I really don't get the whole "home as a commodity" thing. Is it class-based?

[Coventina]

I grew up poor. Poor enough that my family was quasi-homeless for a few years (we squatted in a church basement).

We also spent time living with relatives & rented a dump or two. My parents finally managed to buy their own home shortly after I started college. It was the fulfillment of a life-long dream for our whole family.

Now I'm married & living with my husband in the townhome he bought for approx. $40,000 in the early 90s. During the "housing bubble" its value went up to about $250,000 before the "crash". I was sort of bemused by the whole thing. My husband was gleeful about our "wealth." But it didn't make any sense to me. If we sold for a hyper-inflated price, we'd have to buy another place to live at a hyper-inflated price.

I also don't understand the whole "treating your house like an ATM" thing. Maybe it's my childhood insecurities, but I'd want to have my home as free and clear as possible. I can understand people who HAD to take the equity out of their homes for emergencies, but to take vacations and stuff like that?

Believe me, I'm not trying to "blame the victims" because I'm sure that many were assured that the whole thing was a safe bet. And no one hates the corrupt financial system more than me! But part of me thinks that having grown up as poor as I did made me see a home as something to protect at all costs, even if it means sacrificing luxuries like vacations, extra vehicles, large tvs, and so forth.

Am I way off base here?

on edit: spelling

[Oldtimeralso]

1. I think you got it right.

Although my background was similar, but maybe not as bad, I have the same thoughts.

[Juche]

2. I can see it as a commodity

Personally, I (being in my late 20s) hope to buy and own a home free and clear before I am 65, then get a reverse mortgage. I figure the lack of mortgage payments combined with the reverse mortgage payments will help me out in retirement.

Aside from that I do not really understand taking vacations due to home equity. But I can see using one as a commodity.

[Deja Q]

3. It makes sense that a home is a commodity.

If a "stable job" is now defined as being up to 5 years in length, people would have to move every 5 years as the next job they get is invariably numerous miles (dozens if not hundreds) away.

I won't dis consumer laziness either, but nothing is ever so black'n'white.

[Coventina]

6. You make an excellent point.

I wasn't trying to say this was a black'n'white issue. It's just something I've had trouble understanding. You've helped me, thanks.

I grew up thinking that a "home" is a magical place where you live your whole life and hand down to your descendents. At least, that's what it seemed like from the outside looking in.

[Deja Q]

14. A regrettable point, as a home oughtn't be a commodity; its value used for emergencies only.

Especially for the "think of the children" crowd as parents have to uproot their lives too when moving.

And I prefer your mindset. Far more community-based. Even the Pope would have to agree. But even Margaret Thatcher spoke for the West when she said we are not a society... :(

[Warren Stupidity]

4. No you aren't off base

Many of the people who have extracted mythical equity from their homes are now upside down on those same properties and one misstep from the new MBNA Bankruptcy Act tough love for working stiffs program our corporate government has prepared for them. An economy fueled by a real estate bubble was an economy preparing for a very hard fall.

According to some, (e.g. Naomi Klein and the Disaster Capitalism folks) this was all part of the plan. They have a point.

[mmonk]

5. Everything is greed based. From that foundation, you can answer

all your questions including materialism.

[SmileyRose]

7. Most American's only retirement savings is their home.

I am in my late 40's and my parents managed to keep a roof over my head but they were so poor it traumatized my mother to this day. Mom is one smart cookie and as soon as they had a little spare money she started investing but the majority of their "wealth" was the fact they bought the house for $12,000, sold it 34 years later for $126,000 - bought a nicer home for $164,000 and sold it 5 years later for $223,000 in the "hot" part of town. They were able to buy into a retirement community in a less "hot" part of town and now that my Dad is dying and she is having a lot of age related issues of her own, they never have to worry about being out on the street ever again. There won't be any haggling to see which kid Mom will have to live with and who will help her afford medical care.

I have a friend who bought a house in Atlanta in the "hot" part of town and it DOUBLED in value in 4 years. She sold fast knowing that could not sustain itself and moved back to the correctly priced part of town - with over $100,000 to spare after paying cash for the house in the decent but not hot part of town. IMHO if you are going to trade houses in the same market then yes, it makes no difference, but if you are going from a hot market to a more stable market then the bubble was a great payoff.

[Coventina]

8. Sorry to hear about your dad.

I lost my mother 5 years ago.

