I agree...

Chiuse posts: "Does it even make sense for a president to brag that X percentage of Americans own their own homes "

It only does not if it would make sense for a President to brag that a large percentage of Americans are now renting.

The only arguement that would support that renting is financially better than owning, is if those renters did not opt for a rental payment that would be about the same, (or more) than what they would pay if they would have purchased and been paying a mortgage. And my experience is that they do not... they maximize the payment of their rental just like they do when they go to purchase. And therefore do not put the difference into secure investments.

My nephew rents. He has a good job and has moved to 2 states and 2 countries in 5 years. It doesn't make sense for him to buy. He will move back to CA next year. He will be renting. So there's not only one argument in support of renting.

It's true, if you always buy or rent the most expensive place you can you will have little left over for savings or investment.

I believe the OP is from S CA. I am near Seattle. If NC guy is from the Research Triangle then we have representatives from the hottest RE markets in the country. It's different where we are. In order to realize your million dollar profit you have to move away to Alabama or something, because if you sell your home and buy a different one, your gain is not going to be that much.

We do encourage people to buy homes in this country. But for many people it's giving them a false sense of security.

jn3344 -- I've lived my whole life in suburbs of Chicago. This is a lagging RE market today. Friends who moved to the Bay Area recently paid over a million for a modest, older town home. Banks are asking little more than that for mansions here.

Thanks for illustrating your nephew's valid reasons for renting -- and the vast difference in RE costs in different parts of the US. A house is the opposite of a liquid investment, and if you over-leverage you can be out both money and a home.

The RE slump isn't over in my suburb. Foreclosures continue, and not just for those who overextended. Their losses drag the whole market down -- affecting conservative people who have owned for decades.

Remember when IBM was translated as, "I've Been Moved"? Employees routinely bought the biggest houses they could swing, "betting on the come". They had sticker shock when leaving the Midwest for costly markets like NYC -- but they also had corporate help.

I'm still lacking my *percentage*! What percentage of American homeowners makes the nation 'healthy'? We learned that no-money-down home ownership is not healthy, but how much equity does the owner need to have in the property to 'count'? Does 'healthy' mean good for RE-dependent businesses? How 'good' is it for the owner -- or is that dream window dressing? (No Scarlett pun intended.)

SaltiDawg -- We experienced similar appreciation on a house we owned 1971-2000, but once I figured inflation, taxes, maintenance, etc....we *profited* less than 4% a year. (We did have a place to live.)

The cpi inflation calculator tells me 50k in 1976 = 211k today.

The S&P 500 has returned nearly 8% over that time. Your 50k invested in 1976 would be worth 3 million today. Divs reinvested.

I think what some of us are trying to point out is *not* that you can't make money on home sales. Obviously you can. But that, relatively speaking, home appreciation is less than people think, and given the expenses of maintaining a home over 30 years, even worse.

Yes, ppl make good money on flipping homes, or riding a wave up, or selling homes in LA or Vancouver to Asian investors. That's different, imo.

The S&P 500 has returned nearly 8% over that time. Your 50k invested
in 1976 would be worth 3 million today. Divs reinvested.

Usually only $10,000 would be invested, a 20% down payment.

"Leveraging one's money is an important consideration."

Yes, and one should keep in mind that leveraging can go both ways. It amplifies the gain, but it also amplifies the loss.

lana_roma -- Exactly. Worse, the fool isn't the only one to lose. The whole market sours -- for the fool and for the nice old couple who need to sell a home after 50 years of conservative ownership.

SaltiDawg -- Your million dollars from homes that appreciated isn't still all in your residence, is it?

We bought a $52K home with 20% down in 1971. It brought $474K in 2000. That's actually only 4% per year -- during years when interest rates on 'safe as houses' investments was double digits. (But we had a home.)

I'm still lacking my *percentage*! What percentage of American homeowners makes the nation 'healthy'?

100% of people who plan to stay in the same area for some period of time (I would think about 5 years). This answer has been given by many people, many times so you did have your answer.

However, AGAIN, the question is flawed - the nation's health isn't particularly sensitive to home ownership even if consumer health is. Even then, there are a lot of other factors, but we recognize that home ownership is strongly indicative of financial stability and consumer confidence.

We learned that no-money-down home ownership is not healthy, but how much equity does the owner need to have in the property to 'count'?

