The next bubble?

I was driving around the other day and listening to the news on NPR. Usually I don’t really listen to the radio; it just provides a background to counter all the road noise and sometimes, if I turn it up enough, it can keep me awake. But every now and then something jumps out that grabs my attention.

This particular time it was the phrase “Chinese drywall.” It would seem that there has been a huge class action suit against a Chinese company selling drywall in the U.S. that was sub-standard (from the Chinese? Go figure!). This company is evidently the largest supplier of drywall in the U.S. and their product has been installed in thousands of new homes.

The reason this hit me is that, for at least the last twenty years, I have been seeing a downward trend in the quality of the materials used to build new homes. It’s not just the Chinese drywall. It’s the cheap siding, the stuccoed-over-Styrofoam trim on the exterior, the painted MDF trim on the inside, the extensive use of  plastic from everything from doorknobs to bathroom fixtures to window casings. Everything has been downgraded to the point where many of these homes begin to literally come apart before they are more than a few years old.

This has the potential to become a major economic problem because many of the people who owe mortgages owe them on recently built homes. There is a tendency for people to try to meet their obligations and pay their mortgages rather than allow a foreclosure. But this could easily change if the houses begin to fall apart. It might be difficult to justify the sacrifices needed to maintain a good credit rating when your house is falling down around your ears. Banks could easily find themselves saddled with ownership of a lot of unsalable houses that are going to require thousands of dollars in repairs to even be livable.

D.D.

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