Friday, June 20, 2008


The U.S. housing market is mired knee-deep in that stressful muck called recession. Homeowners have historically enjoyed hearing the word inflation, since it usually resulted in a rising value of homes. As the value of homes rose, so did their principal asset. On the way to that utopia, homes became viewed as an investment, rather than an expense. They became perceived as valuable repositories of equity rather than goods of consumption. That perception has to change.

It has been a well-crafted marketing campaign of the past sixty years that instilled in the North American psyche, the notion that owning a home was the ultimate dream. The fact that almost no one could afford the price of a home didn’t matter. Twenty-five or thirty year mortgages were financing vehicles created to make you believe you could own a home. The fact that ninety percent of your monthly payments were covering interest on your loan and the bank was your landlord didn’t seem to matter. The magic was in this thing called inflation. While you slept, your home would go up in value. You were getting rich as you rested.

The promotional financing boondoggle that really found broad footing through the past decade was the PR exercise that suggested all this equity shouldn’t lay dormant. This free newfound wealth should be put to use, for your own good and for the good of the economy. Whose economy, … well never mind, but go out and purchase a new giant flat-screen TV and exotic sound system, and wouldn’t you rather bring it all home in a new SUV? So swing by the auto dealer on your way out and do your patriotic duty. Your kids will love you for it and won’t football games look so much better in digital. Come on, who doesn’t have a home theater?

All financial institutions, big and small, flooded all media to affect consciousness. Your house wasn’t your home, it was your piggy bank. A minor increase in monthly payments was a minimal price to pay compared to the tens, if not hundreds of thousands you could get your hands on. The best part was that inflation would keep your piggy bank growing, and you would be able to go back for more. There was a sale on truck-sized barbecues, and the one with your name on it was emanating a siren’s song. Thank you inflation.

Now inflation is growing, however it is no longer our friend since the fast rising price of goods is strangling us, and we still have to make rising mortgage payments. North America has just borrowed too much. Deflation wouldn’t help either since that would only mean continued downward pressure on the value of what has become our principal asset but is really our overwhelming debt. The FBI is chasing a few lenders, brokers, real estate agents and appraisers to bring some straggling scapegoats to slaughter for recent mortgage frauds. Good luck to the investigators, but don’t hold your breath on any fixes.

There is an urgent need for another shift in consciousness. It is time to view a house as an expense. That perception will adjust our relationship with what is for most of us the biggest expense we incur. It might also lead us to treat it with more respect than the statistics indicate we have done as we saddled our homes with historically record high debt. If your home is an asset, it is not a piggy bank, and it is to be protected from all predatory lenders, including that giant bank you think is your friend.

1 comment:

  1. Once again you have hit the nail on the head.

    I remember a few years ago when personal finance authors/experts were touting an automobile as the largest investment a person would make second only to their home. When a personal finance "expert" describes a car as an investment it is time to find a new voice of expertise!