When did we learn this? Do you really think that the economic collapse had anything to do with the amount of equity we had in property? Because it didn't. Honestly, the amount of equity in homes had little, if any, effect on the home market collapse. No one lost their home because they didn't have equity in it.

Another thought:

Perhaps we should view buying a house with a mortgage as a form of "rent-to-own" contract?

The mortgage lender acts as the landlord. It has the power to kick the residents out if they fail to make their regular payments.

In fact, the idea of being a "homeowner" when a significant chunk of equity in your house belongs to a lender, is delusional. It's only a perception imprinted in the public mindset by decades of marketing and propaganda.

If to Google the percentage of homeowners owning their homes clear and free, most sources quote a figure of about 29% of all homeowners in the U.S.

If 62.9% of all of the Americans are purported to be homeowners, then 29% of the total number of homeowners translates into about 18% of the total U.S. population owning their homes outright. Perhaps that could provide an estimate what share of the total population can realistically benefit from borrowing and own their homes outright in the end?

LA Times: Nearly one-third of U.S. homeowners have no mortgage

Yes, and one should keep in mind that leveraging can go both ways. It amplifies the gain, but it also amplifies the loss.

Nope, not really. The problem is that you have to live somewhere. Leverage magnifies equity losses because you don't have to invest. So using leverage to invest means that you can suffer much higher losses. But that is not the case with homes.

EXAMPLE:

You buy a $100,000 home and you pay $20,000 down and finance the remaining $80,000. Your payment plus tax and insurance is going to be about $520 per month. Now assuming the market takes a dive the next day and your house is only worth $50,000. Certainly this looks like an amplified loss. But is it? Probably not. Unless you could rent the house for less than $325 per month you are still better off than renting. Sure you are not going to make as much as some other guy and you can be all kinds of pissed about that, but you are not really losing money because you are still paying less than you would renting.

In fact, the idea of being a "homeowner" when a significant chunk of equity in your house belongs to a lender, is delusional.

Just because the bank secures their loan with your house doesn't mean they own it. This is silly. Guess what, you can't have things that you don't pay for. That doesn't mean the bank owns them anymore than it means the burger you just ate belongs to the restaurant until you pay.

The mortgage lender acts as the landlord. It has the power to kick the residents out if they fail to make their regular payments.

You are using the bank's money instead of yours and you are paying very little to do that. In turn, they get some assurance that you are going to pay. You own your home until you decide not to pay. But to pretend that your decision to not pay your house is somehow the bank's fault is delusional.

If 62.9% of all of the Americans are purported to be homeowners, then 29% of the total number of homeowners translates into about 18% of the total U.S. population owning their homes outright. Perhaps that could provide an estimate what share of the total population can realistically benefit from borrowing and own their homes outright in the end?

Please tell me how.

I think that we are encouraged to believe that we are well off. It keeps us manageable. (My comment is not in relation to anything much. I can't keep up with this thread.)

Let's play with some stats from online sources.

Homeownership rate of those under the age of 35 as of 2016 Q2: 34.1%

Percentage of the total population aged 20 to 35: 20.3%

This way, homeowners under the age of 35 account for about 6.92% of the total population.

If we use the stats from the LA Times article I linked in my previous post:

"...nation's most elderly were the most likely to own their homes, with
77.6% of those 85 and older owning their homes outright, followed by
those ages 74 to 84, at about 62.7%"

Let's assume that all the adult Americans, who are under 35 now, will survive to the age of 74-84, account for the same percentage of the population and have the same share of mortgage-free homeowners, e.g. 62.7%. Then the share of homeowners under the age of 35 today who would have their house mortgage-free in 40-50 years from now would be 4.34% of the total population.

In this way, we could do calculations for the next age cohort (35-44 yrs now, will be over 85 yrs) and add them to the share of those under 35. Of course, there are many more factors coming into play, like job/income stability over the next 40-50 years as compared to the past 40-50 years, changes in the average home price/average income ratios, different interest rates, different birth and mortality rates, etc.

I have to go now, but anyone mathematically inclined could crunch numbers from the sources below. This is not about whether housing makes a good investment per se, but about how many Americans are likely to own their residences free and clear in the end.

Data sources:

Census.gov: home ownership stats (Scroll down to Table 6)

Wikipedia: Demography of the U.S.

