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Yes, under your scenario that would be insanity. I believe the folks who were doing this anticipated continuing home appreciation outstripping their equity refinancing, so they simultaneously have spending sprees and equity growth. But when the appreciation ends (or reverses) the game is somewhat more difficult to play.
Somewhat? Ha ha, you must play credit chess with Kasperov or something.
I can see that when our housing market was (for instance in the Tampa area) going up at roughly 8.5% a year for like 8 years, I said to myself, this ride can't last. So I sold my home for 40% more than I paid for it 9 years prior. Less than two years later, the market started slowing and a year later it stopped and has since started to fall like a lead balloon. For me it was just luck as I had not planned on it working out that way but I have to think to myself, I wonder how that poor devil who bought my place is doing now.
I know some may disagree with me but I for one am glad that such loose credit is coming to an end. I want growth like everyone else but sheesh, lets use some common sense.
yeah but at the end of the day you still have to pay that money back right? if you were spending with money you obviously don't have to begin with, what did these people THINK would happen?
Remember though..house prices were going up, up, up. You could always sell for a profit, pay off everything and then start all over again.
The good times didn't last..it's time to pay the piper..but many people have no savings and are living paycheck to paycheck now and letting their mortgage payment slip.
You have to keep in mind that the credit market was predicated on continuing home appreciation. When you look at the history of housing prices since WWII, it was the rare time the homes didn't appreciate at least a little each year.
Remember though..house prices were going up, up, up. You could always sell for a profit, pay off everything and then start all over again.
The good times didn't last..it's time to pay the piper..but many people have no savings and are living paycheck to paycheck now and letting their mortgage payment slip.
good point *shakes head* what a absolutely foolish gamble.
These folks who wiped clean their credit card debt with their equity are now eyeing their 401(k)s to pay off their new credit card debt. At least that is what I am seeing.
You have to keep in mind that the credit market was predicated on continuing home appreciation. When you look at the history of housing prices since WWII, it was the rare time the homes didn't appreciate at least a little each year.
A little, that is true. Houses (reasonably) will always increase in value. The problem wasn't that, but the fact that houses were being inflated past their actual worth. I saw houses one year selling for 160k and then the following year they shot up to 340k. Thats not appreciation, thats severe market pricing influence through irresponsible purchase and sale. Market pricing is a concept that works for some things, but using it as a core to the system will always lead to failure. Especially when the consumer is driven by ignorance, laziness, and greed.
If people followed the core concepts of capitalism (Adam Smith), then many would not have paid that much for houses because the "Natural Price" of those homes was much much less than what the market was pushing their value at. I didn't buy in my town because the houses were not worth what they were trying to sell them at. I shopped and moved to states where housing prices were much better, where you could actually get a more reasonable value for your dollar.
Those who bought those homes for extreme amounts are now crying about how they lost value over night, yet they didn't see the dangers when they gained that extreme value over night? Some got rich on the bubble, much like day traders, they rushed out and took advantage of the price hikes and personally, I think that frenzy only helped to drive prices even higher. Some gambled and hit the jackpot, others did and lost the farm. Money isn't made instantly (without extreme unpredictable risk), it is made through long term investments. Homes were meant to be a long term investment, people treated them like it was day trading and they created their own problems.
I'm looking forward to this though. Prices in some areas (yet to see this "OMG" the country is failing claim as I think that claim just like the boom is based on much inflated hype as well) are dropping in some areas, though where we live the value of homes actually increased a few percent since last year.
My hope is that with a little shopping and waiting for the right timing, I can pick up an excellent interest rate on a fixed 30 year and get into a home that is much more reasonable due to either a foreclosure or a "hopefully" downturn in the market that brings prices down closer to their natural price as it concerns actual value within the wage/earnings index. This a good time for my wife and I, but then I would imagine its a good time for most responsible people out there.
I know this is not very moral or ethical. I'm content to see debtors walk away from their credit card debt and watch the industry implode.
If we're honest, we know that debt is a two-way street (debtors AND creditors). That said, the kind of smothering and inescapable credit card debt that we see today is a 12-lane super-highway. And all parties are benefitting from this stream of phony commerce.
The best thing that can happen to our economy is for a severe contraction of the credit industry to take place.
Most people don't understand economics. Just read some of the comments in this thread and in the 2008 Florida housing thread. I have a degree in Economics and that is the only reason I knew something was wrong. Then back in 2003 major economist started saying "this is a bubble, this is gonna go up in smokes" and sure enough it did. Economics should be made mandatory in public school and for more than one semester.
Unfortunately unless laws are passed that will prohibit speculative bubbles we will continue to have run ups in other sectors and extreme downturns.
A little, that is true. Houses (reasonably) will always increase in value. The problem wasn't that, but the fact that houses were being inflated past their actual worth. I saw houses one year selling for 160k and then the following year they shot up to 340k. Thats not appreciation, thats severe market pricing influence through irresponsible purchase and sale.
The odd thing is that though this is frequently stated, it had very inconsistent applicability. In places like Columbus, Cleveland, Cincinnati, Detroit, Memphis, Dallas, Oklahoma City, Birmingham, Buffalo, Kansas City and Omaha, these stories about home appreciation taking off was only a story they saw in the newspaper. Even in the "hot" areas, this didn't happen at all times. The fact that some areas never saw the hot markets, and places with hot markets tended to have boom and crash cycles, would seem to me to make folks somewhat cautious about borrowing against equity. Obviously though, the lenders saw it differently than this.
We have been in the same place for 26 years. In a few years I hope to sell out and take the profit to buy a small house in NM without any mortgage. Then I should be able to start my remote energy business while living off my retirement for the time it takes to get the busines profitable.
Paraphrasing from another thread - "My lot is $17,000 from a power line". IMHO 17K can buy a pretty decent combined heat/Air Conditioner/electric power plant that runs on biodiesel or natural gas.
We have never abused our credit cards and still have way more equity than debt in our house.
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