I have been told by real estate people that they a lot newer large houses where several rooms are sparsely furnished or bare simply because the home owners are at the limit of their budget.
If you think that is scarey, read on.
I am involved in the credit end of the building supply industry. When customers come in to set up a line of credit for the construction of a new home the conversation often goes like this.
A well educated, well employed young couple are sitting in front of me and I say...
“ Hi folks, so you are going to build a new home and all your financing is all arranged?”
“Yes, everything is ready to go and our contractor is starting next week.”
“Well that’s that’s great. So what is your new house going to cost?”
They look at each other with a blank look on their faces and say “ Well we don’t know, but our payments will be $x,xxx per month.”
“Yes well that’s fine, but do you know what the actual cost of the house will be when finished?”
“Aaaaa... no, but our mortgage is $xxx,xxxx and our payments will be $x,xxx”
“But what is the cost of the house?”
‘Aaaa, well I guess we never asked.”
“So you really have no idea of what the house will cost?”
“No, I guess perhaps we should ask, but we do know that our mortgage payments will only be $x,xxx ”
“Well folks, you realize that your 3% mortgage rate could increase in five years from now when you renew your mortgage and your payments could jump substantially?”
“Hahaha, well that better not happen, hahaha”
This is NOT an isolated incident.
The only reason I can see for this frame of mind is that these people have been brought up in a world where leasing is a way of life. They seem to equate a five year lease with a five year mortgage term. A mortgage is not a car lease. When rates rise you don’t ease into a cheaper model or walk away at the end of five years.
