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The rapid decline in real estate market values seems to have taken mortgage lenders by surprise. After all, who in the world would lend money secured by an asset that will lose so much value in just a few years?
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27 Comments on It has worked with cars for years. So what makes a house different?
Good analogy. I've supported the 20% down requirement but many claim the market would collapse. They often cite low foreclosures rates for 3.5% down borrowers on FHA or VA loans. However, I still think "skin in the game" is important. In our rush to create homeowners, we lost perspective of the need for equity.
An interesting look at this. You are a thinker for sure. I am always amazed how you come up with these great posts!
Love the analogy...great way to look at this! Awesome post...better picture! ha!
We need to think more about the worth of home ownership versus the monetary value.
We’ve gotten away from what home ownership really means. I compare home ownership to owning a chainsaw—let’s call it the Chainsaw Mentality. If I buy a chainsaw, is it going to be worth more than I paid for it in three years? What about the value of its use? You may put wear and tear on that chainsaw clearing your yard so your kids can play or use it to help a friend in need. Does that diminish the worth of your purchase? It may hurt the value of the chainsaw, but not the worth. The same is true of home ownership.
You can run the numbers. Most people would be financially better off owning a home with a mortgage payment rather than renting with payments going up every year. But the value of home ownership goes far beyond “good investment” or financial value.
In today’s market, your home may not be valued as much as you paid for it, but look at the worth you’ve gotten in return. Your home is where you’ve raised your kids, marking the walls to show how much they’ve grown. Your home is more than shelter—it’s a gathering place for family and friends, a place of recreation, relaxation, retreat, and worship. The market value of a home may have gone down in the past five years, but the worth of stability for your family is always rising.
If we had more of a Chainsaw Mentality about home ownership, I think people would understand the worth of a home and not just look at the monetary value.
Just because I can’t sell my Dodge Truck for what I paid for it today doesn’t devalue its worth. Heard of the country song “I Love My Truck?”
Not everything that works for one will work for another. It is sad and there is always that risk there in everything that we do.
I just had a client that had no problem coming up with over $4000 to lease a car, but can't scrape up $2500 to buy a house. Priorities?
Kim...
I think it's here! Thanks.
Fernando...
Our builders used to take trades, but it doesn't work anymore! Thanks my friend.
Mike...
All of that is figured in! Thanks so much.
Jamey...
Sometimes you really do have to look at it from a different perspective! Thanks.
Very true on every aspect. The lenders know the risk already, they just turn a blind eye and preteen it's all new to them, but they have been doing it for a longtime.
I like thinking outside the box. It seems that this approach would require a larger down payment then most buyers are able to bring to the table and the short term of the loan would drive up the monthly payments to the point that most buyers would not be able to afford the house.
Hummm... had not thought of comparing it to a car. I like the analogy!
Family Abstract #11 also has a good analogy. The home is more than just the montary value.
Thanks for the post and making me look at values with a different perspective, Richard!
An interesting concept. Obviously the lenders have not gone down this path, but it seems they should consider this.
It's a pretty good analogy, Richard. My guess would be that the mortgage lenders make more "profit" in the beginnings of the term because there's a higher interest payment as opposed to the auto loans that are typically 5 years with the same interest payment each month.
Did #1 even read the article? Yeah, it's about "spring" {rolling eyes}
You've got a point there Richard. As far as people not paying there car note, it's still alot easier to send out the re-po man.
great post and thanks for sharing! what a concept!
Great family size car you have showcased Richard. There was a time that red color cars meant your auto insurance was higher. ) Vvvroom Vvvroom. Congratulations on the feature post!
This is a different way to look at it. Good interesting and unique point of view!
Richard - an interesting analogy. I tell every new homeowner the benefits of making just one extra principal payment each year and the benefits to truly owning your home so much quicker.
Richard - I can see some of the validity of the argument. The problem here is the value of our properties is still so high that few can afford them with 30 year loans let along shorter ones.
Hi Richard,
That is creative thinking!
Most places in the world you have to buy all cash, or rent.
We will all adjust to the new reality of the housing market. Banks need to do so as well
PHil