I believe that many people have no business buying a house. Many buy the biggest, most expensive one the mortgage company will allow, and with the smallest downpayment. After buying the house, many people have virtually no savings at all - they put it all into the downpayment. They also may not save. Some don't save because they are spenders, not savers - they're always going to start saving "next month" but that never happens. Others don't save as they earn so little that they can just barely cover their living expenses, even if they live very modestly.

NO ONE should sink every penny they have into buying a house! If they have no reserve, they will be in HUGE trouble if that house ends up having the furnace die a month after closing and they don't have enough monthly income to replace it. Such people are often maxed out on their credit cards as well. So what happens? They freeze, the pipes burst and they lose the house? No, they should rent and not buy.

For others, buying IS an enforced savings of a sort. We always laughingly said that we're living in our "long term care policy". And now that's very true. If I had to go into assisted living, I have enough cash to cover the expense for a year if the RE market is down, but when the house does sell, there will be enough money to cover my monthly expensive for at least 5 years. Since most long term care policies have a 2-3 yr limit, I'm ahead of the game.

My late husband was a secondary school math teacher in independent schools. He earned very little, even with a degree from Yale and a masters from Wesleyan. He was good at what he did and it was the right career for him.

In 1984, we bought a house for $127,500. We thought we were assuming a low interest loan but were badly mislead and in the end due to time crunch and a cross country move, we ended up with a high interest rate, but it was not fixed. We had a $35,000 mortgage on this house. Why such a small downpayment? Because our previous home in another city that was purchased for $27,500 sold for $89,500 and we owed very little on it. We also had had a small inheritance that made up the balance. We were very lucky as interest rates started going down and have continued to do so.

About 16 years ago, we decided to refinance our house with a fixed 15 yr mortgage and take out $70,000 in cash. Why take it out? Because during the years we had children in expensive private universities, we ran up enormous credit card debt paying for things like new tires, batteries, transportation to and from school - you name it, but it was NOT living lavishly, dining out, vacations etc. That money allowed us to pay off ALL our debt - just our mortgage. We would have never been able to pay it all off otherwise.

A few years later, we again re-financed to do some much needed delayed maintenance on our house. Again, much lower interest rate, low closing costs, lower monthly payment.

After my husband died, I again re-financed - this time to replace all the windows in the house (original to 1948), and to have all the out-flowing plumbing replaced - raw sewage was flowing back into the house via the floor drain in the basement. I also did modest upgrades to the bathrooms so they looked fresh - no marble or jacuzzi tubs - kept almost all of the fixtures. I also bought a new hood for over the kitchen range and a new refrigerator. Again, low closing costs, lower monthly payment and a fixed rate 15 years mortgage.

This past year, I again refinanced. This time I put in an in-ground sprinkler system (I have pulmonary problems and putting out and moving hoses around in hot, humid weather was very bad for me). We had put a lot of effort into lovely landscaping - done by my husband and me ourselves. I could not let it all die. I also put in all new gutters, gutter guard and downspouts - replaced the 1948 ones. I resurfaced the asphalt driveway, and then I re-did the kitchen. I've never had a new kitchen! I was able to re-use the 32 yr old Corian countertops, the integrated Corian sink, the 13 yr old Perrin & Rowe faucet, all the under cabinet lighting. We had already put in pot lights in the ceiling and hardwood floors. I did not buy any new appliances (I did have to get a new garbage disposal - seals were shot on the 13 yr old one and no replacement parts available). It cost me less than $30,000 and looks like a million bucks and has been a HUGE upgrade to my house. And my closing costs were $100, my monthly payment is $70 lower each month and I have a 15 yr fixed rate mortgage. If I sold tomorrow, I should net about $400,000 and that is low-balling the selling price for a quick sale.

So, for us, owning a home has been wonderful. Renting a house with pets is difficult and pets are a huge part of my life. I'm a nester by nature - not being able to make a rental "my own" would have been torture. For us, owning was the right thing to do. Of course, if interest rates had skyrocketed, we would have had to sell the house due to that original flexible interest rate mortgage we had not wanted. It could only go up a few percentage points each year, so we would have had time to sell.