:hug:

Glad to hear you at least don't have to worry about the financial aspect.

[SmileyRose]

17. Thanks

I'm in that stage where I don't want him to suffer anymore so Lord please make it fast. But I'm selfish too, I don't want him to leave. Ever.

thanks for the hugs.

A lot.

[Coventina]

19. Anytime, my friend.

I went through very similar feelings with my mother's illness.

[Lorentz]

9. People want money for nothing.

It's the new mentality that gained momentum with the dot.Com craze, followed by the on-line stock craze, then the on-line gambling craze. Houses became poker chips. Everyone suddenly believed that they could be real estate tycoons, and not have to earn their income by actually working. With the energy they invested in this scam (and being scammers), they could have gone out and found an honest job. They took a good thing (cheap housing) and soiled it.

Thanks to their greed and inflated egos, many honest citizens with real jobs are now priced out of the housing market for quite a long time. The people who thought they were insta-millionaires are now foreclosure statistics, and deserve everything coming to them.

[noamnety]

10. "I deserve it"

That's what I heard from a good friend who was taking second loans on her home to finance luxury cars and other expensive habits back in the 90's. That message comes from internalizing what marketing execs have told her all her life: "because you're worth it."

Commodities are not things we need and use (like your vision of a home). They are your identity, even more than your personality is your identity. I think that's why a house going up to $250,000 is an accomplishment, even if you can't get the money out of the house because the new home would cost just as much. It marks YOUR worth (as opposed to the home's worth). People talk that way - I'm worth $xxx.xxx, rather than my assets are worth $xxx.xxx.

As much as we like to point fingers at predatory lending practices, or people who can't handle financial responsibility, we should also be pointing our fingers at marketers who manipulate people from the time they are too small to do any critical thinking.

All those shows like extreme makeover, 10 years younger, what not to wear, on and on, they give the message that you "deserve" to be able to purchase this other identity because you are worth it. You lost a leg in Iraq? Your kid is autistic? You DESERVE a 4,000 square foot home. You spend your life working for charity? You deserve to have a $300 haircut and dye job. If you don't want to spend $500 on a pair of shoes on a gift credit card, it's because you have issues you need to overcome and low-self-esteem. Once you get past that, you've accepted "who you are" and there is much applause and cheering from the hosts at the dollar amount you spent.

There's no sense that we all deserve medical care (not makeovers), decent housing for everyone (instead of extravagant mansions with sensationalist features for the few), enough time off work that we can spend regular time with our families on a regular basis - which doesn't require a trip to Disney. There's no message that we deserve basic rights because we are human, only that we deserve luxuries because we are special.

[Coventina]

12. Wow! Excellent post! Thanks!

I never thought of it that way before, but I think you are really right.

[Phoebe Loosinhouse]

13. great post! nt.

[Deja Q]

15. Ah, but if we don't go to Disney, they will go broke and we will be blamed for not going there.

Sadly, that's what too many news articles tend to pin -- when it's not people not saving enough, it's people not spending enough because or economy demands spending.

I never knew what was so great about Disney; the characters were fairly basic and nondescript looking, never mind Daffy Duck has more character in his cloaca than Donald Duck has in his entire body. Can't hear anything coming out of Donald's sodding beak either...

[NashVegas]

22. Funny

My oldest sister, an early 1950s-born boomer, said something similar after splurging on sailing lessons.

In her kitchen, she's got one of those $200 machines that spit out coffee one cup at a time. She's got hundreds in All-Clad and she doesn't cook! Orders take-out 5 days a week, eats salads and pasta the other two.

Also has a Bose Wave Radio and Sirius.

We grew up poor but she's done very well for herself, so ... whatever.

[Hannah Bell]

33. bravo. exactly.

"There's no message that we deserve basic rights because we are human, only that we deserve luxuries because we are special."

[Warpy]

11. Paper "worth" usually doesn't mean much

unless you want to use it as collateral for debt. That's why it's silly to look at a bubble price and think you're rich and when it crashes, to be sunk in a poverty induced depression. After all, you've always owned and had the use of the same damned thing, your real wealth hasn't changed in that regard.

Selling at a hyper inflated price only made sense if you were leaving an inflated part of the country and moving to a part of the country that had seen little housing inflation. That meant your shack in Watts could be parlayed into a mansion in upstate NY or rural Alabama for half the monthly mortgage payment, as long as you were assured of a steady income in those areas.

