Is Generation X Responsible for the Recent Housing Crisis? – Part 2
In our past entry, we started analyzing the causes for the housing crisis suffered by the country since a few years ago.
First, we took a look at how politicians, mortgage lenders and even the government itself all point fingers at each other trying to assign the blame for this crisis to anyone other than themselves. However, while doing so they loose sight of the real issue: People with real everyday problems are the most affected by this crisis, and in most cases are not even able to repay their personal loans for mortgages, falling then victims of foreclosure.
We also saw that, contrary to what many would be led to believe, one of the major culprits of this crisis of personal loans and mortgages could be the Generation X (those born between the 60’s and the 70’s) and their different spending habits, which were in turn affected dramatically by the economic crisis of a few years ago.
Now, let’s take a look at the remaining reasons why Generation X could be behind the housing crisis:
Home Purchase Prices are High:
The average price for a home that is in foreclosure usually tends to exceed by $50,000 the price of homes with mortgages that are repaid in timely fashion. In the period leading up to the crisis, the prices of homes simply skyrocketed. This c caused that several families who were emerging into affluence and looked at the future with hope, suddenly saw prices rising alarmingly. Naturally, seeing this, what most of these families did was to acquire personal loans and mortgages and start buying immediately, before home prices became unreachable for their condition.
This behavior, while somehow reasonable, should definitely be avoided whenever anyone sees prices skyrocket and start feeling pressure to acquire personal loans and buy. At first it might make sense, but generally, it also means that the market might be about to reach its peak and collapse. There is no guarantee of this of course, and prices might keep going up instead of settling or becoming more reasonable. However, you should always listen to your gut and try to understand that, no matter how much pressure to get a personal loan you might be facing, in the long run homes cannot reach unreasonably high prices.
Income is Lower The Expected:
It was found that a lot of families benefited from extra income ranging in the thousands the year they got their mortgage. Now, it might not seem like much, but even the smallest added income can make a huge difference in how you perceive your mortgage and personal loan prospects. So what happened in the end was that those affected by foreclosure paid up to 33 percent more for their homes while at the same time making 10 percent less in income than when they acquired it.
The leasing here is to think realistically about your future income prospects. Everybody can enjoy an unexpected income, but that doesn’t mean that it will repeat itself over time. So making a decision as important as acquiring a personal loan or mortgage based on uncertain income is plain irresponsible and unrealistic.
Curiously, the people we think about as being those who might be in financial trouble are not usually the type we would expect. They don’t fill the lines of bankruptcy or unemployment. Instead, it is people with jobs the ones who suffer the most. In fact, all research shows that that those who were impacted negatively by the housing crisis were those with the brightest future financially-speaking.
Now, while that might be counterintuitive, it is actually easy to explain: People who are in the best financial situation usually tend to over-reach and believe that they can easily afford personal loans or mortgages. The best course of action to avoid foreclosure in these scenarios is to simply be realistic. You can always improve your living standards, so better save now instead of spending in personal loans.
And there you go. As you can see, the main reasons behind the housing crisis are all behavioral, so better take a deep breath before making an important choice related to housing. You are guaranteed to do much better this way.