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Brendon J. Wilson

The key to feeling better here is to realize these people don't own their homes. I mean, if they stop making payments I'm pretty sure the bank will turn up and say, "Uh, yeah, we're gonna need the house back."

Buying a house is about the only thing I can justify for borrowing money. I mean, these people borrowing against their home equity to buy TVs? Home stereos? Give me a break people - show some restraint!

I think I remember reading something in the Millionaire Mind talking about the Scots. Apparently, Americans of Scottish descent make up a disproportionate percentage of the millionaires in the States. It's not because they make more - they're actually well below the average of the other millionaires. It's not because they didn't buy stuff - they had all the toys, they just happened to have paid less. The author attributes the anomaly to the characterstics of Scottish parenting. Children learned about money early, tended to be by-and-large financially independent at 18, freeing their parents to save even more money in their peak earning years, which eventually got passed to the children.

Which raises an interesting question: what legacy will those people who have been binging on debt leave their children? And what havoc will that wreak on the economy in the future?

Adam

Thanks, Brendon. Your post did make me feel a lot better...

As far as the legacy debt-bingers leave on their children, all I can say is: don't join that club.

Adam

From the business section of the SJ Mercury News, 10/10/2004, is an article by William Sluis of the Chicago Tribune titled "House Broke":

The odds are against even some financially reponsible home buyers affording their dream home. Real estate costs are outstripping what families are earning, making homes increasingly less affordable...

"Over the long haul, people have to be able to pay their mortgages," said economist Peter Morici, a business professor at the University of Maryland. "House prices can't exceed increases in incomes for very long."

In the four years ended June 30, 2004, median home prices rose 33 percent, while per-capita personal income climbed just 10.4 percent, he said...

"The question is whether such a condition can persist or whether the squeeze on incomes will cause real estate prices in California to peak and head lower," said Sung Won Sohn, of Wells Fargo in Minneapolis.

The article cites a Fannie Mae study that said in the Chicago area 11 percent of home owners are "severely cost-burdened", meaning they pay 50 percent or more of their monthly pretax income for housing.

I would imagine that in California, the number of households that are "severely cost-burdened" is even higher. More Californians are house-poor, finding themselves unable to afford more than the basic necessities -- and as a result, more people are turning to credit cards and borrowing against their inflated home prices as a solution.

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