should be.

The companies did not address the question of how they should be restructured.

In view of their obvious self-interest, nothing would be gained by the GSEs’ management vocalizing about their future.  They will be keeping their heads down.

When the Bush administration seized the firms, it said it would make $200 billion available to them. The Obama administration a year ago doubled that figure, then decided late last year to offer them unlimited financial assistance as a signal to investors that the companies’ solvency was guaranteed.

But critics warn this has given Fannie Mae and Freddie Mac a blank check.

That is the problem.  They do have a blank check.

Fill in the zeroes later

“This idea of having money laying around that they can spend on whatever they think politically makes sense is certainly consistent with what we’ve seen from this administration,” said Rep. Jim Jordan (R-Ohio), a member of the House Oversight and Government Reform Committee who has called for an investigation into the delay in planning for the companies’ future.  

True enough, but there are good reasons for caution.

“Any suggestion now about future changes could destabilize the market,” said Karen Shaw Petrou, managing director of analysis firm Federal Financial Analytics and a longtime observer of housing finance policy. “The U.S. mortgage market is so fragile that all Treasury needs to say is ‘boo’ and it could fall apart.”

But time could be tight. Under the firms’ agreement with the Treasury Department, they must shrink their mortgage portfolios every year, eroding their ability to support the market.

That is, unless the rules get changed … yet again.

I’m smiling outside, and crying inside

James Lockhart, a former top regulator of Fannie Mae and Freddie Mac, said the administration is erring by waiting another year to begin the reform process.

“The clock is ticking. We need to reinvigorate the private mortgage market and create something new and we know how long Congress takes,” Lockhart said. “It’s unhealthy to have as much government involvement in the mortgage market as we have in this country.”

He’s right, of course, but limbo is no state for us to be in.

Could be dangerous

Sitting here in Limbo

Waiting for the dice to roll.
Yeah, now, sitting here in Limbo,
Still got some time to search my soul.
Meanwhile, they’re putting up a resistance,
But I know that my faith will lead me on.

– Jimmy Cliff

I said forgive them, Lord, they know not what they done

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Can you count the times you’ve moved?  Remember how much fun it was?  How long it took you to unpack the final boxes?

Got everything?

Most of us hate moving – and we understand that moving is a sunk cost that yields nothing but emotional, temporal, and economic entropy, so we try to stay in one places.  Landlords know this, which is why they like to push the rents up just below the threshold where moving becomes worthwhile. 

That makes the landlords rational, and us rational too.  Then there are some who are irrational, at least when it comes to moving, as revealed in this oddly sympathetic New York Times article:

In the nine years since he came to New York with $500 in his pocket, Martin-Christopher Harper estimates that he has moved at least 40 times.

Four times a year?  I’d say what Mr. Harper has is an obsession.

Make sure you label whose is whose

“Martin-Christopher Harper, right, at home with his roommate, Eli Schmidt, has a steady mover. (Image Michelle V. Agins/ The New York Times”

When he lists the neighborhoods he has lived in — in chronological order — he sounds like a bartender reciting a long list of microbrews: “Brooklyn, Chelsea Hotel for a moment, Bronx, Carroll Gardens, Crown Heights, Red Hook, Carroll Gardens, Greenpoint, Chelsea, Crown Heights, Carroll Gardens, Williamsburg, Bushwick, Bed-Stuy, Williamsburg, East Williamsburg …”

Don’t necessarily start with this dude.

Mr. Harper, 32, a hairstylist, moved to New York from Los Angeles, where he still has a share in an apartment.

Mr. Harper evidently has sufficient disposable income to maintain living accommodations in several cities.

Happy to be paid each time the insecurity strikes: Mr. Harper’s mover, Mark Ehrhardt. (Image Tony Cenicola/ The New York Times)

He says he moves a lot because he is always looking for a better deal, a better space, a better neighborhood. He acknowledges, though, that moving is something of a compulsion, and that after tackling the issue in therapy and connecting his feverish relocating to his moving frequently as a child, he has begun to cut down. He has lasted more than a year in his current apartment in East Williamsburg, a record for him in New York. These days he has a roommate, Eli J. Schmidt.

All right, we will stipulate that Mr. Harper is unrepresentative of anything to do with real estate, and will move on to more practical moving issues:

Whether one moves frequently or almost never, moving is an intensely emotional experience. The underlying psychological issues involved in real estate decisions are of great interest to therapists and psychologists, because housing and moving are filled with symbolism, the hope for new beginnings, crushing disappointments, loss, anxiety and fear.

