Silverman: Warning on home purchase borrowing

It seems more often than not that we have a system of government that is not run by people who do what they believe is best for us. Instead it is run by people who do what they believe we want.
Parents know that just because a child wants something doesn’t mean you should give it to them; shouldn’t that work for the rest of us?
Consider housing (as we’ve been doing here for a couple of weeks). We know that housing prices can go down. At least we know this now.
It’s always been true, but somehow we forgot. Since housing prices can go down, it does not make sense to borrow 95 or even 100 percent of the home’s cost.
Why? Because if it goes down before you build up appreciable eq­uity and you have to sell, you’ll lose money you don’t have.
To guard against this, the homeowner needs to put enough money down on the home so that if home prices go down, the house can still be sold, and the seller doesn’t wind up both without a home and in serious debt. Sorry, I can’t make the loss not happen; I can only make the loss a little easier to survive.
But this little step toward economic san­ity has a cost. As I men­tioned last week, if a down payment of 15 or 20 percent of a home’s cost were required for purchase, I wouldn’t have been able to buy the home I did when I settled in Wichita Falls. I just didn’t have that much money saved up.
Of course, if I’d needed that sort of down pay­ment, I would likely have adjusted my lifestyle for several years prior in or­der to save up the money. That would have meant not buying a later model car, or not going on an extended vacation.
So in this scenario, either I move into an apartment or get a lesser house, which affects the housing market, or I ad­just my lifestyle, which affects the automotive or tourism industries.
By living more within my means, I end up buy­ing less stuff. Buying less stuff means that some­one is not making money selling me that stuff. This puts downward pressure on employment and the economy as a whole.
In short, living sanely is bad for the economy in the short-term; but it is good for it in the long ­term. (That is why the government has been spending an insane amount of money: it’s great for the economy in the short-term.) I’ve used housing as an extended example of how good intentions and political expediency can wreak havoc on our economy. It is just one example.
After all, all the pro­grams and spending that we and our government have are started with good intentions.
Next week we’ll look at some other examples of areas that will force us to make some tough choices — choices I’m not sure we have the will to make.
Gary Silverman, CFP® is the founder of Personal Money Plan­ning, a retirement planning and investment management firm located in Wichita Falls. You may contact him at www.Personal-MoneyPlanning.com.
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