So much of ones financial health is just based on timing and luck. Right before WWII, my parents had a house custom designed. After the war, due to the GI bill, housing costs skyrocketed and they had to scale back the plans by 800 sq feet. They had just had the foundation poured, and my father was transferred to another city. His company transferred 100 families - all middle and upper-level management and this small town did not have that many available suitable houses. Housing costs again skyrocketed. They bought a lot and built a still smaller house. Eleven years later, my father was again transferred. They sold their house quickly - or thought they had. Buyer backed out, they did not even get to keep the deposit. Market tanked and it took a year to sell the house at much less. In the meantime, my father's company loaned him the money to make the mortgage payment on the old house - interest-free - but he still had to pay it back and he lost a lot of money. One does not recover from losses like that, especially at age 60 with a 65 yr old mandatory retirement. My parents had already been hurt by the Depression - they were born in 1901 and 1908. They were hurt by WWII. They were hurt by the GI Bill (father too young for WWI and too old for WWII). Just lots of bad timing...

" They were hurt by the GI Bill (father too young for WWI and too old for WWII). Just lots of bad timing..."

OMG!!!!!

"The American culture prizes individualism and independence, while some Old World cultures prioritize family and community support. That lends to different attitudes and relationship patterns. There are pros and cons in each case, of course."

Family and community support are two way streets, such as grandparents watching grandkids now and parents would take care of grandparents when they age. Both are huge commitments, and responsibilities not necessary suit everyone.

"...I believe that many people have no business buying a house. Many buy the biggest, most expensive one the mortgage company will allow, and with the smallest down payment..."

This is exactly the major reason for the real estate crash! Fannie and Freddie were instructed to buy all mortgages presented to them by the banks. So the lenders had zero exposure. As a result the banks and the mortgage industry went into overdrive. The banks were happy getting the application fees that ranged from $250 to over $1,000 and sending that loan down the road. The mortgage companies like Countrywide went ballistic getting as many people into homes they could not afford by advertising they would loan "up to 125% of the home's value". All you needed was your word about how much your income was because the industry offered "no documentation" loans, or "liars loans" as they were called. They also convinced buyers they could purchase a much bigger home for that same mortgage payment if they took an ARM at 2.25% instead of a fixed rate loan at 5.3%

With zero money down, no proof if income, and a loan of 125% of the value of the home with an ARM at 2.25%.

So using the greed of homebuyers they advertised (for our purposes) you can get a $100K home at 5.3% fixed rate, or you can get a $140K house for 2.25% ARM and still pay about $550 per month with zero down! So the buyers were maxed out at that $550 payment when the interest rates went up 2%. That ARM payment was now $715. They had no money in the home, so they walked away en masse.

And the foreclosures started.....

This didn't just happen to those wanting to own their first home. No, it also included the big players with 500K, 750K loans.

Fannie and Freddie always sold the mortgages as bundles to investors as mortgage bundles were always a safe, secure investment. But as more people defaulted on their loans, those bundles were dropping in value. But the investment houses didn't bother to tell their customers about that little ditty.

And the spiral kept continuing until it hit bottom.

Had The House and Senate Banking Committees Led by Barney Frank and Chris Dodd not instructed Fannie and Freddie to underwrite bad loans there would have been no crash at all.

Lots of problems with your rendition of events, Christopher. For one thing its overly simplistic. Before the crash tge GSEs were just one player among many.

Fannie and Freddie had stockholders to please and were very late to the subprime party. They participated from 2005 to 2007 when the party was actually winding down. They were never directed to buy up all subprime loans. They bought them at the end because that was the only kind of loan being written by banks and mortgage brokers.

Lots of good reads on this. If you are a blame barney frank kind of guy though, there's not much we can do.

"We can put light where there's darkness, and hope where there's despondency in this country. And part of it is working together as a nation to encourage folks to own their own home."

- President George W. Bush, Oct. 15, 2002

Anglophilia -- Is your point that using your home as collateral has allowed you to pay for needs (student-related CC debt), and wants (upgrading, irrigation, landscaping, pets)? It's fortunate that you didn't need to sell during the worst of the RE bust. I hope the RE market is strong in your area and interest rates are low when you need to cash out to finance assisted care or health care.

Have Americans turned their focus from Net Worth to Credit Ratings? Once, only the working poor financed major purchases -- or groceries. Now people chase good credit ratings to pay a little less *interest* on the vacations (and groceries) they are putting on CC's.

