I recently read that experts say that a person's primary residence accounts for over 50% of their property and financial "savings" for owners in their 60's.
Today, that can be a scary prospect.
Everyday, we have been hearing about the troubled times our country is facing. The government takeover of Fannie Mae and Freddie Mac. Then the fall of Lehman Brothers, Merrill Lynch, AIG and WaMu, what or who will be next? The government is trying to come up with a plan to help bail us out. No one knows what lies ahead.
Remember the tech stock market? All of those companies values were based on over inflated numbers on botched balance sheets. Those were never true values, except to the people that sold during that time and walked away with a pocket full of money. Then the bubble burst.
Then came the real estate bubble. Was that any different than the stock market bubble? I think not. Weren't the values of homes at the peak of the market in 2005 based strictly on over inflated values on f paper? The only owners that truly reaped their wealth were those that cashed in and sold their homes during that peak in the market. Those that didn't sell gained nothing, except maybe higher taxes and insurance premiums.
Many of those that bought, got stuck.
So, if it's true that 50% of an owner's financial "savings" is found in their primary residence, and our real estate market is going through a time of correction in certain parts of the country, an owners wealth may be dwindling down to nothing (if they aren't already upside down or going into foreclosure).
These are scary statistics in today's uncertain times.
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that for you
I had heard somewhere that it was much more than that. That's why reverse mortgages became so popuplar with seniors.
Hi Jared, Really, you heard that it was much more than that? That's even scarier! I also heard that over 70% of retirees over 65 are living below the poverty level. I hope that statistic is not accurate. Take care and have a great week!
I can't see it. I know homes are known as a person's asset. But it isn't really an asset, it is a liability..mortgage! Anyone ever read Rich Dad, Poor Dad? A home can be an asset, but not until it is completely paid off and most people do not have theirs paid off.
Hi Rebecca, I have heard of Rich Dad, Poor Dad, but haven't heard the program yet. I'll have to check into it. I suppose a home would be considered a liability, having a mortgage on it. I know so many people at the peak of the market that felt they were rolling in the dough because their home appeared to be worth so much money. (Only for the ones who sold at the peak). Thanks for your point of view!
Hi Sandy ... That I do not know exactly what to expect scares me the most ... the uncertainty.
Hi Marie, I know, the uncertainty of it all is what scares us. All we can do is hang in there and keep doing what we do best! Take care of yourself and have a great week!
It certainly is scary. It's unfortuante, but I think that the economy and the American lifestyle has created it.
Hi Larry, I think that you hit the nail on the head- the American lifestyle has created it. Everyone has to have everything today. Material items are king! Very scary times! Have a great week!
Are you implying that the kid with the most toys at the end of the day is not the winner?
C'mon, so what if the toys aren't paid for.....?
Hey Sandy, you are correct, have you ever thought about how the education level of people plays into this fact? People always find an excuse for making mistakes and find a patsy to blame for their short comings. When people begin to take ownership for their mistakes and their misjudgments, then and only then will we begin to see an improvement in the prosperity of America.
Wow, that sounded kind of conspiracy theory like didn't it? I promise I am just a pure blooded aAmerican who believes I succeed and fail based upon my own decisions. Not my parents or my elected officials can be blamed for my choices.
Thanks for the post, very thought provoking. I wish more people would contemplate the ramifications.
Well said! I had someone in my office the other day who pointed out that he could not remember a time when the stock market was down, the housing market was down, and the financial markets/banks were in trouble. One, yes, but not all three "at once". What's that curse about "interesting times"????
Brady, How are you? I hope that business is brisk for you here in Brevard. I agree with you that people must take ownership for their mistakes and misjudgments - then we will see an improvement in the prosperity of America. Unfortunately, I do not believe that will happen in my lifetime. Today, it is much easier to blame everyone else for your shortcomings. Thanks for the interesting comment!
