True Character in hard times will determine your wealth in good times.
In today's article in WSJ headlined Distressed Homeowners Ponder Whether to Stay or Go in my opinion tells the story of a couple that's faced with a test of True characteras well as financial literacy. Should they continue to make their payments on their house that dipped 48%, or let it fall into foreclosure.
The storyline goes that the couple can make their payment with the occasional dipping into their savings.
In quote "Some of their neighbors have walked away from mortgages they saw as losing bets. That is tempting because the Gindlespergers could rent another house for much less than they now pay each month for their mortgages, property taxes, insurance and maintenance costs.
Like others who are underwater, they lack a cushion of equity that would protect them if illness or a job loss slashed their income"
My Contention to the points above is as follows,
- If the couple can make their payments why shouldn't they? Isn't this precisely why they have their savings in the first place?
- If they choose to get out of the house and rent so let them sell the house and short sell it as opposed to just walk away. The impact on their credit and character might be less severe this way.
- Real estate was always a game of long term appreciation and occasional depreciation. Over the long run, real estate appreciates at the rate of 3.26% averaged over 20 years. Considering inflation of 2 % meaning you earning more yearly with 2 percent meanwhile your mortgage stays fixed for duration, coupled with tax deduction for mortgage interest and a 3.5 to 4 percent appreciation in the value you will end up a winner down the line.
- Owning real estate was always more expensive then rent. This is why rental apartments is a business in the united states. The unprecedented real estate market we had in 03-04 where it was easier to buy a house then to rent, actually wrecked the rental market and the housing market alike.
- Equity although wealth, is no cushion. Equity is a cushion for the lender, and this is why they want you to make a down payment of 20% when buying a house. So that the homeowner will have some skin in the game and not let the house fall when the going gets though. Only cash in the bank is cushion and no equity unless borrowed against and deposited in to a safe deposit box.
In conclusion, when you are in the middle of the race occasionally you feel sore and the urge to drop out. But let's keep focused and not confuse ability's with choices. And to make Character testing decisions over unfair comparison which comes from fear and greed.