Does anybody really own anything? Maybe people failing to save for retirement have no concept of saving for anything.

Has US economy always relied so heavily on consumer spending?

I know many, many people who always use a credit card for groceries. They do it for the rewards points and they are without exception not folks who don't pay the full balance every month. They have those cards set up for auto pay, too.

I have friends who take a trip to Europe every year with plane tickets they get with their points. The assumption that people using credit cards are doing so because they can't pay cash is generally invalid.

Money Magazine's take on credit card debt, as of February 2016:

The Average American Is in Credit Card Debt, No Matter the Economy

"Only 35% of credit card users don’t carry a balance–they pay off their bill every month, like you’re supposed to."

Sure, but not all those people carrying debt are using credit for groceries, either.

Have Americans turned their focus from Net Worth to Credit Ratings?

You KEEP inventing fake problems from some unsupported idea and throw it out there for discussion. This could be a valid discussion, except for the fact that, even adjusting for inflation, AMERICANS HAVE FAR MORE NET WORTH THAN EVER BEFORE. This is data that we actually have and we know that our net worth has gone through the roof in the last 20 years.

Americans have more debt but our assets are also higher. While it is worth noting that this country has a revolving credit problem, it is also worth noting that the problem isn't really that serious on the whole.

Edit: It should be noted that U.S. government debt is 170 times that of consumer debt (that figure doesn't include installment loans such as mortgages).

I have enough money in my IRA to cover assisted living if it takes a while to sell my house. I also have about 75% equity in it - a very modest mortgage. If the RE market totally tanks, I'll still make money on my house.

I've pay for everything I can using a CC now for years. I want the FF miles and they do add up. I pay my CC bill in full every month. I have no debt other than my mortgage and the lease of my car. And an 840 credit rating.

For me, lowering interest rates on mortgages and refinancing gave given me financial freedom and allowed me to keep my house updated and in good repair. Obviously, if rates had risen, we would gave had to sell the house and move into a very modest home. But with a lot of equity, we wouldn't have taken a bath.

The key to home ownership is to buy less than one can afford and have a small mortgage, preferably a 15 yr fixed rate. If one owns 70-80 percent of ones home, even a bad RE market is not going to have one upside down on a mortgage.

There are many paths to financial security and home equity, low mortgages, shorter mortgages and no credit card debt are simply not requirements.

In the end, most people who create financial security without some windfall do it with two things: consistent effort and discipline.

I have said this before but for my personal finances. I prefer to defer. I will always take time to pay for things if given a low interest option for doing so. When I was young man I went to purchase something wasteful for $2,000 and was offered a "two years same as cash" deal. I took the deal and put my money in mutual funds. At the end of two years I had $2,650 in the account. That was $300 more than if I had just made equivalent regular contributions to the mutual fund. Today that $300 difference has grown to about $3,900. While that is not a huge amount, it is important to remember two things, (1) it is wealth created completely by an understanding of interest, and (2) I have done similar things hundreds of times now and they do add up.

Personally, I will charge up to full any low interest introductory rate on a credit card and not dream of paying a penny more than the minimum unless I can't find another introductory rate. However, every month I contribute to my investments. My only hard and fast rule about credit card payments is that I have to pay at least four times the interest charge on cards. I am fine paying some interest but I keep it reasonable (please note that I rarely pay more than a month or two of interest every year).

Edit: I urge everyone to go out and learn how to produce and really understand an amortization schedule. With a true understanding of how interest works, both in investments and loans, you can do amazing things.

Where can you go to learn how to produce an amortization schedule? I'm very intrigued.

I can't believe this thread is still going! I rented when rent was low and I was happy to have someone else cut my yard and fix my house issues so I could focus on my son. I am happy to own now that rent is higher than paying a house payment. I've taken whichever financial route makes the most sense at the time. Nashville is a HUGE bubble and my house may or may not lose value soon enough. I'm far enough on the outskirts it's unlikely to affect me a lot, but regardless, I have somewhere to lie my head where we love to be. It's a beautiful area. I wish someone else would install the storm windows, insulation it still lacks (not a lot), and pay the taxes on it though!

