The Housing Crisis – Whose Fault Is It?

I hardly ever get in discussions of news, hot topics, etc. But I do enjoy reading OTHER people’s takes on news and hot topics. One topic that EVERYONE is talking about, and has been talking about for about a year: the housing crisis.

All I ever hear is it’s the sub-prime lenders who caused it, or it’s the banks loaning money. So I’m glad that I finally saw someone who is willing to say out loud whose fault it is in many, many cases: homebuyers who bought more house than they could afford. Because that’s the absolute truth. Absolutely!

The 2000s will be known as the time of amazing consumerism. The return of “Greed is good” as a motto for young urbanites who decided to live for the moment. I know when Denis and I bought our house in 2001 we were grateful that (at the time) we could afford a nice house in suburban New Jersey. We refinanced a couple years later and signed up for an 8-year ARM, knowing that ARM would give us a deadline for moving into a different (bigger? newer? nicer?) house. But then things got in the way – we had two kids in three years, Denis got laid off, he became a real estate agent and then the real estate market began to decline in NoNJ. Houses weren’t selling. And not only that, but despite our refinancing to save money, our property taxes kept increasing (to the tune of $1000 per year), eventually causing us to realize we couldn’t afford our mortgage anymore – not because of the amount of money we borrowed to buy the house but because of the $9,000+/year property taxes we had to pay.

So we moved. We left NoNJ and came to South Carolina. And rather than use all of the profit to get a huge brand-new house, we opted to be fiscally responsible. We bought a very nice house that cost the exact same as we had paid for the smaller NoNJ house in 2001. But with $1,300/year in property taxes, our mortgage was effective cut in half. Great relief!

And so when I see all the news articles talking about how it’s the banks’ fault for this crisis, I can’t help but think that it’s actually many of the people who bit off more than they could chew, not realizing that the future changes – life happens, kids are born, jobs are lost, cost of living increases. And the responsible thing is to be willing to make a change when that happens. Stop getting that $4 cup of Starbucks. Stop going out to dinner 2-3 nights a week. Stop charging that 20th pair of shoes on your credit card.

For me, my change was in December. I decided that the most responsible thing for me to do is to get out of consumer debt. No more credit cards. I’ve been a slave to them since I graduated college, and I don’t want to be any longer. It has only been four months, but my entire mentality has changed. I’m not a skinflint or anything, but when it comes to money I definitely think twice now that I’m paying CASH ONLY for everything. I’m more hesitant to lay down that $20 bill when I know that’s an immediate loss of money. And for what? Something that will be forgotten or never worn again in a month’s time? No thank you!

So that article I linked to above? I love it – because the man who was interviewed is a straight shooter who puts the blame for the housing crisis on the right people: (some of) those who decided to live large when living medium would have been more prudent.

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4 comments

  1. Good article and good words from you, too. I agree totally with the idea that it’s individual responsibility to know what the contract says. We had an ARM once, I bailed out of it as quickly as I could because I knew it was going up. The whining about the “crisis” really irritates me because it is in reality a small problem that the press has blown up to be much more than it really is. And because the average American knows diddly about economics, they panic and create a self fulfilling prophecy. “The economy is bad, so I’m not spending as much,” is the dumbest statement you can make! If you have it, spend it the way you want to. If you don’t, don’t. Pretty simple.

  2. I agree, Dad. My decision to become debt-free is so that I CAN have the freedom to spend my money the way I want to, rather than paying all those pesky interest fees on the credit cards!

  3. I disagree with you Jane. People couldn’t bite off more than they can chew if the Subprime lenders didn’t offer them the mortgage. I will say it was a combination of a lot of things.

  4. But Ace, no one TOLD THEM they had to take ALL the money that the lenders were offering. I seem to recall that when we bought in NJ the bank told us we could go up to $X00,000 for a house. But we knew that there was NO WAY we could *really* afford that kind of mortgage in the long run. So we bought a much cheaper house. Same goes in SC – we *could* have bought a MUCH more expensive house, but opted to be fiscally responsible and spent a LOT LESS than what we were approved for. Just because a bank tells you that you qualify for that amount doesn’t mean that you should borrow that amount.

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