5 Myths of Home Ownership

[movie zombie]

interesting reminder:

http://finance.yahoo.com/news/5-Home-Ow ... 2.html?x=0

"Many people who relied on debt for building a real estate empire are now suffering the consequences of over-extending their financial reach, but real estate investments are just one part of the tale. Some homeowners who relied on the same, mogul-based advice for buying their one and only home set their families up for financial disaster.

They believed the hype prevalent in the real estate market and decided to view their home as an investment. Perhaps chasing the American dream of home ownership, they weren't prepared for the reality. If you are considering the purchase of your first home, don't make the decision for the wrong reasons."

mz

 

[Dancing Fire]

i wrote that article many yrs ago. the worst thing that could of happened to our economy was the housing boom from 2001-2005. all it did was getting people into debt.

 

[movie zombie]

DF, if its one thing you and i have always agreed on its been real estate: knew you'd approve the article.

mz

 

[Beacon]

In old times, people who didn't pay their debts went to Debtor's Prison. Older people who saw the depression knew all about debt and it's danger. But now default is just a lifestyle choice and the lender is blamed rather than the deadbeat borrower. Pretty much we set up for disaster! But will people change their habits?

 

[movie zombie]

merely blaming the buyer is leaving the lender off the hook for deceptive practices....many who got those adjustable loans qualified for fixed rates. back in those old days, buying a home was not a 20-30 year debt, loans were made by a local bank and payable to a local bank, and a very large down payment was required. again, blaming buyers leaves the lenders off the hook for their bad decisions and rush to make money off paper pushing.

mz

 

[Dancing Fire]

merely blaming the buyer is leaving the lender off the hook for deceptive practices....many who got those adjustable loans qualified for fixed rates. back in those old days, buying a home was not a 20-30 year debt, loans were made by a local bank and payable to a local bank, and a very large down payment was required. again, blaming buyers leaves the lenders off the hook for their bad decisions and rush to make money off paper pushing.

mz

i said it many times here on PS.i'd blame both side.

 

[Beacon]

I blame both. In many cases the buyers were just speculators or not paying enough attention to the simple fact that they were taking on more debt than they could ever hope to pay back. If the problem was limited to those buyers who could actually afford fixed rates, we would not have the magnitude of the mess we are in.

Where the buyers were defrauded by greedy lenders, I of course blame the lender. But it is a two way street. Absolute fraud, e.g. where the buyer's signature was forged, was pretty rare. The crime had the consent of the victims in most cases.

 

[Dancing Fire]

In old times, people who didn't pay their debts went to Debtor's Prison. Older people who saw the depression knew all about debt and it's danger. But now default is just a lifestyle choice and the lender is blamed rather than the deadbeat borrower. Pretty much we set up for disaster! But will people change their habits?

so why should i as a taxpayer pay for their lifestyle of choices? did i get to drive their $100K Mercedes and BMWs ? NO !! . did i get a ride in their $70K boats ? NO!! did i get to go on their $30K vacation? NO!!

 

[Hera]

On one hand, I think the lenders are to blame for some of this BUT there's a huge part of me that wonders why noone who bought during that time couldn't google, "Are we in a real estate bubble?", "Will housing prices decline?", or "housing predictions". I know I did in 2005 and got a wealth of information. I can't imagine why people wouldn't be more proactive on what most likely would be the most expensive purchase of their life.

Still, I do recognize that not all people are researcher type personalities like myself and I feel compassion for those that bought during that time. I remember at that time that many people around me were buying and it put a little pressure on me. Apparently, even extremely smart people (like Purrfectpear) got pulled somehow into this scenario so there's a part of me that doesn't seem to understand what happened.

 

[movie zombie]

its easy to get pulled in when the mortgage broker makes it seem like you're stupid if you don't go along with the program: we qualified for a good fixed rate in january 2004 when we bought this place and we had more than excellent credit scores, 20% down on a jumbo loan, but the creep still tried to sell us on the stupid product and acted like a disappointed kid when we refused. i worked for american savings and loan during the '80's...specifically, spent a bit of time in REO. i learned a lot. not everyone has had that kind of experience, training, and/or understands that the mortgage broker is not your friend, that his/her job is to part you from your money by selling you the product he/she is pushing.

i'm also a researcher type; but not everyone is. most of us that are researcher types are also distrustful and must know for ourselves. others are trusting types and when people tell them they're stupid for not jumping on the band wagon, they jump. [sort of like those that buy diamonds at b&m's and those that come to pricescope to get educated and get the most for their money.]

yes, there were abuses...........on all sides. but i'm going to fault the "industry" itself for making it possible in the first place.

mz

 

[Fly Girl]

Home ownership is great when you own your house free and clear. It's the way a few of us folks are making it through this recession.