Here is a quick video that I found. https://www.youtube.com/watch?v=M9xD3yyLSAI

The video is for an installment loan rather than revolving credit but if you understand the way interest works you can use the knowledge for revolving credit, and even investments. It is a good place to start.

For revolving credit - there are only two minor differences - (1) credit cards use simple interest so interest is calculated by interest rate / 365 * days in month * average daily balance, and (2) your payment is calculated different (mine is interest plus 1% of the principle). There is a difference in the way unpaid interest accumulates but that only comes into play when your payments are less than your interest.

Honestly, so long as your payments are larger than your interest charges you can just use the installment loan interest calculation for credit card interest. The difference between the two methods on $20,000 of credit card loans over 30 years is about $10 on my credit card. There are some other differences about payment timing that become more clear once you understand interest.

The important idea is that interest is earned and owed on the balance. This means that loans will have lower total interest than investments over time because with loans you are paying down the interest generating amount and with investments the interest generating amount is going up.

Where can you go to learn how to produce an amortization schedule? I'm very intrigued.

Rob, Bankrate.com has a lot of calculators that are fun/interesting to play with and many of them include amortization calculators.

Rob, Bankrate.com has a lot of calculators that are fun/interesting to play with and many of them include amortization calculators.

I urge you not to use an amortization calculator. Having information and understanding how to generate information are two very different things. The reason I want people to be able to do their own amortization schedule is because it is probably the best way to learn how interest really works.

I'm likely to start off with the calculator and then try to work to that answer. Or at least check my answer against it. So thanks to both of you!

Rent rates must be exceedingly low where some people live, for my family a rental home ranges from 1500-2100 a month. Even Gary, In is ranging in the 800-900 range (you can google Gary, In) for a 3 bed 2 bath under 2000 square feet. Rent increases 3% or more annually, more if your landlord chooses, one lady had a 43% rent increase. Our new home with 300 more square feet than our rental 2 full baths, 3 beds and 1/3 acre vs 3 bed 1 1/2 bath (walls were not even finished) is 300.00 per month less than what we paid for rent and is fixed for 30 years except for taxes and insurance.

Rent only makes sense if it is close to what you would pay for ownership. Even with added maintenance cost (we were responsible for all maintenance at rental up to 500.00 per incident anyway) renting was more expensive with far less stability.

rentals are bad for neighborhoods, owners do not like revolving renters. add in not likely to know your neighbors and it is another layer of not wanting a bunch of renters in the neighborhood.

ownership for flipping and making money is the mentality that sunk the ship, cash out refinances, no doc loans for million or multimillion dollar purchases. ARMS sunk the ship- my parents went from 900 a month house payment to 1800 a month house payment after being talked into a ARM. They sunk. It had nothing to do with equity and everything to do with bank greed.

I'm not talking about using credit to float expenses for a month. I charge everything, and pay in full. I use banks. They don't use me. They make money from anyone who don't realize 'charging' is money spent. They make money from people who carry balances *because they can't afford to pay cash* -- people who are then paying compounded interest on everything from whims (vacations) to groceries, 'financing' everything and *buying* nothing. It's why cars are 'priced' by the cost of the monthly loan.

How many Americans could settle all their non-mortgage debts if they had to do so immediately? (People who lost their houses in the RE bust didn't lose only their houses, they lost anything they'd invested in their houses, and we all suffered with the bust.)

If we are lucky enough to be able to sell our house (we bought 14 years ago and weathered two recessions) AT ALL, next year, I will be beyond thrilled. We bought into a stable neighborhood, then the recessions happened, then the demographics of our neighborhood shifted drastically. We'll be lucky to sell for what we owe on it, and I'd be happy to GET that much for it. If I never own another house, it would be fine with me.

Hockeymom84, your parents were not talked into an ARM... they made the calculated decision in regards to the risk, and then found out later that it was not a wise decision for them. It was their CHOICE as to what type of loan to sign up for... not the banks. Perhaps greed got in their way. IMO, a typical human trait.

Nc real estate guy no they did not. At no point did they know their payment would double. I worked in the banking industry and I have seen greedy bankers and brokers push the product with the most return for them on their clients and no it was not clear hence the reforms that are required to spell out terms clearly now.

