Every statistic under the sun tells us that some obscenely large percentage of Americans (often 50%+) cannot afford $1000 emergencies, do not have adequate health coverage, can’t afford to retire and are often on the verge of bankruptcy due an innumerable # of reasons. How did these same people come up with cash to own a home?
I understand they might have owned their homes since pre pandemic times, but homes have not been cheap for a very long time. You’d still need substantive amounts of cash to own/maintain one and be careful to have reached that level of cash accumulation without going bankrupt in the process. Obviously some people are more comfortable with debt (credit cards or otherwise) than others, but I find it hard to believe that a whopping 60+% of major asset owning class got there by just being lucky with money.
In: Economics
They don’t actually own them outright. They have mortgages. Mortgages are loans, loans are debts.
Mortgages often can have terms built in, like home insurance (a whopper of an annual cost) and property tax (also a whopper of an annual cost, in many American areas).
But even with a mortgage in place you can call yourself a homeowner, and the monthly expense doesn’t change (under ‘normal’ circumstances, although ‘normal’ isn’t normal anymore).
The answer is debt.
Our finance system allows people to ‘owe’ establishments money. For weeks, months, years, decades, lifetimes. And the general gist is that if you are able to ‘manage’ your debt — that is, make payments — they don’t care if you take a long time to pay it off, because they make money from it.`
And so you aren’t simply broke and bankrupt when you run out of money in your wallet, there are multitudes of checks and balances (Credit checks, credit scores, refinancing, etc) there as various parachutes to slow down the trend, but seldom reverse it. So people spend huge amounts of time in perpetual slow freefall as they pay off one card and get another, pay off two and get a mortgage (and the house that comes with it), and so on.
The problem isn’t that debt and credit can’t exist, the problem is the system is now designed to let it people people use it just out of desperation to delay the inevitable.
The theme that you are trading tomorrow for today, is one you will see everywhere. Individuals go into debt to survive a bit longer, then banks loan to sketchier and sketchier people to make money off the immense interest sketchy loans accrue, then the government bails out banks that did it too much and start losing immense amounts of money. It didn’t just happen once in 2008, it happens… ‘regularly’.
https://www.investopedia.com/articles/economics/08/government-financial-bailout.asp
Even post-2008, banks will approve you for a mortgage that is FAR higher than what you should realistically be paying. Our bank pre-approved us for a number that made our head spin; we ended up buying a house that cost about 70% of that.
We were comfortable at 70%, but then house prices went insane after COVID. We are spending far, far more on property taxes than we’d ever anticipated and it’s definitely straining the budget. I’m so glad we didn’t max out the amount the bank would have allowed or we might be in serious danger of foreclosing right now.
Just because a bank will lend you a certain amount of money doesn’t mean you should take them up on the offer, but a lot of people do, to their financial harm.
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