As I’ve posted before, we associate change in living accommodations with change in sexual relationship: we move in with someone, live together, set up house (or set up light housekeeping, nudge nudge) or move out.

You move around a bit, eh? Move around!

And we know that more bedrooms means more babies, so it’s no wonder that Jung interpreted the house in dreams as an expression of the self.

I pray for security of tenure

 “Panic can really set in around your home and your apartment,” said Ronnie Greenberg, a Manhattan psychoanalyst. “It’s a matrix of safety, so moving is incredibly stressful and people don’t realize it — they mainly talk about the packing and the external part of moving.”

Perhaps it’s understandable that people pack in a great flurry, and then unpack at leisure.  (My new office, the one I’ve occupied for only a year, still has an unpacked box or two.)  Perhaps it’s our way of closing a chapter of our lives and then opening it in layers, like peeling an onion, reinventing ourselves by what we choose to revive and what we choose to hide.

Mr. Harper and others who choose to move frequently are likely to be risk takers, psychologists say.

Try rootless and unable to commit?

Some therapists, borrowing a term used in Alcoholics Anonymous, call frequent moving “pulling a geographic,” seeking external changes to change internal problems.

If your environment displaces you, run away from it.

But as Elizabeth Stirling, a psychologist in Santa Fe, N.M., who specializes in helping people make life changes, said, “No matter how much you move, you still take yourself with you.”

“No matter where you go … there you are.”

On the other hand, those who never or rarely move can be frozen by a fear of change, psychologists say.

Those psychologists – they miss nothing, nothing!

The prospect of leaving the place that is the center of your universe or the one constant in your life can be frightening.

Perhaps, on a more serious note, this arises from the same phobias that lead to hoarding.

Even finding a new dry cleaner, deli or coin laundry can stir up deep worries of impending isolation and loneliness.

Just like hoarding.

“For the longest time, moving was a bitter consequence of making money when you were selling real estate,” said Michael Moshan, a real estate lawyer and a partner in Gold Scollar Moshan in SoHo. “If I was selling my apartment and buying another one, I was making money. I had to swallow the pain of moving because I was banking something significant. Now people are moving and the moving aspect becomes much more bitter.”

Loss of home = loss of place = loss of self.

Packing and sorting through a life’s worth of belongings — especially, say, if the move is the unhappy result of a divorce or other trauma — can be gut-wrenching.

We define ourselves by what we leave behind.

For Stephen Klein, 43, a renter, a single father and a librarian at the City University of New York, the process of moving is “very emotional.”

Stephen Klein would very much like to move from his rental in Prospect Heights, Brooklyn, because he needs more space. (Image Michelle V. Agins/The New York Times)

Renting is a much more flexible tenure, and is therefore associated with more flexibility surrounding our personal relationships.

Mr. Klein has moved nine times in the last 14 years, often as relationships — including a marriage — began and ended.

Move = change in household configuration.

Now, he would very much like to move from his rental in Prospect Heights, Brooklyn, because he needs more space. He wishes his 10-year-old daughter had her own room instead of the loft he built for her above the kitchen.

That’s the thing about children – even if your conjugal relationship sunders, your parental one survives.  I wonder how Mr. Klein’s daughter feels about his peripatetic lifestyle.

I’ve just got happy moving feet!

He said he would like to stay in Prospect Heights, where he has friends and a sense of community — all the more important because he is single.  [Currently – Ed.]  But the apartments with more space that he can afford are in far-off neighborhoods.

Mr. Klein, all living accommodations involve choice.  You can drive (or commute) until you qualify, or you can live in town in less space.  Just as markets are places where people tell the truth to each other about what they value, living choices are the tangible expression of what we value, and how much.  You are what you live in.

“I feel like I’m a refugee,” he said. “I really feel like I wish I could have a sense of home. I feel like I’m floating out there.”

Either buy something or accept what you have. 

 “If you say you are trapped,” said Linda Sapadin, a Long Island psychologist and a motivational speaker, “that’s like the trapping of an animal. It’s a pretty shocking visualization. It’s better to say, ‘I can’t move right now,’ and ask what can you do to make your environment safer, more pleasant. Adding the two words ‘right now’ is a tremendous liberator psychologically.”

