Callous media?

I was browsing some news on the US housing market, when I came across this bit about mortgage debt and ARM loans in Newsweek titled Escape from the Money pit. The title was an attention grabber, but it was the subheading that really surprised me though, in bold letters across the top of the column it says:

Home buyers thought they could put their house under their pillow and let the tooth fairy raise its value while they slept. Too bad.

..Which struck me as surprisingly callous for a column in a major publication. While I certainly agree that people are responsible for what they do with their money, I think we could show a little sympathy for people who got in over their heads and are upside-down on their mortgage. Lets be honest: the average person doesn’t have the time or inclination to completely educate themselves on some of the finer points of personal finance. Its not that they aren’t ‘smart’ enough, it’s that life is full of things that demand our attentions but only a finite amount of time to focus on them.

People buy houses for all sorts of reasons and sometimes the timing is off, but how can you blame them for buying at the top when nobody knows what the ‘top’ of a market is except in hindsite? The fact that house prices can go down isn’t a secret, but lets face it: It’s not really the attribute that marketers are going to trumpet and going deeply into debt is the American way.

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patriotz
patriotz
13 years ago

There has never been any government bailout of homeowners in previous housing crashes in Canada – Toronto early 1990's, Vancouver/Calgary early 1980's, etc. It's just not going to happen.The fact is that the homeowners in trouble are a small minority even in their own cities. No politician with any sense would try to tax the majority to bail them out.Nor has there been any bailout of lending institutions. Of course insured depositors have been compensated by CDIC – that's not a bailout, but an honouring of a contractual obligation which the depositors pay for through lower interest rates.When the Northland Bank and the Commercial and Industrial Bank (Alberta based) failed in the 1980's, uninsured depsitors were also compensated by the Mulroney government – which I disagree with. But the banks themselves were liquidated, and the owners got squat. The Bank… Read more »

scoop
scoop
13 years ago

dingus,Yes, consider that my "Modest Proposal". Tongue firmly in cheek.It's absurd to look to greater government regulation to get us out of this situation or to prevent the same thing from happening in the future. One of the costs of having free markets is putting up with speculative excess.

wg2c
wg2c
13 years ago

wannaget2calgary (=wg2c) said:So what's the solution for those that innocently got in over their heads? Government bailout? That will be interesting.I'm reassured by the responses. My fear is that the scale of it all will be such that a political solution along the lines of a bailout (of somebody: borrowers, lenders) may be deemed necessary by those who wish to stay in power … In the end, you and I (who presumably have been prudent with our money) will pay.

Warren
Warren
13 years ago

Here are some people who deserve what they get. Nobody should be confused about how credit cards work in 2007.There are so many choice quotes in this article, these people are exactly what is wrong with America:Morons.Of course, they learn from the pros.I hope those links worked.

dingus
dingus
13 years ago

"No person shall buy a home costing more money than the person can afford. Contravention of this regulation shall be an indictable offence." I assume this is tongue in cheek. Seems a tad simplistic — criminal penalties are pretty clumsy regulation. You'd have to be a bit specific about what "afford" means. If it's a numbers game, many people do stretch and survive. If it's outcome based — ie the proof is in the foreclosure, then we're back to debtors' prisons. Which wouldn't solve the problem before it occurs, and would just punish the stupid for being stupid. No prosecutor would ever want to try one of these. What about the lenders, brokers, and agents? Lending affordability standards? Minimum downpayments? Verificiation of income requirement? Turfing CMHC so real risk premia are introduced to lending rates? Penalties on lenders with high… Read more »

patriotz
patriotz
13 years ago

So what's the solution for those that innocently got in over their heads?Same as it's always been – bankruptcy. Why should someone who borrowed 500K to make a foolish investment in a house be treated any differently from someone who borrowed 500K to make a foolish investment in a business?

Real estute
Real estute
13 years ago

"It's not really the attribute that marketers are going to trumpet and going deeply into debt is the American way."Isn't it also the CANADIAN WAY?

scoop
scoop
13 years ago

Gov't should set tough regulations so that people don't get into these situations in the first place… get to the root cause.Regulation 101.9(2), enacted January 23, 2007 under the Housing Affordability Act:"No person shall buy a home costing more money than the person can afford. Contravention of this regulation shall be an indictable offence."

scoop
scoop
13 years ago

So what's the solution for those that innocently got in over their heads?Admit you made a bad choice, suck it up, and work your way out of it however you can. Take responsibility and learn a lesson. Teach your kids what you learned about investment risk. Don't look for someone to blame or bail you out.

WoodenHorse
WoodenHorse
13 years ago

Guberment shouldn't get involved….at all.

dingus
dingus
13 years ago

"Gov't should NOT be focusing on bailing people out but instead should set tough regulations so that people don't get into these situations in the first place…" Like what?

Jojuchst
Jojuchst
13 years ago

Have legistration to have developers set aside funds, 50%-100% the value of a project, for a period of 5-10 years so buyers and consumers have recourse. There's absolutely no way to gov't should be involved to bailout anybody.These developers can't be allowed to operate as fly-by-night businesses, numbered companies. If you don't have the finance to set aside this fund then they shouldn't be developers. If they are allowed then the loophole is there and people will use it.Gov't should NOT be focusing on bailing people out but instead should set tough regulations so that people don't get into these situations in the first place… get to the root cause.

