Posted on 08/27/2005 11:08:50 PM PDT by Roberts
Homeowner Debt Increasingly Seen as Savvy Strategy # Mortgages used to be something people strove to pay off. Now they've become income tools -- but risky ones, some financial analysts say.
By David Streitfeld, Times Staff Writer
As they happily watch their houses swell in value, Americans are changing their attitudes toward mortgage debt. Increasingly, a home is no longer a nest egg whose equity should never be touched, but a seemingly magical ATM enabling the owner to live it up or just live.
Homeowners took $59 billion cash out of their houses in the second quarter, double the amount in the 2004 quarter and 16 times the average rate of the mid-1990s, according to data released this month by mortgage giant Freddie Mac.
People are cashing out so quickly that the term "homeowner" may soon be inaccurate. Fifty years ago, Americans owned, on average, three-quarters of their house and the lender owned the rest. These days, it's approaching an even split.
This spend-now-rather-than-save-for-later phenomenon has produced undeniable benefits. Experts attribute much of the nation's economic growth to cash-out refinancings, home equity loans and other methods of tapping rising home values. And additional real estate investments financed by home equity have contributed to the rising home prices that bring owners such pleasure.
But the spending spree has a price. With the savings rate at zero, consumers' eagerness to tap home equity is only worsening their retirement outlook, financial advisors say.
If mortgage rates rise sharply or home prices fall, many homeowners could be in financial turmoil. They may be unable to service their loans, or even could find that their homes are worth less than their mortgages.
(Excerpt) Read more at latimes.com ...
By living below your means, you can save 6-12 months of living expenses and keep it somewhat liquid. That's what I'm planning on after paying off the rest of my debt.
My husband was out of work for nearly a year a few years back - me pregnant, no recent work history, three children and then a newborn - so I didn't work - and we just about used up that cushion. Thankfully, he got a job in time. I'm not sure what we would have done else - he was over-qualified for "mid-level" positions though he sure did apply for them, and both of us working low-level jobs wouldn't have paid our expenses.
But definitely, live below your means, and save it up for that rainy day.
That can definitely happen to anyone! We'd be in the same boat if I were to lose my job today. It will take us a while to gt out of debt and sock away funds, but we're desperate to get there!
Be very careful, people. It is going to be very nasty when bubbles start breaking all over the U.S.
Proverbs 22:7 - The rich rule over the poor, and the borrower is servant to the lender.
Proverbs 22:27 - If you lack the means to pay, your very bed will be snatched from under you.
Too bad the younger generation doesn't TRY to plan. They have to have those $150 Nikes, and torn stupid jeans at $40 a pop.
That's just us at 55 years old. We're fed up with our children's generation. Thankfully, our children are getting out of the MTV/VH1 mindset. I reminded my daughter that it cost us $200k for her education. I asked her when she was going to pay me back.....
On paper.
I remember all the "dot com boom" people who were getting rich, too.
I also remember when people were buying "Beanie Babies" as investments because they were going up so fast in value.
We'll see how savvy it looks when people are getting their houses taken from them left and right because they can't pay their debts through a market correction.
Just think what will happen when these people retire. If you listen closely you can hear what will become a roar when they retire and have nothing and Social Security is not there. Like the Savings and Loan debacle of the 80's somebody is going to be paying for a big bailout and guess who that will be. It's the Ant and Grasshopper fable writ large.
But I imagine that they will bow their knees to both when trouble comes and let the slaves collar be fixed even tighter.
OK, I'll buy that. However, you know that those guys in the Senate will want to get out in front with their calls for bail-out. You can hear it all now, "We can't let all these seniors live on dog food in retirement".
I've always compared these people to those in school who did all their assignments, stayed home and studied vs. those that went out and partied and missed deadlines and whine that they should get the same grade, or at least, passing grades. Those who are fiscally responsible will be made to pay for those who aren't.
More like two or three.
Sigh.
A growing consensus, particularly amongst the general public, that a market, any market, is going to continue moving in the same direction indefinitely is a sure sign of a bubble that is getting ready to pop.
So you believe that now is a good time to invest in real estate? That I should take whatever equity I have in my house and invest it in the real estate market?
That bandwagon may have already left town.
On the other hand, it's tough to go wrong investing in fertile ground - - they're not making any more.
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