Most of the panic going on right now is with the falling value of homes. Should you worry? For the most part you shouldn’t and just need to ride it out.
Lets face it when you buy a new car the minute you drive it off the lot its worth less than you owe on it yet you don’t see people abandoning new cars on the side of the road (although wouldn’t that be cool for the next person to drive past). Additionally, unlike many other investments, that car is never going to go up in value yet people still keep them.
Why do they keep the car? Because it provides ongoing value. No matter how much more your loan is than the value of the car it still transports you to where you need to go (with the exception of most American cars from the 1970s – 1980s)
Similarly savvy investors don’t dump all there stocks during every dip (yes many non-savvy do but any financial expert will tell you you can’t time the market so you diversify and ride it through).
Like the car your house provides ongoing value. Like your investments it will rebound off the lows. Granted it may not rebound all the way and it may not rebound fast but over the long-term the trend is up (unlike your car).
The only time you really need to be concerned is if you have some impending financial event or have your ego tied up in your house price, but in many of those cases you don’t need to worry (or shouldn’t have to worry). Lets look at those non-ego driven events:
Taking out an equity loan (Mostly DO NOT WORRY)
Seriously should you be doing this? Yes if you have a health issue or are recently unemployed you may have to (in which case you should WORRY) but if you wanted to go on that vacation or buy that new TV, or remodel your house then you should be upset but should NOT WORRY. Also remember it was these “cash-out equity refinancings” that got many people into trouble in the first place. To quote a classic Groucho Marx skit:
Patient: “Doctor it hurts when I go like this”
Doctor (Groucho): “Well then don’t go like this”
Selling your home to upgrade to another home (Mostly DO NOT WORRY, in most cases CELEBRATE)
Well there are two situations here:
- You owe less than your house is worth: This is good for you if you are like most homeowners and looking to upgrade your home. Although you have “lost” money in the recent downturn on your house the house you are going to buy has lost more. For example lets say the market dropped by 10%. You are selling a house that was worth $300,000 and buying a house worth $450,000. Well your house has lost $30,000 of value but the house you are buying has lost $45,0000 worth of value. You come out AHEAD by $15,000. You should NOT WORRY and even CELEBRATE.
- You owe more then your house is worth: Is this really the time to be upgrading? So in that case you should NOT WORRY. You’re just going to have to tough it out. If you have to move (e.g. job transfer) then you should WORRY.
Refiancing your mortgage: (Mostly should WORRY but also RESET YOUR EXPECTATIONS)
Well there are two situations here as well
- Refinancing because you can’t afford the current loan. Here you should WORRY but at you may also want to RESET YOUR EXPECTATIONS. If you can’t afford something you can’t afford it.
- Refinancing because you want to take advantage of a better rate: Sure this is annoying if you can’t do that but at the same time you still can afford your mortgage so you should NOT WORRY.
So in short there are some reasons to WORRY but for the most part you should NOT WORRY. Granted you can get angry, and feel like you aren’t getting all you deserve but in the end you still have a house and you still have your health.
Well done, Marcitz! Don’t forget to e-mail Pres. Bush (comments@whitehouse.gov; perhaps the White House liaison at Department of the Treasury, Denise.Dick@do.treasury.gov).You can send an e-mail addresses to Sheila C. Bair, Chairman, Federal Deposit Insurance Corporation,by clicking on the “Consumer Protection” tab at FDIC website.As reports say that Paulson and Bush (want to limit size of homeowner bailout) and Bair/Barney Frank may argue for a while longer,I will also soon copy Frank as Chairman of House Committee on Financial Services (Committee has own website), Sen. Dodd(Chairman, [Senate Banking [and ____(?)]], Sen. Schumer (all Sens.can be e-mailed by Googling “U.S. Senate addresses”.)This is also important as this debate,and probably even more unfair proposals, will go on after this bailout.Finally,for all these people,snailmail and,for most, at least general tel. numbers are found at websites.A copy of e-mail by snailmail may be very worth the additional effort and 42 cents, as may be more likely to be read.
Thanks to everyone who joins this effort! I do not sense much reaction, BUT IT CAN INFLUENCE THE OUTCOME, ESPECIALLY WITH PAULSON AND BUSH ON OUR SIDE TO SOME DEGREE!