Foreclosed; The American Dream
A funny thing happened to me the other day while I was sitting in the dentist’s chair. You know how when you are in the chair you are definitely at a conversational disadvantage. Conversations are more like monologues even after your time it up and your tongue is thick from the anesthesia.
Anyway the monologue turned toward the current mortgage crisis with the millions of homeowner’s facing foreclosure when Murray, that’s my dentist’s name proclaimed a simple sure to the real estate debacle by just letting the people stay in their homes and just extend the term of the mortgage another10 .. 20 or maybe even 40 years.
I wanted to ask at what age would someone become “free and clear” but as I said I was clearly at a great disadvantage, dental tools, suction devices and fingers in my mouth. There was hardly enough room left for my tongue let alone pose any opposing point of view so I gave the cursory unintelligible sound when someone is on the wrong end of a tooth scaler and kind of half nodded.
I thought about that dental chat for the next couple of hours on my way home from NYC and decided do some research on the subject. Our parents, if not out grandparents were firm believers in the American dream that they would some day own their property free and clear. In the case of my conversation with Murray I was left wondering when or if many Americans would ever realize mprtgage free real estate again.
According to the National Association of Home Builders (NAHB), first time home buyers are on the average 33 years old, earning $64,000 per year and purchase their first house for about $150,000.00. On the finance side of the equaision about one third of all first time home buyers place a 20% down payment on their property with more than 30% of first time home buyers financing 95% via a mortgage.
Consider the traditional first time buyer with 20% down payment, theoretically he has a $30,000 equity position. Unfortunately with the stumble of real estate values he could actually have much less. Consider if our buyer was in the Miami metro area, one of the areas which shows almost a 22% loss in real estate value. Our traditional home buyer goes from an equity level in the black to the red in the blink of an eye and our buyer with only 5% down sinks like the titanic, totally upended in his financing to the tune of nearly $26,000. In the days of the depression only the people who owned their property free and clear were assured of a roof over their heads and people who wore mortgages like the yoke of an ox more often than not ended up sleeping on the street.
Are the days of free and clear a thing of the past? It would certainly seem that the current trend is to indoctrinate my fellow Americans into a life of debt. In the Washington Post there was an article giving advise on real estate. The question was whether or not they should pay off their mortgage with a portion of their savings. The adviser, an attorney said they should borrow against their equity thus giving them about $73,000 tax free.
That isn’t the part which bothered me the most however what grabbed my attention was when he said to put that money in the bank and use it to pay increasing taxes, not create an investment to further one’s financial freedom. Have we now lost sight of the American dream and are now embracing into a new era of slavery?
Wikipedia defines a home owner as an owner occupier. An owner-occupier is a person who lives in a house that he or she owns. You only become the owner when it is free and clear otherwise you are just the mortgagor, one step up from a tenant with one difference…. the hope that one day the mortgagor will become mortgage free.
RH Sterling
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