The Psychology Of The Housing Crisis
The reasons the housing market is in such a disarray are obvious when talking about the banking industry – making big bucks fast. But what made so many regular Joe Citizens get into a situation that was doomed from the start? It is important that we understand the human side of the decisions that made the crisis what it is. Hopefully so that we do not walk this life-changing road again. Values in America have changed drastically. Owning a home in the early 20th century was a life long dream that people worked hard for and did not engage in until they were confident they were ready for the responsibility.
Buying a home was a major life decision. Foreclosure was hardly heard of and it carried a taboo that was unthought-of. People who failed for reason or another were viewed with pity and sorrow. If foreclosure was looming, the borrower, and sometimes the whole family, pitched in to help save their family home even it meant taking on more jobs to keep the payment going. If a windfall came, it would be used toward the mortgage. And when the mortgage was finally paid off, there was a party and the mortgage papers burned.
In the middle 1990s, those values slowly dissolved. The economy was fairly good so people’s spending habits and lifestyles began to float upwards toward the sky. Mortgages were refinanced once homeowners realized that they could have that recreation/media room after all. It was so easy; refinance the house, which by then had a great amount of equity, lower payments, and $20,000 or more to spend on remodeling, cruises, new cars, etc.
Then real estate prices fell. Next, borrowers, many of whom didn’t understand that new adjustable rate (ARM) loan in the first place, began to reset. Families were suddenly in deep trouble. The “F” word became a reality in their lives.
Mortgage loan options became complicated and impossible to understand. The fine print and confusing, endless details causing reams of paperwork and government regulations were overwhelming. Clueless, people signed the papers, often not knowing what they were getting into. The person on the other side of the desk, the loan officer, the banker, the mortgage professional was certainly trustworthy! It was left to the professionals to decide if a borrower could afford the loan on his income because people trusted them. The trend of the last century was sure to last forever – plenty for everyone.
We need to get back to the way of thinking of our parents and grandparents. More was not better. Living within one’s means was the honorable way to live. Good health and employment were priorities. If a family member fell on hard times, the rest of the clan pitched in and did what they could until Aunt Edna, Uncle George, and the kids were back on their feet. Family tribulations were a family affair. As a rule, people learned to do with they had – not with what they wish they had. If wishes stayed dreams, that was okay too.
Sounds like a simpler, happier way of life, doesn’t it? Grama’s old adage, make due with what ya got, needs to reborn. They days of obsession with material gain has led to the most serious crisis since the Great Depression.
Are we going to learn this time?
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