Warren
Warren
13 years ago

On the other hand I do feel the RE Industry should be held responsible for promoting this. It isn't right for an organization to be able to promote the way they do with out some accountability.I'm not sure of the specific laws, but it seems like "false advertising" legislation has a lot of loopholes. It hurts the hardest with the most expensive items like real estate.Who knows, maybe a huge housing bust will get people up in arms and new laws will be enacted to clamp down on the RE industry.The litigation happy US will show us the way!

the pope
the pope
13 years ago

So what's the solution for those that innocently got in over their heads? Government bailout? I hope not. Sympathy is one thing, but I'm not willing to fork over my tax dollars to support those that have made bad financial decisions. We might as well have a tax fund to hand out grants covering depreciation on new cars.

Warren
Warren
13 years ago

I could really feel sorry for someone who bought a 40 year old 1000sq ft bungalow and had some hard times, but to see families make 100K+ crying in front of their McMansions, that makes me gag.Absolutely! I know people who are frustrated with housing costs, as they've been saving up to buy for a few years, and I keep urging them to just hold on a few more years. Then there's the idiots with giant houses, nice cars, and massive debt beyond their means… Boo-freaking-hoo!I learned with my first car, (and later my first apartment) that debt is a terrible thing to be in, and I feel much better on a daily basis when I have no debt. I'm sure it has to do with how I was raised (poor for the most part), but there seems to be… Read more »

Uncertain Buyer
Uncertain Buyer
13 years ago

No sympathy here, they were arrogant while prices were going up. Most of them knew that they were getting into a bad mortgage, took the risk.If you are going to be foolish with half a million dollars of debt, then you deserve what you get.On the other hand I do feel the RE Industry should be held responsible for promoting this. It isn't right for an organization to be able to promote the way they do with out some acountability.

WoodenHorse
WoodenHorse
13 years ago

I agree with betamax when he says:If you talk to any speculators in Vancouver right now, you'll notice them taking full credit for their market acumen and insight. I say screw 'em….no tears were shed over me not having a home because these same morons bid it skyhigh.

wizardofozziejurock
wizardofozziejurock
13 years ago

I'm often the first to hold people accountable for their own bad decisions but in this housing bubble I have to weigh that against:- governments that went out of their way to encourage indebtedness- vested interests that spread their propaganda through a compliant mainstream mediaBut for now I'll save my pity for those people who have scrimped and saved judiciously only to be priced out of the market by speculators and reckless spenders.

bc_cele
bc_cele
13 years ago

patriotz said… It's not just your perception, the average size of new houses has increased greatly during the bubble.People who buy more house than they really need are just speculating on their personal residences, or more precisely the excess part of them. Borrow more $ today, get more $$$ down the road.Off with their heads. Thanks for the info, I thought it had, but wasn't 100% sure. I'm speculating that it's increased by at least a 1000 sq ft from the late 80's. I mentioned before that people jumped on me over at another message board (non-RE) because I couldn't believe that another poster used the words 'modest' and '2500 sq ft' in the same sentence. Guess, I'm just bitter. ;-)Probably what really gets me is that you don't seem to see people who just bought smaller homes in the… Read more »

patriotz
patriotz
13 years ago

they all seemed to buying large housesIt's not just your perception, the average size of new houses has increased greatly during the bubble.People who buy more house than they really need are just speculating on their personal residences, or more precisely the excess part of them. Borrow more $ today, get more $$$ down the road.Off with their heads.

bc_cele
bc_cele
13 years ago

At first, I was pretty sympathetic to the plight of a lot of these individuals, but a few things changed my mind. The first was the size of the homes many of these people were buying. Perhaps, it is media distortion, but they all seemed to buying large houses, and it's funny how all of them seemed to have really well-furnished rooms, lots of electronic gadgets (hey is that a 40" plasma screen?), and late model cars. This type of lifestyle isn't cheap, and I would wager a princely sum that most of these people would be up to their eyeballs in debt even without the house.Another thing, is that, as was mentioned, it's not like these people are total morons. Most of them are well educated, and are professionals earning way above the average income. Yet, even with all… Read more »

betamax
betamax
13 years ago

Some few might deserve sympathy, but most are the architects of their own fate and consequently will get precisely what they deserve. If you talk to any speculators in Vancouver right now, you'll notice them taking full credit for their market acumen and insight. Tonight I watched that show Deal or No Deal. The woman on it was offered $82k at one point but turned it down. Then she turned down $25k, and she finally ended up with five hundred bucks.It occurred to me that she, like most people in our society, simply can't do the math to figure out the odds and quit while they're ahead. All they can see is the money, and their greed blinds them to the risk involved, and they'll chase the market all the way down like the inveterate gamblers they've become.

patiently waiting
patiently waiting
13 years ago

What makes me depressed is cases of middle class boomers who use their home equity to help put their offspring on the property ladder. The boomers only want to their grandchildren to grow up in a decent home. Who can blame them?

wannaget2calgary
wannaget2calgary
13 years ago

Some deserve sympathy, for sure. But many who protest their Innocence and Naivety will have been motivated to buy RE by at least a small measure of Avarice and Greed.So what's the solution for those that innocently got in over their heads? Government bailout? That will be interesting.