Hell my father in law got one lump sum payment for 10,000 and his banker talked him into a premier account which has major fees for dropping below 10,000 since it was a premier account. He never intended to keep that much in that particular account but the banker wanted the credit for opening the account not for meeting their clients need.

over and over again, check out Wells Fargo. Bankers damaging their clients to meet their own needs. Talk about GREED

They made a 130,000 a year and bought a 160,000 house. Sorry but no. They did not overspend. Bankers greed to gain their commission was the downfall of America. Wall Street IS the downfall of America.

Bankers greed to gain their commission was the downfall of America. Wall Street IS the downfall of America.

Sure Wall Street is the downfall of America. But what exactly is "Wall Street"? Wall Street is the center of the financial markets, one of the two places, where Americans signal to companies their wishes. On Wall Street we buy and sell companies based on how they perform, investors have the power to signal when they want good conservative stewardship and when they want profits. Since institutional investors make up about 70% of the market, consider the ramifications when you fill out your 401k forms and want aggressive high risk profits.

In the end, companies respond to us in two ways. We demand products and they provide them, and we demand profits and they provide them. Things aren't going to change until a company can survive a bad quarterly earnings report. So while it is easy to point the finger at banks and blame them, in the end, until we value conservative and safe profits more than immediate returns you are just pointing in the wrong direction.

So... Americans are just more gullible than Europeans, who eschew big debts -- like mortgages? We 'trust' our banks, our 'regulations', and they don't? How do you account for the difference in homeowner equity here and there?

Europeans and Americans have different values. This country was founded by people moving from Europe for "The American Dream" which often included owning property, whether it was a house, or in early days, land. The West of the US would never have been explored if it were not for the quest for land! No doubt the fact that there is a LOT of land in the US vs small European countries plays a part in this.

In Europe, people often have lower salaries but great benefits, both government and from their companies. In the US, a club membership is now considered taxable income if paid for by a company; in the UK, this is just a job benefit. In the UK, much property is owned by enormous trusts and one "leases" a property for 99 years or so - they never own it.

We are different - one is not necessarily better than the other, but the nice thing is we are free to live where the country's values better reflect our own.

There are many reasons for the real estate debacle in the recent past. Probably the biggest was banks not requiring proof of income and allowing borrowing far beyond the buyer's ability to possibly pay. Some of this was government policy - they wanted more minorities to be able to buy property and the banks were encouraged to make this happen by whatever means they could. Some was bank greed - when loan officers were put on commissions like the salesman from whom one purchased ones washing machine, thing got very dicey.

There was also a LOT of ignorance and wishful thinking on the part of home buyers. We thought we asked all the right questions when we ended up assuming a mortgage that we had been told was fixed rate at a pretty good interest rate for 1984, but a week before closing (and we were living in CA and the house was in KY and no internet etc), we discovered we were now assuming an ARM mortgage at a higher rate. We had to move and could not afford another house-hunting trip - school would not pay for it. So we were stuck. It ended up working to our advantage as rates started going down and ours did, too. Just plain dumb luck.

Chisue - you are just trolling at this point. I think you know full well that your facts are wrong but you are more interested in baiting people into a discussion than you are in having meaningful discussion.

HockeyMom, EVEN IF your parent's lender did not mention to them that thier mortgage was adjutable, I can guarantee you that in the papers they signed, it was spelled out in exact words. It just was.

Should they have been offered an ARM? Maybe not. Should your parents have read the contract in detail? Definately.

"At no point did they know their payment would double."

Did they know what they signed for when applied for the mortgage and/or when they closed the loan? It is hard to believe this especially if they could pull in $130K each year. Something is missing.

Did your father in law ask what type of account they set up for him before proceeding?

Read everything when you sign, ask if there is question - this is just a common sense.

"...That's actually only 4% per year -- during years when interest rates on 'safe as houses' investments was double digits. (But we had a home...)

What is the "return" if you factoring in the "free rent" you enjoyed when you owned the home? I bet once you added the market rents you had to pay, the return is way more than 4%.

azmom - you are correct that looking at the principal return only is a meaningless analysis of a real estate investment, as the income generated from the property (or imputed rent) is a major factor on the positive side. And of course taxes, maintenance and financing charges on the other side. It's like saying a bond investment was bad because you only got back your principal. The fact is, that it is one of the only ways you can lock in a substantial portion of your spending at a mostly fixed rate. That is one of, if not the, key attraction of owning vs. renting - it gives a degree of predictability on future living expenses.

