Old Fashion Values

I remember back to the ‘70’s when you heard the statement, “A house will be the worst investment you ever make, but it is a necessary one.”

Also there was the fact, that there was an added premium for renting over purchasing a home. You paid more for the option to rent a house over buying it. You could pick up and leave at any time, so to rent meant paying more than a homeowner would pay.

There is also the concept of saving money for retirement. Savings means that you surrender buying now, for buying later. This saving, is how we, as a group, finance retirement and investment.

Now when a house appreciates 400,000 dollars, where do this idea of savings by surrendered consumption, enter into the picture? It doesn’t.

If everyone can buy a house and sell it to someone else for more money, what would you call it? A chain letter might be a good label.

Now, turn on your radio, and listen to “have you recently had a bankruptcy and need to refinance….” Somebody is buying these loans, and you and I know that they are probably very high risk if (or when) the housing market drops.

You want to buy someone’s house and the price is outrageous, say 800,000. You may get back 80,000 dollars from the seller, and zero down, what a deal. The joke is in qualifying for a loan, can you fog a mirror?

There is a problem here, I studied the Great Depression, and I was always confused as to why people would finance a home for only 5 years back then. Then when you read a little further, you discover that these were interest only loans. What the hey, they will be worth twice as much tomorrow and then we’ll flip them. The loans were called and not renewed—real tough luck.

Now you see where we are at today, a place where we have been before, but there isn’t anyone alive that has first hand experience, and therefore no déjà vu.