Building equity wealth is not hard when you have the right real estate investment tools. When trends continue people often come to accept the trend as just another fact of life. After repeated positive reinforcement, new trends become entrenched and the current reality is projected into the future. Such is the development of the 30 home mortgage loan. It is surprising to many that for the larger portion of world history, people have lived without a 30 year home loan! To find out more about this, click here.
Since this time, the mortgage became the trend and the chains of debt became the trends as well. But house prices stayed fairly in check with average incomes, so this was all manageable and predictable, until recently. Slowly, year after year, millions of homeowners had to become accustomed to rising home prices. Some were priced out of the market and others found a sudden nest egg in their equity. As they became more aware of the latest "market value" of their home many homeowners reacted to this simply by feeling more secure in their financial condition.
An "equity cushion", as Fed Chairman Alan Greenspan has called it, had begun to grow larger, faster, and that made household balance sheets more secure - job loss or family emergencies were no longer viewed as devastating financial events because an increasing amount of "emergency money" was there at the ready (otherwise known as equity).
A year or two later, as home prices rose more quickly, a funny thing started happening. Long time homeowners of otherwise modest means, began driving nicer cars and taking better vacations and it seems everyone was remodeling something - additions, swimming pools, landscaping, granite counter tops. Spending in general was on the rise.
Soaring real estate prices over the last few years combined with the newfound ease of home equity withdrawal have led many homeowners to spend money like they've never spent money before in their lives. When measured by consumption and the material goods that they have acquired, these homeowners have become "wealthy" far beyond what they could have imagined just five or six years ago.
Their standard of living has markedly improved but so has the spending.
Excluding the market value of their home, many of these "wealthy" homeowners have a balance sheet that is in worse shape than it was just a few years ago - newly purchased goods lose value quickly after their purchase. It is only with high and still rising home values that overall net worth remains substantial, as wages have risen at a sluggish pace while savings have shrunk to the lowest rate since the great depression.
The positive reinforcement of rising home prices over a period of years has caused many homeowners to believe that rising home prices, or at least the current value of their home, is something that can be projected into the future. And why not? Nothing in the last ten years would lead anyone to believe that home prices do anything but go up. But whether or not they do, if Americans don't learn to curb their spending, increase their equity and savings, and start building wealth rather than spending it, the results could be disastrous.
Our mission here at Building Equity Wealth is to enable people with the resources and skills to build wealth rather than accumulate debt. Part of that is awareness. Our culture is predicated on instant gratification. There are philosophical issues at work. If we can at least provoke people to re-examine the debt based life they are living and think about the potential for changing their way of life, we are at least making some progress towards our goal. To read more about this, click here.