If you want to know how wealthy you are, look at your debt first and your disposable income second. Paper profits on housing are largely irrelevant.

[Cleita]

16. Yes, I believe that speculating in real estate has contributed a lot to our

mortgage crisis today and homelessness in the last thirty years. Too many people are out priced and cannot buy a home, (unless they fell for the financing that has brought us our present mortgage crisis), so they must rent. It puts them at the mercy of the rental market. I know it happened to me and my husband. We survived because our community voted in rent control, which is not the best solution. It used to be that people who wanted to make money from real estate, bought commercial property or rental properties. They made their money from rentals not flipping real estate as it goes up in value. There really ought to be a law about this, especially when it comes to single family homes. Sure property values should go up gradually over the course of time to keep pace with inflation, but the real estate feeding frenzy that occurred since the late seventies has ruined our country for the middle class working family.

[NashVegas]

18. It Happened Because So Many Other People Could Profit, Besides the Mortgage Borrower

The mortgage lender
the home builder
the subcontractor
the real estate agent
and so on ...

Home Depot and their stockholders.

Remember how the internet was going to eliminate the middleman? Oh, how naive we were to ever think that.

The middlemen, the smart ones, are looking at the things that we need as people - food, shelter, and eventually they'll get around to clothing (cotton and other fiber commodities) and inserted themselves in the chain, via the internet! All that information and clickability at anyone's fingertips and they used it. All that information at everyone's fingertips and some who might never had heard a thing about "Peak Oil" otherwise suddenly are buying futures.

Never discount the middleman's resourcefulness at finding ways to insert themselves into the financial equation.

[JerseygirlCT]

20. Not off base, IMO

We sort of laughed as house values went up and suddenly our house was supposedly worth much more than we'd paid - we're not planning on leaving it anytime, so what does it matter?

Unless we're talking emergency situations, I can't see taking a loan out against the value of the house, either. The idea gives me hives, actually. I'm just naturally very conservative about money.

I've noticed a fair number of people - usually in their 20s and 30s, who seem to feel that having jobs means they *need* a fancy car or a house that to me seems way beyond their means. I couldn't live like that - wondering if the other shoe comes down what I'd do.

But I've also been fortunate, and haven't faced that sort of back against the wall financial situation far too many find themselves in now - not through carelessness, but because of unforeseen things like medical emergencies or a disappeared job market. You can only plan so far when there isn't much disposable income.

[NashVegas]

23. Needing the Fancy Car / House

I don't know how it is in the rest of the country, but Nashville is HUGELY class-conscious. People who are movers will make all manner of assumptions depending on what part of town you live in, and how polished your appearance is. All of those things will go through someone's mind if they are in a position to hire you for a job, give you a raise or promotion, or invest in your business.

[JerseygirlCT]

26. Nuts, isn't it?

It's a weird combo here - some of the wealthiest folks would appear to be anything but. Their houses are nice, but not extravagent. They're the ones likely to show up at an event in galoshes if it's raining... you know, the sort of old New England yankee stereotype.

The more newly wealthy, however, will often show it. Those are the monster houses (one built here was 10,000 sq. feet. What the heck do you do with all that? They're actually fairly nice folks, but sheesh!)

It's these younger people I see who seem to need to keep up with the Joneses, or with some idea of what adulthood is about that they've developed. They make me nervous, really. Younger associates of my husband's - who get their first real job, and buy a BMW, or whose first house costs $450k. Yikes!

We quite happily lived in a nice enough townhouse condo for 8 years - until we'd saved enough to put down 20%, and still have savings. We sold that place at a loss, but bought a house just before prices starting climbing quickly - so it's all a wash, really. And now, we're parking our butts and staying put. Our extravagance is a college education for the kids. Other than that, what do we really need with fancy?

That said, I recognize that our life is luxurious according to the standards that far too many people struggle with day to day in this country. And that even *their* lives look like heaven next to people in, say, Darfur. I try to keep that in mind at all times.

[Phoebe Loosinhouse]

21. People use to buy houses for shelter.

They bought something that they and their banker all agreed they could afford. They liked buying a house because it meant some form of autonomy and freedom from landlords and the sense that you could do what you liked within the bounds of zoning codes, etc. You paid the bank and at the end you had an actual asset that you could sell if you needed or wanted to. Housing appreciation was slow, small, steady and unexciting.