Hi Li, Good point - all three are currently down. Where are we headed from here? I wish we could pull out our crystal balls and find out what lies ahead. Hope that all is well with you!
I can see where a home can comprise of 50% or more of a family's net worth. A home in many cases is a long term investment and hopefully the market will bounce back like it has in the past. Good Post!
Hi Michael, You're correct that a home is considered as a long term investment. Unfortunately, that was not the case at the peak of the market, and that's how we got here today. I'm sure that as things get ironed out, our cyclical real estate will eventually rebound. Thanks and take care!
Sandy, It's interesting to talk to sellers today and how their perspective frequently is that they've lost money if they sell now. Even though that "loss" was only a paper gain based on the overheated market of a few years ago. Nevertheless, if you've owned your home for a while you've probably done pretty well.
BUT, if they can make their paymkents and stay in the home the value will come back up over time.
The other day I heard a conversation where someone was congratulating a gentleman on becoming a homeowner...The gentleman then replied that he was a "homebuyer" not a "homeOWNER"...you don't OWN your home until you have that satisfaction of mortgage...so a home is not an asset it is in my opinion a LIABILITY...
Yes, we are in troubled financial times based on our own selfish greed. The country as a whole needs to get back on kilter to figure out that it is the work of our hands and our wise choices that create wealth, and that debt is a thief! (Indebted servitude is B-A-D...whether that is to a credit card or you are a share cropper!) We need to redefine what 'rich' means, and reprogram the nation to understand that, eventually, ALL debt has a consequence. I simply don't think that the people of this great nation remember that DEBT is a 'promise' to pay..."I will give you $2 tomorrow for a hamburger today" syndrome...well, guess what?? Tomorrow you will find yourself just as hungry...but now in debt for yesterday's decisions! Always hungry...always owing MORE.
The other side of all of the BAD news...there are a whole lot of American's who have lived within their means during the lending orgy of the past few years. There are a whole lot of American's in positive equity positions. These folks are in a powerful position and may not know it. They are in a unique position to capitalize on their wise decisions with new wise decisions.
The smart RE agent, who truly CARES for the clients they have, will be sending information to their client base in this position, to help them see possibilites...and choices. I do not mean encouraging our clients to cash out to saddle themselves with more debt...I simply mean it is a great time to move up and maintain a similar mortgage situation for those lucky enough to be in that WISE position.
Helping folks make the most of the $$'s they already put toward their housing is the JOB we have. I encourage my fellow Realtors to help their WISE clients benefit from this unique market we are in.
While, yes, the grasshoppers will get what they have earned (nothing)...the ants will rule the day. The glass is 1/2 FULL for many, many, many home owners out there. (Can I put anymore parables in this post??? Probably!!!)
Mimi Osterdahl / The Muljat Group Realtors / Bellingham, Washington / www.LiveGoodBeHappy.com
2008 President, Northwest Washington Women's Council of Realtors
Hi Ross, Interesting point - don't you think that is exactly what people have done in our previous markets? They have considered debt as wealth, and allowed themselves to get further into debt by going to the bank and borrowing more money on a piece of property that is no longer worth the value established 3 years ago? Now here we are...in the crash! Thanks for the comment!
Hi Richard, Their real estate "investment" of 2005 was no different than a rise and fall of the stock market. If they didn't sell at the peak of the market, then they didn't grab that stack of cash, and they missed out -unfortunately. You're exactly right - it is very interesting to hear different sellers perspectives. Thanks and have a great week!
Hi Leslie, I think you prefaced that perfectly, 'if they can make their payments'. That's seems to be the big question today, doesn't it? The market eventually will rebound, as we all know, like the economy, the real estate market is cyclical. Thank goodness for that. No one knows when that will happen, though. Take care of yourself!
Rebecca, I like the comment from the homebuyer, not homeowner -point well taken. I suppose the satisfaction of mortgage wraps it all up, doesn't it? Thanks for sharing your story! Hope that business is keeping you busy right now!