Psychologically, renting is transitory, and what we will accept if “this too shall pass” can be so much less than we will accept if we have convinced ourselves it will be forever.  Conversely, ease of moving influences the dynamics of market pricing.  In equilibrium markets, where vacancies are plentiful, renters have the advantage; when they are scarce (thanks for nothing, rent control), property owners have the upper hand.

Will Cox’s apartment on Riverside Drive and 92nd Street has been a constant in his life — too constant. He has “walked down the same block 10,000 times,” and longed to leave the neighborhood.

Mr. Cox, 38 and the owner of a television and film post-production company, has lived in a rent-controlled apartment that he took over from his parents, who now live in Connecticut.

SHAKE-UP Will Cox and his wife, Lynn Van Lith, prepare to leave his childhood home. Their daughters, Margot, left, and Matilda, help out. (Image Rob Bennett for The New York Times)

Allow me a moment to become infuriated.  Even assuming that one finds rent control justifiable in the abstract – to protect some deserving group – by what reasoning does Mr. Cox qualify? 

He took over the apartment from his parents, so in effect inherited wealth from a non-property right.

He is in no sense indigent, as the owner of a television and film company.

He has not needed the money for living expenses, instead saving it (see below).

He has never lived anywhere else, except for the four years he was away at college in California.

The inherent subsidy of Mr. Cox’s apartment has reduced labor mobility – look how long he has stayed – and not coincidentally, transferred wealth from the property owner to Mr. Cox and his family:

The place has allowed him and his wife, Lynn Van Lith, who have two daughters, ages 1 and 3, a bit of a financial cushion.

But in some ways it has also been a burden: Giving up a $1,200 two-bedroom apartment in Manhattan is not an easy decision, even if you are eager to go.

Such a burden, being weaned off the subsidy teat at 38.

You’re too old for this, junior

“I have all these memories of the neighborhood, these sorts of ghosts that follow you around,” he said. “And for me, it doesn’t at the moment feel entirely like my own life. I still feel like I’m under the shadow of my parents. That rite of passage of finding your own place to live in New York, that experience, I had never had it.”

It was always available to you, sir, had you chosen to pay market rent.

The logjam broke when Mr. Cox was offered an incentive by his landlord.

Yes, I can see where being paid would knock the sentimentality right out of your head.

He is moving today to an apartment he and Ms. Van Lith bought in Fort Greene, Brooklyn. And beneath the financial calculations of the move, and the uneasiness that comes with putting all of their savings into the apartment, they have complex feelings. One is excitement: They are off to start “a new history,” he said.

When you move, you choose.  Choice = life. 

I chose to drop it

Drop a pebble in the water

And the wave will reach the shore

Light a candle in the darkness

Someone somewhere finds a door

Turn your eyes away from people

And they’ll turn their eyes from you.

It’s a lesson hard to learn that

What you are is what you do.

– Shadowfax, What Goes Around

Whatever choice you make, you cannot make the same choice again.

You’re not the same reader/ and it’s not the same blog post?

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By: David A. Smith

In yesterday’s post featuring a well-titled New York Times story, we focused mainly on the upside of premarital homebuying – how it tends to precipitate the decision to marry. 

Honey … I guess we’ve got to get married

Since it does, policy makers like to incentive the buying of first homes:

Pete Flint, the chief executive of Trulia, a real estate search engine, points out that people who have never bought a home make up a demographic tending toward the young and unmarried.

Enabling people to marry sooner ties to population growth, which ties to desirable national demographics.

And then there’s the federal tax credit for first-time home buyers [spotted as a worthwhile initiative by AHI in 2003 – Ed.], to expire on April 30, 2010, which will provide several thousand dollars in income tax relief.

With this tax credit, we multi-ethnic models were able to pretend we’re a family!

[Unless the recession turns around quickly, expect to see Congress extend the tax credit yet again – Ed.]

It offers federal income tax relief equal to 10% of the purchase price of a home — capped at $8,000 — for couples earning less than $150,000 and individuals earning less than $75,000.

As we saw in Great laws from little blog posts grow, the first-time home buyer credit really works – and now is an excellent time to be providing a stimulus to encourage young couples to move into home buying.

That deadline is lighting a fire under some couples in the serious, or almost-serious, stages of a relationship.

