"uh, I got a big mortgage..."
I was watching the 11 o'clock news tonight and there it was...the big 'news story' that people aren't saving any money. I know that isn't news to anybody here, but I'll say it again....the media is a lagging indicator!
Anyway, they have Mr. Reporter go out on the street and ask people is they save money.
"Excuse me sir, do you save money every month?" ...no
"I was wondering if you have money in savings?" ...no
"How much money do you have left over each month?" ...not much if any
So you get the point. The reporter asks a bunch of people if they have money in savings, or if they are saving any money. As you can imagine, most of the responses were 'no' and 'not very much'.
They they asked one guy why he has no savings and why he isn't saving any money....
"uh, I got a big mortgage..." "...I have to get a house now before it's impossible"
Then the news story transitioned into how the cost of housing here was causing people not to save any money. The story mentioned the fact that the savings rate hasn't been this low since the depression.
What I don't get is why so many people will neglect savings, health insurance, retirement savings, etc. just so they can get some crazy mortgage and 'own' a house?!?!?
Believe me, I REALLY understand wanting to own a house, but at what cost? Maybe it's just me, but the peace of mind knowing that I don't have a $4000-$5000 mortgage...or better yet, a $2000 mortgage that I know is GOING to be a $4000 mortgage, hanging over my head is worth more to me than 'owning' a place I can't afford.
How can I say most of these people can't afford it?? How long have you been reading here?? Even the latest stats from the California Association of Realtors show that only 8% of the people in San Diego can afford the median priced home. That median priced home won't even get you much 'house' in Southern California.
The story then goes to talk some financial advisor who said that people should try to save 'something' every week. They should put money away and plan for the future.
Let's get back to that famous line "...I have to get a house now before it's impossible". That is the mentality I have been talking about on this blog so many times. People want it, so they will do whatever to have it NOW! They don't do the math, they don't think about the future...other than what their property will be worth in it, they don't think about back-up plans, they don't think about retirement, they get emotionally set on something, and nothing is going to stop them...certainly not a little thing like income or savings.
Maybe it's just me, but it is just amazing that people will just 'assume' that property will go up forever. It is that logic alone that they use to justify the option ARM, the interest only, the 2/28 ARM, the 100% financing, the NINA, the stated income. After all, who cares if you are buying no money down, when the place goes up, you will make money. Most Southern Californian's think that real estate is impervious to any sort of decline now days.
The combination of negative savings, the price to income disconnect, and creative financing is the recipe for disaster. Do you wonder why all of the big lenders are headquartered in Southern California? It is the same reason tech was central to the Bay area, or why government contractors congregate around DC. That is where the action is. We saw what happened to the Bay Area when the 'action' returned to normal? What is going to happen to SoCal, when the RE/mortgage market returns to 'normal'? Like many people have said before, we don't need a huge dip to hurt lots of people. Even a flattening or small decline gets the first 'houses of cards' to start falling.
Per the news article tonight, we know that people aren't saving any money. So if they aren't saving, what are they going to fall back on when the ARMs adjust, and they can't refi? Or they can't afford the new 'adjusting' payment? What happens when people NEED to refi, but the 'flat' market means they need to pay for the costs out of pocket, instead of just 'rolling' the costs into the new loan?
Sounds like I'm beating a dead horse sometime...but I think most of you get the point.
That said, don't forget to check out the Forum page. There are lots of readers with many areas of expertise. I think it can be an informative and entertaining place....let's see what we can make out of it!
Thanks for stopping by, and I look forward to the comments on this post as well as the site changes!