“You Can Never Lose Money in Real Estate”

I used to hear that all the time, even though it was never true. (The first housing bubble in the US was in 1837.) You don’t hear that much since the implosion of 2007. However, we should be coming up on the limit of the collective memory anytime now, so I thought a refresher would be in order. And by some measures we’re already in another real estate bubble.

In a housing crisis that somehow hasn’t been blamed on President Trump, there are about 55,000 homes in Connecticut that have concrete foundations that are disintegrating. Replacement costs start at about $100,000 and go up, depending on the size of the house. Plumbing and electrical must be disconnected, The house jacked up on piers, the old foundation removed, and new basement walls poured. It is actually a fairly straight-forward process, but you expect to have to do things like this to 100-year-old structures, not homes built since 1980.

Pre-2007, people would talk to me about “the way real estate traditionally works,” and then give me a rundown on market conditions since Jimmy Carter was in office, which to my way of thinking isn’t indicative of the traditional real estate market. And real estate discussions from that era had all too much in common with the discussions I had during the dot com insanity of the mid-to-late 1990s, about how of course companies like Pets.com, which had the revenue stream of your average dry cleaner, could have a market capitalization approaching Ford. Or whatever the situation was. Because, this time, things were different. See the classic text, Extraordinary Delusions and the Madness of Crowds, by Charles Mackay. It was written in 1841. (I will dust off some of the quotes from that book in the future.)

But back to the topic at hand.

Homes on stilts in Vernon as crumbling foundation replacement gets underway.

Less than 10 minutes away, four homes are on stilts on Eliot Drive.

“Every piece of concrete that’s here is gone,” said General Contractor Don Childree.

Childree is replacing full foundations. Each home averages about eight weeks and more than $200,000. Childree has done about 80 foundations across the state.

And this is filed under “Your Tax Dollars at Work” because funds for low-interest loans have been made available, and the state is still trying to get federal dollars out of FEMA (or some part of disaster relief). And that is because insurance isn’t paying to cover shoddy construction.

This is interesting to me, because there is a similar situation going on in Cincinnati. It isn’t that the foundations are crumbling, but that houses are sliding down hills. Homeowners could face $1M cost to prevent losing their yard, home to landslide. A million bucks is on the high-end, and costs to stabilize a yard and a home start at about 100 grand.

For more than four decades, Argo has been working to keep the ground where it is above the Ohio River. His crew was installing concrete and steel pylons that will hold a yard in place in East Walnut Hills.

“We have done houses where they have been split in half caused by the movement of the earth,” Argo said.
The more weight at the top of the hill, the more likely the ground is to slide.

And of course the people at the top of those hills (with some stunning views of the Ohio River and Kentucky) have fairly big homes. Some of them do anyway. And there is also a taxpayer portion of the bill, because some of the land is owned by the city. And they can’t just tell people to move out and have done with it, because those are important people, and businesses up there. Surprisingly enough, building your house on a clay hillside, isn’t a lot smarter than building your house on sand. (Mathew 7:26 – because I know few people will get the reference.) Unfortunately there is a lot of that kind of thing going on. In Hawaii (near volcanoes), on the barrier islands on the East Coast, and around the Gulf (Hurricanes), etc.

The background on the Connecticut situation is at the following link, but the cause is not 100 percent clear. With Connecticut Foundations Crumbling, ‘Your Home Is Now Worthless’.

While the state has traced the affected concrete to the quarry business, Becker Construction Company, which operates in Willington, officials have not ruled out other factors. One riddle is the absence of official reports of failing concrete in public or commercial projects that used material from the same quarry, and a concrete maker, the Joseph J. Mottes Company.

John Patton, a spokesman for both companies, has attributed the crumbling foundations to improper installation, specifically the tendency of some contractors to add water to wet concrete to make it pour faster. That was especially true, he said, during a building boom in the 1980s.

If true, that is a big no-no with concrete. You would think that contractors would know better, but apparently they either don’t know, or don’t care. And people building new homes are by-and-large too trusting or too clueless to do things like witness a slump-test before their foundation is poured. (What, you think the contractor is your friend, and that he is looking out for your best interests? Why him and not the used-car salesman?) Though they think there is a more scientific explanation.

The stone aggregate used in the concrete mixture has high levels of pyrrhotite, an iron sulfide mineral that can react with oxygen and water to cause swelling and cracking

Though the aggregate was apparently used in some of those commercial buildings which are not disintegrating.

But then you also have to ask, “Where are all the building inspections?” Didn’t anyone test the strength of the concrete after it set? Ever? Testing with a rebound hammer is simple enough, even if the hammers are expensive.

And I have to add one other thing, even though I know it will generate some comments. In accounting there are assets, and liabilities. There is no such thing as an “investment.” Your primary residence is not an asset, unless you are somehow running a Bed and Breakfast, or making more money than your mortgage, insurance, taxes, etc. via Airbnb. For most of us, our primary residence is a liability. It costs us money every month to live where we do. And you should have assets, not just liabilities.