I agree with MZ. We purchased a second home in 2005 and got a fixed rate loan with a great interest rate. The banker said to me that I could get one of those ARMs. I laughed and said, no way. Even though those were good times, that was a risk I wasn't willing to take. When you can substantially lower your financial risk for very little cost, it is worthwhile to do so. But, most people don't have the background to make those judgements. BTW, I have worked in the insurance industry for over 25 years and I learned to think about risk.

 

[Steel]

That is the point for me. Many who bought during that boom were 1st time young buyers. It is easy to have hindsight now but then many were earning great money and felt, in all the hype of queues and sold out's that NOW was the time to buy. So they bought. When you feel pressure to buy, especially against the buy to let market, many don't stop to evaluate the decision. With quick mortgage approval and even quicker sell outs there was not time for many youngsters to think clearly. It is much regretted now. I saw it and sold at the peak and I am sorry for our purchasers but they are still living there and seem to be doing ok; brand new cars each and often out on the town. I sleep easy.

 

[ksinger]

its easy to get pulled in when the mortgage broker makes it seem like you're stupid if you don't go along with the program: we qualified for a good fixed rate in january 2004 when we bought this place and we had more than excellent credit scores, 20% down on a jumbo loan, but the creep still tried to sell us on the stupid product and acted like a disappointed kid when we refused. i worked for american savings and loan during the '80's...specifically, spent a bit of time in REO. i learned a lot. not everyone has had that kind of experience, training, and/or understands that the mortgage broker is not your friend, that his/her job is to part you from your money by selling you the product he/she is pushing.

i'm also a researcher type; but not everyone is. most of us that are researcher types are also distrustful and must know for ourselves. others are trusting types and when people tell them they're stupid for not jumping on the band wagon, they jump. [sort of like those that buy diamonds at b&m's and those that come to pricescope to get educated and get the most for their money.]

yes, there were abuses...........on all sides. but i'm going to fault the "industry" itself for making it possible in the first place.

mz

I agree. The lenders, the people who had the most knowledge - who had scads of information at hand on what constitutes a good risk rather than a bad one, were the gatekeepers. I can ask all day for a loan, but if the lender deems me a bad risk, he can deny me all day too. The lender's lack of due diligence, plain old common sense, and basic human decency (but then who has that these days in the financial world?) in pushing these loans to people who had no means, was the real driver for all this mess.

Oh, and a recent article I read said the Biggest Defaulters on Mortgages Are the Rich (see link below). For those in the middle, we're told defaulting on a loan is immoral and will result in the end of civilization as we know it, for the rich who default "it's business".

http://www.nytimes.com/2010/07/09/business/economy/09rich.html

 

[perry]

I can remember posting during some of the "boom" years that real-estate was generally overpriced and that the boom would collapse and the properties would not be worth what was owed. While some of you agreed with me - that did not prevent others from insisting on what deal they were getting.

But when we get to home buying myths. I really only have two items:

1) Your home is a great asset... It is; for the bank (or financial institution holding the mortgage). It may well be if you own it free and clear.

2) You will be better off owning your own home: Perhaps, perhaps not. IF you can pay for it (cash down) or have only a short mortgage then likely. If you have to have a long mortgage - then renting may realistically be a better long term financial deal. Most people underestimate the cost of home upkeep. Special situation may apply here. I have allergy issues - and I bought a home with hot water heat and hardwood floors (under the carpet I tore out). So for personal medical reasons there is added value in my "owing" my house (or having a long mortgage). Truth be told; without the medical issues I see no advantages for me to own the house.

Have a great day,

Perry

 

[studyer83]

Often homes do not track inflation. Yes, many do; yes, many ppl are lucky to buy in areas where values go up. And the opportunity cost of a large downpayment is very high -- that is money that is not compounding (but nothing is right now!). Of course, as one pointer said, ownership makes you much less subject to income shocks. But you can (sort of) duplicate that by saving the $$. I think homes are a great "forced savings" plan for retirement. Not in that you can cash out the home -- but people don't have to worry about paying rent in retirement, they essentially paid that earlier.

I do wonder about all the baby boomers who are going to retire by selling their house. Do they all think they can put their expensive houses on the market -- pushing up supply -- in the years of slow growth to come? Whose going to buy them.....and whose going to want to buy some of them. I think people are going to be much more skittish about homeownership over the next few years.

You are also stuck in a physical location -- decreases mobility. And the realtor takes a large chunk, every time you move, which you never, ever get back (unless you're a realtor!)

Personally, the government should be agnostic between renting and buying -- I'm all in favor of ending the mortgage interest deduction and the multitude of other direct and indirect subsidies for those who own their residence.