At breakfast this morning, my brother reminded me of my original goal that I’ve stated publicly here on this blog before: to pay off all my debt… and then buy a house.

(Public blogs are GREAT for accountability, by the way.)

After that, he made an interesting observation.

“Buying a house is kind of like paying for the privilege of debt,” my brother said. “It’s like, ‘Hey, you give us $30,000 and we’ll let you have $370,000 of debt.’”

When you think of a mortgage as “paying for the privilege of debt,” it turns the whole thing on its head… and it makes renting seem more logical.

Sometimes, we’re so locked into our normal way of thinking, we need a completely new paradigm to get us to see more clearly.

I think my brother’s observation is one of those mind-shifting insights.

Seems to me, buying a house made a lot more sense back when people saved up 20% to 50% as a down payment… and only got a 10-year mortgage. In 10 years or less, you would actually own something.

Nowadays, actually owning a house — and I mean really owning it, as in there’s no more mortgage — is very uncommon. I’d guess that less than 10% of Americans actually own their homes. The overwhelming majority are just renting their homes from the bank.

Anyway, what do you think? Are my brother and I just being too extreme? Or is buying a house the equivalent of paying for the privilege of debt?

Leave a comment and let me know your thoughts.

A record 10% of U.S. home owners are now delinquent on their mortgage payments or entering foreclosure. Never before in U.S. history have so many home owners been unable to repay their mortgages.

What makes the figure more shocking still is that it’s dated as of September 30, 2008. In other words, the huge drop in the stock market during October 2008 — and its effects on Americans — hasn’t even showed up in the statistics yet.

Furthermore, Jay Brinkmann, chief economist for the Mortgage Bankers Association, says you can’t get an accurate picture of what’s really happening unless you look at what’s called the “roll rate.”

Brinkmann said a clearer picture emerges when you compare the number of newly delinquent loans in one quarter with the number of loans entering the foreclosure process the following quarter.

That foreclosure “roll rate” was about 10% to 12% nationally in the 1990s and ran from 12% to 15% for most of this decade, Brinkmann said. The percentage is now 30% nationally but has reached 79% in California and 65% in Florida, he said.

“This is nothing like anything we’ve ever seen before,” Brinkmann said. “We were shocked when we saw the California roll rates.”

Obviously, the highest jobless rate in 34 years is being blamed for the record number of defaults — that combined with Adjustable Rate Mortgages that continue to inflate monthly mortgage payments.

But another factor that hasn’t received as much attention is falling home prices.

In Arizona, home prices have fallen around 30-40%, depending on the area. Some of my relatives who live there are now $100,000 upside down on their mortgage because of the drop in home prices.

Since they want to sell their house, they looked into whether or not their bank would approve them for a short sale. Unfortunately, they discovered the bank won’t consider it until you stop making payments and approach foreclosure.

My relatives’ realtor told them as much and suggested they simply stop making payments. And so that’s what they’re doing.

They plan to live in their current home for 3-6 months without making any mortgage payments. They will save up some money so they can move. When the bank finally approves them for a short sale — or gives them the boot — they’ll go get a rental somewhere else.

Since it would be impossible for them to bring $100,000+ to the closing table… just to SELL their house… they feel this is the only way out. (And I would have to agree.)

My relatives aren’t the only ones who feel this way. A friend of mine says a couple on his street haven’t made a mortgage payment in nearly half a year — and have yet to be kicked out!

So while the economic news might be grim, there is a silver lining. That is, banks are literally being forced into giving home owners a break. I expect this trend will only accelerate in the months ahead.

So the great real estate shakedown of 2008/2009 continues.

Lot of interesting statistics are being thrown around, none of which is as interesting as this one:

The median price fell 11.3 percent to $183,300 from a year earlier, the largest year-over-year decrease since records started in 1968.

What was that? Home prices always go up?

Hahahaha!

I bet Lawrence Yun, the Chief Economist of the National Association of Realtors (NAR), has had a hard time eating his own foot so many times over.

