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By Sammy of Stone Marmot
March 6, 2009
A lot of homeowners are whining about the fact that their houses have recently dropped in value. The most vocal are those who are complaining that their mortgages are more than the value of their houses. So what? Isn't that true for most anything you take a loan out for? Why should houses be any different?
For example, most people borrow money to buy a car. The instant they drive the car off the car dealer's lot, the vehicle has lost at least 20% of its value. Few complain about having to pay off a car loan because the loan is for more than the vehicle is worth.
Some people take out loans for a big wedding. Or, more likely, they charge it to a credit card and take months, if not years, to pay it off, which is effectively the same as a loan. Once the wedding is over, there is nothing of monetary value left to show for their debt. But most people still pay off the loan or credit card.
The same is true for most anything else people buy with loans or credit cards, such as furniture, big screen TVs, boats, whatever. Few whine that their debts are for more than these items are worth. Most pay off these debts.
But many of these people will reply that homes are different. And they are right:
1) You can get by and live a reasonably comfortable life without a boat or big wedding or fancy furniture. You can even reasonably make it without a personal motor vehicle. But you must live somewhere. Being homeless is not a terribly comfortable lifestyle. So just be thankful you have a home.
2) A house will last a very long time if reasonably maintained. All five houses I can remember living in were built before 1960. My present house, which I find rather comfortable and am happy with, was built in 1959 and is 50 years old this year. How many people can say that about their marriages, boats, TVs, furniture, and especially, vehicles? Yet few have a problem paying off debts for these relatively short-lived items, but are upset about paying off a very long life item such as a house because it is temporarily worth less than its loan.
3) Over the long term, most decently maintained houses appreciate in value, usually significantly. There are exceptions, such as houses that suffer some disaster or are in a bad location. There can also be temporary downturns in the housing market, like we had in the late 1980's-early 1990's. But over the long term, most houses appreciate in value.
So people who intelligently selected and bought a house they expected to live in for a long time should have no problem paying off their mortgages, even if the house has dropped in value so that it is now worth less than the mortgage. They have something worth the money and that should give them a life of happiness. The real reasons people are complaining are:
1) Many people did a poor job of selecting their houses and bought more than they could over the long term afford.
2) Many were speculating and not buying houses primarily to live in, but as short term investments. This is definitely the wrong reason to buy your primary residence.
3) Many are jealous of government efforts to bail out those who are in danger of defaulting on their mortgages and they just want some of these government handouts. This is another example of how government interference in the marketplace often causes more problems that it solves. After all, this whole mess was caused by the government manipulating interest rates 6 or 7 years ago to artificially low levels to try to avoid a long recession. Instead, these low interest rates encouraged people to buy houses they couldn't in the long run afford and to consider houses as speculative short term investments.
The real problem we now have is that all these shortsighted and selfish people have put a big drag on the entire economy so that now people who had typically planned and chosen well are losing their jobs and are suffering. Our efforts should be concentrated on helping those who are losing or have lost their jobs, not on helping those who overextended themselves. There is no way out of the present economic situation without someone being hurt. Therefore, the pain should be borne by those who caused the situation, not the innocent bystanders.
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