Saturday, August 13, 2005

Everybody Stop, For Crying Out Loud!

You notice how home prices keep going up and up and up? Feeling frustrated? Wonder how you're ever going to be able to afford a home?

Well, here's a secret: The real problem is America's willingness to go into debt.

That's it! The whole problem, plain and simple. If Americans were not willing to go into debt, home prices would be lower.

It's simple supply and demand. When Americans are more and more willing to go into debt, it increases the amount they're willing to pay for homes. If they're willing to pay a price, simple economic principles push the cost of the product up to meet that price.

Now, why are Americans willing to assume all that debt?

Because they're not thinking in terms of debt. They're thinking in terms of Monthly Cash Flow. And mortgage lenders keep coming up with hot new ways to allow you to have HUGE amounts of debt while keeping an affordable monthly payment. Interest only loans, Ajustable rate loans, fourty year mortgages--all of them designed to put insanely high amounts of debt within the financial grasp of everyone!

If this were a company store in the 1800's shackling us with this much debt, we'd recognize we were just becoming glorified slaves and we'd revolt. But no--the banks aren't forcing us to do anything we're not willing to do, and hey--the prices are already up, so what can you do, right?

You can say no more. Say you won't do it. Laugh at your friends who do. Try to bring sanity back into the world.

Mortgages are a rip off! It's a way for the bank to rent to you, while you still have to pay property taxes and repairs.

Start small, with something well within your means. Pay it off and save. Upgrade as you can.

"But my friends are living in a big house," you say, "While I live in this. How am I better off than them?"

Look--a person who finances a house for 30 years at six percent interest, will pay more money in interest then he paid for the house. If the finances a $500,000 home, he will end up paying over a million dollars for it.

So he can brag to you about how he made a certain amount in equity in so many years--whatever. You're the one who's going to have an extra $500,000 in your pocket because you weren't making the interest payments--the same amount that he's got in equity in his house.

The only way to purchase a house that makes sense, financially, is to get a house you can afford, and to pay it off as fast as you can.


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