Hobbit@Law

Looking carefully at that which is unseen.

Thinking about: Housing “investments.”

Listening to the Brian Wilson Show is always grounds for thought, especially during some of the intro commentary which is clipped out of previous shows. Recent comments in regard to the President’s plan to allow people who are “underwater” on their mortgages to refinance, but remaining under water. Brian commented that it did nothing to improve the homeowner’s net worth, and my reaction was “so what?”

Here’s the problem, though. There are two ways to view a house in this modern economy. The first, older method, is to view a house as “the place where you live and keep your stuff out of the rain.” Viewed as such, does it really matter what your mortgage versus nominal value ratio is? If the house was worth 1,000 dollars a month to you as a place to live, what has changed? Unless you have some sort of weird clause in your mortgage or note that requires you to make up the difference with your lender, who cares? Unless you’ve lost your income (which has no relationship to whether you’re under water on your mortgage or not), the value to you, per month, shouldn’t change.

Those who care are, obviously, the ones in the “modern” view of a house, that it is not a place to live in and keep your stuff out of the rain, but rather an asset, part of your net worth, and if your net worth goes down, you’re boinked. Not that the walls are any duller or the roof any less solid, but suddenly you’re into negative numbers territory. And, more importantly, that credit line that you’ve been using to live beyond your means through the Naughties is likely dried up and now you’re going to have to look at some serious retrenching. Bill paying. Austere living. Second jobs, maybe. Disgruntled spouse and children. All of the things that tend to go into divorce, as it were.

The problem is that nobody seems to have bothered to tell Americans that investments are a risk. A gamble. And that past performance is no guarantee of future performance. The value of your stock – or house – is not guaranteed to go up, regardless of outside influences. Ask any Dutch Tulip Investor. Eventually the party comes to an end, the credit cards are maxed, and life gets rather grey and grim for awhile. Though I’m told that “economics doesn’t work like that on the national scale,” nobody’s ever convinced me that that assertion is anything other than wishful thinking. Bills have to be paid – or defaulted on. After the slate is clean, a new story begins.

Wiping the slate, though, can get pretty nasty.

Got popcorn?

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