Tran Harry – The Economy Needs A Fix

Everyone has been conditioned to believe that in order for them to live rich their house values should go up. This has been the same train of thought for why people use their homes like revolving credit. They assuming that because their house appreciates in value during the time they own it that they can charge away at the equity built into the home. Problem is that a lot of people don’t seem to correlate this as a means of returning equity to the bank you’re partnering with to buy that home.

Here is a concept that may seem counter productive at the moment but I believe the rewards far outweigh the social and economical costs. I believe that lower home prices are good, and by lower home prices I mean lower home prices, not a fabrication of lower home prices such as first time buyer programs or low income help programs, which merely act as a rebate towards the purchase, but not lowering the true price tag of homes.

Lower home prices mean less borrowing in life is needed.

If we were only able to step away from believing that rises home prices are our way to being rich, than truly can we be better off with lower home prices. Let’s say (all things being equal) home prices remain stagnant for all infinity at a low cost of $200,000 this opens up the market to a lot of people who couldn’t afford to buy homes to begin with. Families would enjoy better quality of life because they wouldn’t have to stretch themselves in order to meet high mortgage payments. For many homeowners their current high mortgage covers more than the comfortable 30% of income. This does not leave much money for spending on discretionary purchases. It’s no wonder people rely on their homes so much in order to make big ticket purchases.

Lower home prices mean paying off the life of the loan sooner. The sooner the mortgage is paid off means that more income can be used for retirement savings or vacations. Currently we devote a lifetime of servitude towards paying our mortgage. When home prices are high, it simply takes longer to finish off the loan payments prolonging your work career. If after you finished off the loan payment, had it been low, early you could invest the income thereon out or make big ticket item purchases with cash, rather than with more borrowing.

Sell you house for more, but pay more for the next house.

Higher home prices don’t benefit anyone. You may think a period of rising home prices is great because you can sell your home for a nice profit from when you first bought it. But the problem is that in order to appreciate that capital gain you would have to buy down on your next home. You still have to live somewhere right? And what’s going to happen to all comparable homes you’re thinking of purchasing after you sold your home, the price of those homes would have gone up as well thereby negating any gains you may have gotten. And on the side note you’ll have to pay taxes on most gains so you’ll be indebted to the government.

High home prices only benefit the insurance companies and the government. If there is anything that can be taxed and believe me a home is a very large taxable asset, than the government loves the fact that your home is worth so much, as a matter of fact it benefits them more come each appraisal review that your home has gained in value. To insure a more expensive, means that you will pay a higher premium on that rate. Think of the difference in premium to get full coverage on a $15,500 Honda Civic vs. a $65,000 BMW since one cost more the insurance company is simply going to charge more to fund their risk level. So like the buying and downgrading of a home. Even if something, which heaven forbid doesn’t, happen where you need to make a claim on your policy you aren’t going to gain any additional profit unless you decide to downgrade your living needs.

Take it from me, I believe we have been preconditioned by the real estate industry and the media to believe that constantly rising home prices are a good thing but in actuality it is a mere hindrance and in fact until it is paid off in full a huge liability in your wallet book, because when it takes longer to gain full equity the liability sits there longer.