Friday, July 15, 2011

No Equity? No Divorce!

Back in the day, when people would come into our real estate office, with the intention of selling a house, there would usually be only a couple of reasons why they were selling.  You might think they needed a larger (or smaller) home.  Sometimes their reason was a job change, and a transfer to another area.  I haven’t had a relocation seller in years.

And just as often they were changing homes due to a life change, maybe their last child graduated form High School, or perhaps there was an addition to the family, an in-law or a new baby.  Sometimes they just wanted the “trophy house”—the one they could just afford and came with all the bells and whistles.  But the biggest reason for selling the old house was a divorce about to happen.  And so it is no real surprise that home price declines are positively affecting marital stability.

People can’t afford to get a divorce because there’s no home equity to split up.
The American Economic Review study—out this week-- findings suggest that house prices have a significant effect on divorces.  Divorce rates have declined over the past few years. The U.S. Census Bureau reported in 1996 that 50 percent of all marriages ended in divorce. Figures from 2009 showed a 46 percent divorce rate.

I had a client who owned a home in Northport—it was a home he purchased as an investment, but there was the unspoken possibility that he and his wife—both lawyers—might move into that home at some point.  My phone rang about a year ago—the call was from him.  “We have to sell that house”, he said. “Business is terrible.”  And the reason?  He’s a divorce lawyer, and nobody’s getting divorced.

Almost 40 percent of couples who were considering a divorce or separation before the recession began said they put aside their plans to split. The AER survey shows that as home prices fall, divorce rates fall with them.  Conversely, when house prices rise, growing home equity give couples financial freedom. Basically, when jobs are easy to attain, credit readily accessible, and homes quickly selling for more than last year, couples can afford to move on.

But, when jobs are scarce and home prices stagnate, people become loss resistant.  When couples find there’s no “payday” when the house sells, then there’s no easy exit from the marital union, no pot of gold at the end of the rainbow.  This is especially true for the thousands of homeowners who are currently underwater on their mortgages.  Add to this the high cost of most divorce proceedings and one reason becomes clear as to why couples have sidelined their splitting-up plans.

The unemployment rate has edged back up in recent weeks. Home prices continue to decline in many parts of the country and a continuous stream of foreclosures is expected for the foreseeable future. Will these trends continue to keep couples together? Evidence from the AER study points to this possibility.

The real estate market continues to seesaw, some weeks it’s in decline, some weeks it looks like it’ll make a pretty good recovery.  I suppose this is the new normal, but I’m reminded of Richard Farina’s novel, “Been down so long, it looks like up to me.”

So good news/bad news.  The divorce rate is down and the market is not as dead as the reports.  Paraphrasing Mark Twain, The reports of the death of the real estate market have been greatly exaggerated.

Dane Hahn is a real estate professional at Tarpon Coast Realty in Florida and The Gove Group in New Hampshire.  You can reach him at dane.hahn@gmail.com or by phone at 941-681-0312.  Or see him at www.danesellsflorida.com and http://www.danesellsnh.com/

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