Hey Mimi, I love the time you took in sharing your views in your enlightening comment! You are so right! However, I really don't believe that we are going to reprogram the nation that debt has a consequence. We haven't seen that at all, lately. No one is required to be responsible to pay off any of their debts. Today, if you can't pay, then all you do is holler for help and someone will run in and bail you out. I suppose that today, that is considered the American Way. -Very scary stuff! Thanks again and have a wonderful week!
Sandy, we just need to remember, for most people, the reason they buy a home is for a place to live. If they can do that and accumulate equity, great. If they don't lose anything, good. Overall, the first purpose of a home is shelter.
Hi Fred, How are you today? Point well taken -the first purpose of a home is shelter. I have often heard it said that for homeowners in buying and selling homes over a lifetime, on some you will make money and some you will lose, however when it's all said and done - it usually balances itself out in the end. Thanks for your perspective. Have a wonderful week!
Great post for your blog! And all the comments add even more content!
Hi Sassy, Thanks for the comment on the article! That's my favorite part of blogging - the comments. I love to hear the other perspectives on a topic. It's all food for thought! Take care!
I would bet thqat for most a home is more than 50% of their wealth, and these are scary times for many.
There are no absolutes. I bought $5000 of a particular stock on margin ($2500 investment), and sold it for $9000. I paid back $3000 (actually less... but wanted to keep the numbers easy) and made $6000 profit.
But with a house, and a 30 year mortgage, you might actually pay $300,000 for a $125,000 house. If you sell it for $300,000 you broke even... but then had you done the same thing in the stock market and rented instead, you likely would have paid most of the house payment in rent anyway...
The bottom line is that even the people that bought at the height of the market will be ok if they can hang out for a while. It isn't a loss for them until they sell. When my house appreciated on paper, it wasn't a gain until I sold.
Hi Michael, You are indeed correct -these are very scary times, especially if a home comprises more than 50% of an owners wealth. I just don't think people have any extra money today to truly save. So many just can't and so many just have to have it all! Have a wonderful week!
Hi Lane, You mentioned that people that bought at the height of the market will be okay if they can hang - for so many that's a problem with high taxes and insurance. It's ths "if" part. But, yes, the real estate market is cyclical and will eventually rebound. I agree that it isn't a true loss until they sell. Thanks for the comment and take care!
Sandy. For those that can't handle the insurance and the taxes, they are in a house that they shouldn't have bought. Basically, they made a decision that is eroding their wealth. It is no different than buying a bad stock. Perhaps they need to take their lumps.
Hi Lane, Thanks for revisiting this topic. I couldn't agree with you more - if their taxes and insurance are too high, you are correct in that they shouldn't be living in that home. Interesting - they need to take their lumps -you know, I really don't disagree with that comment. However, isn't everyone right now being bailed out for their poor choices? Things seem very distorted today!
Sandy... That is why I am conflicted with this whole bail-out thing. But, which is worse... allowing a few people that did bad things to get off without the appropriate repercussions, or letting 250,000 people lose their jobs because the companies they work for can't borrow the money that they use to smooth the bumps.
Hi Lane, Funny you say that...this evening my 13 year old came home and said that her history teacher gave the class an assignment to go home and ask their parents if they agreed or disagreed with the bailout. My daughter told me that they have been talking about short sales and foreclosures this week in class and she said she knows exactly what her teacher is talking about (hooray - she is listening to me!). You know I had to stop and think about the bailout before I could answer the question. I told her that I felt like it is like putting a band aid on a foot that was just amputated in an accident. The wound is going to keep on gushing. They have just come up with a temporary solution to what I believe is going to become a much larger problem. There are many more repercussions to come out of all of this in the future and they aren't going to be pretty. I'd like to sit down and review all aspects of the final approved bailout package, to fully get a grasp on what they are intending to do. I know it has been adjusted throughout the week. Thanks for the thought provoking topics - I really appreciate and enjoy your feedback!