CONSUMERS WERE TOO OPTIMISTIC? REALLY?

The last few years have brought some significant changes to the real estate world.  If you’ve been watching the media coverage, by now you probably think there was only one possible cause to this mess….. the evil mortgage companies taking advantage of consumers!

Well, a recent study (yes, apparently they really needed a study for this, they could of just called me, I would have told them!) by the New York Federal Reserve found that consumer confidence that made people think they could afford higher housing prices, not easy mortgage money.  The study concluded that all the way until 2007, when the economic conditions started convincing people otherwise, that consumers believed the “good times” would continue and their paychecks would increase as they had.  It appears that the lax lending standards may have come about because of the optimism by consumers, simply put, because people were buying, lenders put forth more products to help them buy.

Now don’t get me wrong, there was some predatory lending, there were people taken advantage of and lenders are partly to blame but seriously, the amount of “damage” being done to the real estate markets by foreclosures nationwide didn’t all come from lenders.  Also, if you are in foreclosure right now, I don’t want to be unsympathetic, it is a horrible thing to go through and I would not want anyone to be homeless.  But seriously, sometimes, consumers are too blame to.  Yes, that’s right, I said it. Sometimes, it really is your fault.

No one wants to hear this, let alone say it, not politicians, they want someone to blame so they can score political points, not mortgage companies, they would look even worse if they blamed consumers and certainly not the consumers themselves.  In our current culture, where Governors can abandon their duties (yes Sanford, I’m talking about you), disappear for a whole week without telling anyone where they are going (I guess when you leave the country to cheat on your wife you don’t want to tell anyone, imagine that!) and then hold a press conference embarrassing themselves (and their family, and their state, of and the ENTIRE COUNTRY) in which they apologize for their adventure and then expect everything to be just fine, in this culture, NO ONE can accept the blame they deserve.  It is never their fault.

In good ole Sanford’s case, he was a helpless, star crossed romantic, unable to resist the call of fate and his true love.  In the real estate world, it is the mortgage companies fault, they made it so easy, the deals were just so good, we couldn’t resist! It can’t be their fault, it couldn’t be a poor decision on their part, it had to have been the lenders!

I could come up with tons of other examples, examples of adults making poor choices then blaming the companies that provided those services (tobacco, alcohol, McDonald’s,any of those fit the argument here?), but everyone seems to forget that these bad mortgages were selected by adults, no one forced them to make a bad decision.  No one said they had to trade up their 3 bed, 2 bath,  2000 sq ft home worth $200,000 for a 3 bed, 2 bath, 2000 sq ft home in a fancier gated community selling for $400,000.  They didn’t have to do it.  But they did.  Not all of the folks saddled with bad mortgages are in this predicament, but let’s go back a minute and look closer at the point raised by this study, the fact that consumer confidence bears part of the blame.

A lot of the people who took out risky mortgages shouldn’t have done it, but in their defense they were lulled into thinking they could swing those payments by a “irrational exuberance”, by the optimism everyone had, by thinking the good times would keep on trucking because they had for so long.  Many of them expected that when the time came for their adjustable rate mortgage to adjust, they would have gotten that raise or promotion they were expecting (instead they got a pink slip) or that worst case scenario they could sell if they couldn’t afford it, because 2005 brought some people 10-30% appreciation, and that would save them (instead they found a slower market where in some areas people lost value instead of appreciating).  What they found, is that the one thing they counted on to save them, the one reason that made them place their bets and gamble, our solid economy, wasn’t there when they needed it to be.  They knew what they were doing.  They gambled.  They lost.

We can find plenty of places to lay blame for this, but consumers need to realize that they had just as much of a part in creating this mess as did the builders, lenders, politicians, agents, everyone.  This “crisis”, this issue, doesn’t tie up into a tidy little package, there is no one “bad guy” to prosecute and make it all better.  The time to put it all on Red number 6 and spin the wheel for your payday is long gone.  Consumers cannot sit back and wait for someone else to fix this, lamenting all that has gone wrong, blaming everyone but themselves.  Don’t get me wrong, the system is flawed, there are still numerous problems, still many things wrong, but consumers need to step up, take their medicine, sell if they have to sell, buy if they have to buy and make smart, rational decisions based on fact.  Once we start doing that, once we stop letting emotion (whether it is fear or exuberance) guide our financial decisions, we can begin the process of re-building what we once had, a solid foundation of home ownership supporting the country.

As always, you can call me Direct at 717-371-0557 or at the Office 717-490-8999, email me at Jason@JasonsHomes.com or send me a text message using the tool to the right of this page!

Your Friend in Real Estate,
Jason

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