Of all the so-called experts who’ve been proclaiming real estate is a good investment, he’s probably the biggest wanker of them all. Only 13 months ago on October 10, 2007, Yun said:

The speculative excesses have been removed from the market and home sales are returning to fundamentally healthy levels, while prices remain near record highs, reflecting favorable mortgage rates and positive job gains.

Uh-huh. Right.

Even more recently, Yun proclaimed on July 24, 2008: “I think we are very near to the end of the housing downturn.”

Of course, *IF* you believed Yun and the NAR (and you shouldn’t), it is ALWAYS a good time to buy a house and the recovery is ALWAYS just around the corner.

Be careful who you listen to.

I expect we will see home prices drop significantly between now and Spring 2009. I wouldn’t even dare to venture when we’ll see prices start to recover. That could be years away.

Since the run-up in real estate prices began circa 1996, I wouldn’t be surprised if we see prices returning to pre-millenium levels.

Naturally, only time will tell.

In the mean time, best to liquidate your real estate, rent, and wait out the storm. But that’s only if you believe an uneducated hack like me. (I’m no expert, consult your financial planner, yada, yada, yada.)

In September, my wife and I were aggressively looking for a home to buy. Thankfully, nothing worked out, and we renewed our lease for six months.

I say “thankfully” because home prices in my area now seem to be dropping faster. Example: On the front page of my community paper’s classifieds, there is a home listed for sale for $400,000. If that sounds like a lot, it is. But get this. It sold in 2007 for $543,000!

Which means the price of this home will have dropped at least $143,000 by the time it sells. That is a 26% reduction in price, minimum.

What’s equally crazy is that the house is 4,000 square feet on 1 acre of land. So it’s currently priced at $100 a square foot in an area where prices are normally in the $140-$170 per square foot range.

(Can you tell I’m interested in this house?)

Anyway, I think we will see more cases like this. Big price drops. Desperate sellers. Banks and builders competing with home owners to get buyers. Etc.

Don’t know if I’ll be able to buy in the spring of 2009 or not. But I’ll certainly be doing whatever I can to be in a solid buying position by then.

Here’s an interesting tidbit of news: The U.S. debt clock in Times Square has run out of digits.

Basically, the U.S. national debt has grown so much that the debt clock no longer has the space to accurately reflect the total debt figure.

The clock was started back in 1989 when the national debt was “only” $2.7 trillion. Nearly 20 years ago, I suppose the creators and owners of the clock never imagined we’d surpass $10 trillion in debt.

And yet here we are.

It seems to me this is yet another clarion call to action. Our day of reckoning is here. What will we do? What will YOU do?

Just like we as a nation can’t afford to spend money we don’t have on a war we don’t need — we as individuals can’t afford to spend money we don’t have on material items we don’t need.

Saw another interesting news item this morning that reports 1 in 6 U.S. homeowners are now upside down on their mortgage. In other words, they have a larger mortgage balance than the current sales value of their home.

The article states:

No longer having equity in their homes makes people feel less rich and thus less inclined to shop at the mall.

I found this amusing because home values and shopping should not normally be related. The idea that “My home is worth more, so I’ll shop more” just doesn’t compute. But I guess it is another indication of how out-of-whack American thinking has become.

It’s all about perceptions. If you FEEL rich, then you are more likely to spend gratuitously. Never mind whether you, in actuality, ARE rich. You only need that “rich feeling.” Or so they say.

What Americans really need is a good, hard lesson in accounting and business economics.

I remember when I first began accounting for all my income and expenses in my business. To this day, I dislike it. But it gave me a crash-course in the merciless world of business.

At the end of the month, you either make money or you lose money. There is no in-between. And borrowed money is NOT profit. It’s a liability that must be repaid out of future profits.

I think our financial health would be in much better condition if more people were self-employed or business owners. You can’t survive unless you understand how money really works.

So there you have it. We’ve got so much debt we can’t keep track of it anymore.

Rather than bury our heads in the sand, let’s have some accountability and start the long journey to turn things around.