Heather Hendrickson, an attractive 41-year-old mother of two, got divorced, declared bankruptcy and saw the foreclosure process start on her home -- all within the last year.
Back in the '80s when we were in high school together, she was the "it" girl. By 2006, her smile graced real estate ads all over Westport, Conn. Hendrickson had opened her own firm that grew to more than 20 employees. Her handsome husband and the father of her two children was a builder. They were in the zone. Then things startled to unravel fast.
Hendrickson is refreshingly candid about how things went down. If she didn't laugh, she says, she'd cry, and she's admirably quick to own up to her mistakes along the way. "I thought I was doing all the right things," she says with chagrin.
By 2008, the marriage had deteriorated, the business was closed, she was riding the bus and hitching rides with a network of dedicated girlfriends. "I remember begging the financing company to just come pick up the BMW X5." She recalled saying, "Please just take it." They did.
What Divorce Looks Like Post-Recession
A longtime real-estate agent with Coldwell Banker, Hendrickson is also particularly cognizant of the role "the house" (those two words pack a lot of punch) plays in the unfolding drama -- her own and others. Her firsthand experience reflects some intriguing trends, and may indicate that "divorce starts" may be a slight, new leading indicator for housing starts. Not that we would ever wish the former on anyone in any economy.
While not everyone whose marriage ends is immediately breaking ground on a new home, some Realtors say divorcing spouses make up at least a third of their clients. And, any move prompts related spending. Whether you got all of the stuff, half of the stuff, some or none of the stuff, setting up a new household means you'll probably hit the aisles of Bed Bath & Beyond (BBY) and the like sometime soon.
Both divorce rates and housing prices have been down for awhile, but what happens if and when they start to pick up -- and which will pick up first? How will lessons learned and other economic and sociological factors play a part in divorce trends over the next decade? The factors that are currently stalling divorces and housing sales may point us toward entirely new trends based primarily on necessity-fueled compromise. After all, the new divorce isn't generally marked by splitting bulging stock portfolios, paid-off cars and mortgage-free homes. It's about clinging to the house or walking from it, driving cars into the ground and praying at least one of you has a job with health benefits for the kids. Freedom may be the goal, but don't expect it to be glamorous in the post-recession era.
Fewer Divorces and Lower Housing Prices -- Chicken and Egg Dynamic?
A lot of people throw around the "half of all marriages will end in divorce" statistic. According to the Census Bureau, that number is probably inflated, as 55% of American couples reach their 15th anniversary. Further analysis by the National Marriage Project at UVA, indicates the Great Recession, graduating from college and making it to church on Sundays may be the winning marriage trifecta.
It's unclear whether couples will continue with the practices they gravitated toward during the Great Recession if the economy picks up. "The data indicated that about one in five married Americans have been hit with multiple financial stressors," said Bradford Wilcox, director of the National Marriage Project. But some of them are turning adversity into solidarity. "For some, the financial stresses associated with the Great Recession have hurt their marriages. But, for others, this recession has fostered a new commitment to marriage that appears to have improved the quality and stability of their marriages." Maybe it has also made for more civil divorces. It's hard to micromanage and maintain power struggles when you're both just trying hard to meet ends meet.
Renting Is a Sage Interim Move
Marriage stability may not lend itself to housing sales, when you consider the amount of real estate business tied to break-ups. But no matter how you slice it, divorce still has a stigma, and it's not the kind of marketing message you want when selling a home. "Happy sells," emphasizes Sam Rees, an accomplished associate broker with Prudential Carruthers Realtors in Leesburg, Va., near Washington. "Houses in a divorce scenario, especially when it's clear there's strain (read: someone is occupying the pull-put couch in the living room) can feel like they have bad karma." But less-than-ideal living arrangements may come with the territory. If one party leaves abruptly, it could be viewed as "abandonment." Perhaps more often, it has less to do with custody issues and more to do with math. High-end homes often have big-time mortgages. Being too far underwater makes it hard to swim against a loss-aversion current. Negative equity may prompt some couples to stay together, even if it means living on separate floors under the same roof. "We did that," described Hendrickson, "I think more people are doing that than we may think."
So if the negative-equity scenario improves, will there be more make-ups or break-ups? For now, that question remains unanswered, but one side effect is more than apparent -- the rental market is hot. Realtors I spoke with said divorce-fueled short sales and foreclosure sales are one of the factors. Rees advises clients to rent before they buy in a divorce-scenario. "You just can't know what you want at such a tumultuous juncture." A year later, she often sits down with those same clients, and invariably they say, "Thank goodness we waited. I could never have foreseen this variable and that variable." Rees says the rental market in her area is so hot, some new listings are only up for minutes. "A person getting divorced and used to living in a 6,000-square-foot home doesn't want to rent a townhouse. They want a house-house -- and those go fast."
Marketing to the Divorced
Bridget Brennan, CEO of The Female Factor Corporation, contends that the recently divorced are one of the most under-marketed cohorts. "Divorce is a modern-day reality and you're starting to see some subtle changes, with single dads pictured in ads and baby diaper changing stations in men's rooms." It's still a surprisingly untapped marketing target, given that two divorcing people are probably about to spend a lot of cash in an attempt to "normalize" things. Not every company gets the tone right. In my case, Mama Bear instincts kicked in and I went on a "nesting" spree. If you were offering a home-improvement service in my zip code back in 2006, all you had to do was dangle the offer in front of me.
Apparently, that's about to start happening more often. A new service -- "Divorce Shield" -- aims to reach divorcees just when they're most susceptible to offers is starting to get traction. It's aggressively targeting Realtors to lock in zip codes by promising they'll be go-to advocates for divorcing couples looking for help. The advocacy positioning is interesting, and speaks to Brennan's point about the delicacy of marketing to people who are by definition in emotional crisis. I spoke with CEO Gregg Cochran. "We've had a great run," he said, "and it's an honor to be helping people when they need it most." Altruistic or not, there's no question there's something to be said for the timing.
In the meantime, Rees wisely plays the proverbial Switzerland role. "I try to remain really neutral when first meeting with a couple who is divorcing," she says. "If you seem to hit it off better with one party versus the other, they won't view you as objective and you fall into the 'of course, you like her' trap."
Plowing through traps may be what it all comes down to and Hendrickson is in the thick of it. She's just starting to hit her stride and is doing everything in her power to make it work for the kids. She credits her ex, John, with doing the same. She now has more predictable income and is hoping the bank may consider a loan modification -- a "workout," in banking lingo. But the clock is ticking. She is currently saving up to rent a place in Westport, Conn., in time for the new school year.
To put it all in perspective, let's look at this single family's numbers. Hendrickson and her then-husband bought this adorable house (below) for $421,000 in 2004. They put their property on the market in 2006 for $649,000. It appraised then for $650,000. Now, an appraisal that was part of the foreclosure process values it at $375,000. The bank would have to approve any offer, but it seems like a great candidate for a short sale -- perhaps to another recently divorced buyer.
The twists, turns and math are enough to make your head spin, even if you're lucky enough to be happily married, as many of our old friends are. Right before we hung up the phone, I asked Hendrickson: "Of all our high school friends, did you ever think we'd be having this conversation? Could you have called it?" Her one word answer sums up the unpredictability of the highly volatile and substantial economic phenomenon of divorce, "Never."
Her story also speaks to the promise of a comeback, albeit one invariably financially tied to the job and housing markets. Here's hoping her "workout" works.