Taking money from the equity of your house used to be a shameful thing. 2nd and 3rd mortgages were things taken out only by the profligate and you used to see ads offering them in the classifieds under "Need Money?".

The bubbles came about because of eased financing which articially inflated the pool of ready willing and able buyers and became a self-fulfilling prophecy of rapidly rising prices. Eating equity with "equity lines" became very accepted and no longer stigmatized by the term "2nd mortgage".

Now, I do think that the concept of a reverse mortgage has changed the game again. It is a very real reason to go ahead and invest in home ownership because at a later time, it will help finance your retirement. I love this program and I just hope it sticks around. We NEED this program to allow people to stay in their homes and age in place. It also fills the gap between savings,pensions and Social Security. The first reverse mortgages had some big flaws, but the current ones are very good programs.

[JerseygirlCT]

27. Well, I'm thankful that my parents did the 2nd mortgage thing

to send us to college. That was a wonderful investment on their part in their kids' futures. We'd probably do the same if we needed to - but have half the number of kids they do and more widely spaced, so have been able to save, instead.

But I totally agree with you in general. A fancy car, a new pool... that's not the same thing at all.

[Warren Stupidity]

28. That is a good use of a second mortgage.

Your family made an investment in its future by sending you to college. That makes sense on an economic and genetic level. The borrowed lexus? not so much.

[JerseygirlCT]

31. Exactly! nt

[BlooInBloo]

24. (shrug) Irresponsible lenders lending to irresponsible borrowers....

A surefire recipe for an eventual crisis.

[TexasObserver]

25. In today's America, many people spend money and incur debt to feed their WANT for things.

In today's America, many people spend money and incur debt to feed their WANT for things. Their wants are driven largely by marketing and societal pressures to have STUFF. There's always a newer cell phone, a better lap top, a faster car, a new design of clothes, a larger, flatter television, a bigger house in a more affluent neigborhood, and on and on.

Under the Bush administration, we became a nation that consistently went further and further into debt to buy consumer goods. The first wave was equity loans against real estate equities in homes. DiTech and other such lenders marketed constantly the theme: borrow against your home equity and pay off all the high interest credit cards. Consumers did that, but they didn't cancel those credit cards. In fact, they increased their credit limits, often at lenders' urgings, and got even more credit cards.

Lenders recognized that using debt to buy consumer goods had become an addiction, and they decided to "hook" college students on debt, to assure such college students would never doubt that buying whatever they wanted or needed on credit was the norm.

Now we have homeowners, college students, and recent college grads all swamped with consumer debt. Why? Because consumers let their WANTS, not their NEEDS, drive their economic decisions.

As you point out very well, that home equity bump in good times is largely an illusion. The only way you can really reap the benefits of it is to sell your home and move to an area where you can buy the same size home for less money. Then you can truly pocket the difference. But if you intend to stay in the same community, your new purchase or rental will be as expensive as the home you sold.

I don't put anything on credit. Haven't in over ten years. When you pay cash or write a check for a purchase, instead of put it on a credit card, you feel the economic impact immediately. Wanting less is the key to being a happier consumer.

[Retrograde]

29. Confusing "need" and "want"

All people have certain basic needs: food, shelter, clothing in most societies, connection with their fellow beings. Then there are the manufactured "needs": the plasma TV, the new car, the $3500 handbag. Add to that a pyramid-scheme type economy in which the market demands constant growth and you always have something new to spend money on. It's hard to resist the constant buybuybuy messages: I know several otherwise sensible people who used their houses as ATMs during the boom. I'm just not comfortable doing it myself: it took too long to save that down payment to risk it.

I do use my credit card extensively, but pay it off monthly. I like some of the benefits and conveniences, but I do think about all my non-necessary purchases. I absolutely seethe at the Visa ads that tell people to use their cards for all their little purchases, though: that latte's not going to last more than 30 minutes, but the debt could potentially be forever.

[JerseygirlCT]

32. I'm similar

Do use the cards, but pay them off immediately. It's just easier than carrying that much cash.

But usually, we budget the cash we'll need every week, and use that. It helps - you tend to think twice about spending money on little here and there things when you know you still have 4 days to go in the week.

[hedgehog]

30. On one of the investing shows that runs on NPR, the speaker says

over and over again if you want to invest, get into mutual funds. Buy a house because that's where you want to live.