Another perspective to discuss and debate in the light of the question posted by OP - an opinion from a contractor/apartment complex owner in the Midwest:

The Housing Sector Shows Little Promise

"This [real estate] market continues to be driven by the FHA issuing and guaranteeing
risky mortgages written by thinly capitalized non-banks. In 2012 the
large Wall Street banks represented over 65% of FHA-backed loans, today
that number is under 30%. Even they have realized loaning money to
people that won't pay it back is a recipe for disaster.

Our current policies create a questionable base for higher home prices
when we consider the low end of the market is driven by Fannie, Freddie,
and the FHA all insuring 3.5% down payments from borrowers that often
have a weak credit history."

The bold font highlighting is by me.

@ lana_roma

There is a lot of yellow journalism out there. You can do your own research and there have been several peer reviewed publications on yellow journalism.

We do know that the number of stories that predict economic decline increase in frequency as the time between economic declines increases. In other words, if we don't have a significant housing decline this year we can guarantee that there will be more stories next year about the impending housing decline.

The phenomenon has to do with the psychology of what sells and doesn't, and very little to do with what is right and what isn't. If you find a journalist or blogger who doesn't write articles that predict some calamity, give him some money because he isn't getting paid to write.

As to the above -

This [real estate] market continues to be driven by the FHA issuing and guaranteeing risky mortgages written by thinly capitalized non-banks

There is very little reason to attack the FHA for making risky loans. If anything the opposite is true and FHA loans are predatory. FHA loans are profitable because the MIP (interest rate premium of about .85%) far exceeds the low down payment risk. FHA loans are no more exposed than any other loan. In default the Mortgage insurance kicks in and makes up the shortage of down payment, and the cost of doing this is much less than what is charged to consumers.

Our current policies create a questionable base for higher home prices when we consider the low end of the market is driven by Fannie, Freddie, and the FHA all insuring 3.5% down payments from borrowers that often have a weak credit history

First - Demand creates the base for higher home prices, to think otherwise is naive. Access to cheaper cash does help increase house prices but not linearly. Cheaper money means that for the same payment (monthly cash outflow) you can get a better house. This often leads to more demand which leads to higher prices. But arguing this is bad is just silly, it is like saying - the price of steak is going up because now more people can afford steak and we didn't anticipate this many people being able to afford steak. Which is exactly his point...

Second - Many countries have some institutions that encourage home ownership because home ownership is something we should encourage. While we have taken a financial look in this thread there are many non financial benefits to communities from home ownership. The above programs do exactly what they were meant to do, encourage home ownership.

I was recently looking at real estate for sale in Darien CT, where my son lives. I was stunned to see several 1-3 million dollar houses in foreclosure or pre-forclosure. I doubt these were FHA mortgages - mostly like folks stretching their budget to the max and then a job loss or a divorce.

My son, Michael the Millennial, tried to convince me a few years ago that renting was the way to go. Sometimes when he gets his Millennial on, I just nod, because this old Boomer knows that life itself has a way of changing perceptions.

What a difference a couple years has made. Married, with a beautiful 16 month old baby girl, he is now looking into home ownership, saying he feels that his rent is just throwing his hard earned money away every month.

Boomer had the good grace not to say I told you so.

"This [real estate] market continues to be driven by the FHA issuing and guaranteeing risky mortgages written by thinly capitalized non-banks".

No, FHA does not issue mortgage, it insures FHA mortgages that are issued under strict lending guidelines by primary mortgage lenders.

"when we consider the low end of the market is driven by Fannie, Freddie, and the FHA all insuring 3.5% down payments from borrowers that often have a weak credit history?.

The above statements are out of date and not true either.

Ever since Dodd-Franck Wall Street Reform, and Consumer Protection Act in place in 2010, mortgage lending has been following a set of strict rules and regulations. Fannie and Freddie are Secondary Market participants, they do not issue loans, instead, they only purchase loans in secondary market comforming to their tight standard. It has forced primary mortgage lenders such as commercial banks, mortgage banks, credit unions, savings and loans..etc. to implement strict lending practices, that in turn have reduced risk loans.

Added: Consumers' demand for housing encourages supply. Builders build more units, and lenders provides more loan products to satisfy consumers demand, instead of the other way around.