As we saw yesterday, the relationships’ degree of seriousness corresponds directly to whether the parties are willing to co-invest in a long-lived, illiquid asset of much more value to them jointly than individually.  Come to think of it, isn’t that a fair economic definition of marriage itself?  A long-lived asset.  Illiquid (hard to get out of).  Of minimal value separately. 

They worry that if they don’t act now, they may squander the best property-buying opportunity they will have for a while.

Or your mother won’t fund your down payment.

I’ve posted before on the many reasons why single-family homes are resistant to massive price drops; one reason is buyer anxiety about the availability of long-term secure tenure with investment potential.

There are also signs (or at least a feeling in the air) that the housing market could be picking up (including word that this [2009 – Ed.] may be a good year for Wall Street bonuses).

As we know, it was.

Mr. Flint said that trulia.com had received numerous e-mail messages from unmarried couples asking about the logistics — and wisdom — of buying a home together.

Many of the queries are about the first-time home buyer tax credit and how or whether it can be divided between people whose marital status doesn’t allow them to jointly file a tax return.

(The answer from the Internal Revenue Service: only one of the two people can claim the tax break if they are unmarried at the time of the sale. It cannot be divided, even if the couple marry later in the year.)

Things get dicey when you try to undo it

Marriage creates a legal institution – the marital couple.  It is an economic joining. 

Trulia posts such questions on a message board called Trulia Voices, and real estate professionals often chime in with answers. One of the notes on the board contained the following cautionary tale from a couple who split up, rather than marry, six months after buying a new house.

That’s why you should cohabit before you coinvest – you can dissolve the relationship a whole lot more easily than you can dissolve the economic partnership of co-owning a house.

One person in the pair had provided a 10% cash down payment on the home; the other borrowed 10%; and they both signed a mortgage for the remaining 80%. Once they decided to break up, their only recourse seemed to be to try and sell the house.

“Yet,” the e-mail post says, “only being six months into the house it would be difficult to break even (right?). He is in no financial position to take on the home himself and I would be strapped if I did.”

Ergo, don’t buy unless you’re sure.  In my case, I closed on a condo, got married days later, and then went on honeymoon.  We lived together only after we got married.

Real estate lawyers say that there are more complications for unmarried property owners who part ways than there are for married property owners who divorce — and a less clear process for resolving them.

Marriage’s economic fusion can be replicated with domestic partnerships; what cannot as yet be replicated are the favorable tax and health-care treatments accorded the legally married.

Is that a rhetorical question, or what?

“By default, our laws are suited for married couples acquiring assets,” says Luigi Rosabianca, a real estate lawyer in Manhattan.

Because if you’re not married, you’re unlikely to be sharing assets, and the assets you’ll be sharing are chattel – portable – hence subject to a ready division.

Under New York State law, he explains, a husband and wife are considered “tenants by the entirety” when they buy property.  

State laws vary, but in general, they are construed for the benefit of surviving spouses – an important default benefit not generally extended to civic domestic partnerships.

That ensures, among other things, that the property will automatically transfer to the surviving spouse if one person dies.

Marriage, in short, is a bond accorded a higher status than a simple partnership.  That principle is believable and logical (and a refutation of the claim that civic domestic partnerships can give all the same benefits).

“If you are not married, you have to fill in the blanks,” Mr. Rosabianca said. Toward that end, he recommends that unmarried couples consider signing what amounts to a pre-prenuptial — legal agreements specifying the unknowns, including “who contributes what percentage of the expenses, mortgage, taxes, common charges, utilities.”   He added, “You also have to account for capital gains — what percentage goes to whom.”

All of these are simply negotiating contingencies against the exit.  If, when being married, you pledge and mean the ’til death do us part, then none of them matter.  But if you’re buying property and are not married, then the question is – Well, why not?  You must be contemplating the possibility of sepaqrating.

And there can be other issues. “Say this house is close to your mother,” Mr. Rosabianca said. It may be wise to sign an agreement saying, “If we break up, you have to buy me out, because I don’t want to live near your mother.”

Uh … even if we don’t break up? 

This would be less of a problem if I had no one in common with you

Couldn’t that be a problem for a married couple going through a divorce as well?

“With a married couple that would probably be handled with the divorce,” he said. With an unmarried couple “it’s almost more prudent to be proactive in addressing these concerns.”

No, I get the villa, you take the mansion

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