By on March 29, 2012

Among all the loans being held by Americans, car notes appear to have lower delinquency rates, according to a report by the Associated Press.

Speaking with TransUnion, a credit information agency, the AP found that

39 percent were delinquent on the mortgage while current on the car loan and credit cards, and 17 percent were late on credit cards while current on the other two.

Only 10 percent were late on the car loan while current on the other two.

Back in 2006, respondents said that paying their mortgage was the financial priority. Six years later, priorities have changed. While foreclosures typically take a fair amount of time to occur, cars can be repossessed after 90 days of non-payment. Cars are also needed to get to work in many cases, and owners may not be able to get another vehicle after the bank repos their ride. Banks and credit card companies are also more flexible when it comes to negotiating some kind of payment schedule or re-financing – but a “buy here, pay here” lot? Not so much.

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83 Comments on “Americans Paying Off Car Loans Before Mortgage, Credit Cards...”


  • avatar
    ciddyguy

    What you say makes sense as in many areas of the country, you don’t really have much of a choice but to drive to and from work, so yeah, a car is invaluable when it comes to making a living for many.

    I would never consider a buy here, pay here lot, I bought my 03 Mazda protege5 at a new car dealer back in January and they worked with me to find a financier to finance the car and Chase financial was it.

    In any event, even my credit union said in about a year if I want, to come in and they may be able to help me refinance the car then after I told them I was able to get a loan as they turned me down when I tried to get the loan from them in January.

  • avatar
    jmo2

    Also, in places like Phoenix folks underwater on their homes know that foreclosure means they move from a $2200 a month mortgage to a $1000 rent on a similar home.

    Doesn’t work that way with cars.

  • avatar
    aristurtle

    In a pinch, you can sleep in your car. You can’t drive your house to work.

  • avatar
    blarfmarfle

    It makes some sense to pay off a car loan before a mortgage, since you can claim mortgage interest deduction on your taxes- and if you refinanced your home in the last few years, chances are your mortgage interest rate is lower than your car loan.

    But anyone who doesn’t pay off credit card debt before anything else is making a big mistake.

    • 0 avatar
      TonyJZX

      this guy^^^

      pay off your debt with the highest interest rate first

      mortgages are an 11-25-30 yr proposition… cars are 6 yrs max?

      • 0 avatar
        johnhowington

        enjoy paying 200k extra on that 100k house.

      • 0 avatar
        bryanska

        I should have run the numbers before I opened my mouth. Sorry.

        The benefit of paying any loan early is avoiding interest cost.

        Total interest on a five year 5%, 20k car loan will be $2,645.
        Add $50 to your $94 payment, and you’ll save $350 in interest.

        Total interest on a 30 year 4.5%, 125k home loan will be $103,008.
        Add $50 to your $633 payment and you’ll save $16,546.

        I stand corrected. Home loan first for long term savings.

        As for the mortgage interest deduction, for most people it’s widely overhyped. Run the numbers.

      • 0 avatar

        EXACTLY.

        Car loans are at the most 72 months of fixed payments.

        Home loans are 30 yr fixed typically, or, at worst – ADJUSTABLE RATE MORTGAGES which may readjust and bankrupt some folks.

        Car loans are always gonna be easier to pay.

    • 0 avatar
      TireIrony

      This article is about people choosing which payments to make late, presumedly when they can’t afford to keep up with the minimums. They’re not thinking about saving money on interest, they’re thinking about managing economic damage. Gangrene, not skin cancer.

    • 0 avatar
      toxicroach

      It’s always a balancing game between short term and long term. Sometimes you have to take care of the short term before the long term.

  • avatar
    bryanska

    Pay off high interest loans first.

  • avatar
    skor

    Not surprised. Developer put up “low income” rental units near my house. 1/4 are reserved for Section 8 tenants. The parking lot seems to contain quite a few high-end rides…..BMW, Mercedes, Lexus…..higher percentage than you’ll see in the driveways of the single family homes that make up the majority of the neighborhood.

    • 0 avatar
      FreedMike

      Not to put too fine a point on it, but is it possible the folks with the fancy rides are the ones who aren’t section 8 tenants?

      • 0 avatar
        geeber

        All of the rental units in that particular neighborhood are probably reserved for “low income” renters, even if they aren’t receiving Section 8 vouchers. If they want to spend their money on those cars, fine, but Money Management 101 suggests that even a used high-end European car is NOT a good choice for people who are supposed to be on a tight budget. The maintenance costs alone will be a killer.

        At any rate, one can see the same phenomenon around here in the supposedly poorer neighborhoods…just as you will see relatively new full-size 4X4 pickups and SUVs parked in front of shabby houses or old trailers in rural Pennsylvania.

      • 0 avatar
        skor

        The housing development is the town’s “Mount Laurel” obligation……google it. It’s all “affordable housing”, even the units that are not Section 8.

    • 0 avatar
      johnny ro

      I have a triple decker near boston.

      One tenant drives a ten year old cadillac. He knows just about nothing whatsoever about cars, in the conventional sense, but knows that he feels good about that car which by my standards he cannot afford.

      He is a good tenant and pays on time but time is marching by and he is still a tenant in a triple decker. Not doing anything to increase his earnings.

      The sorry article is about the stages of financial death. Heart stops pumping blood to the limbs as a last gasp effort to keep brain functioning.

  • avatar
    WriterParty.com

    If I was single, that pic would have been taken at my house.

  • avatar
    TexasAg03

    I think in the past few years, people have been sent a message that mortgages are unfair, you shouldn’t have to pay if you can’t, and you can just walk away when you don’t feel like dealing with it.

    • 0 avatar
      aristurtle

      It must be very hard to avoid that message, after the Mortgage Bankers Association themselves did a “strategic default” on their corporate headquarters when they “didn’t feel like dealing with it”.

      • 0 avatar
        28-cars-later

        Hilarious. Truth is more entertaining than fiction.

      • 0 avatar
        aristurtle

        The truth is that a mortgage is a contract where the debtor either pays the loan according to its terms or defaults. In a default, the creditor seizes the property and, depending on the jurisdiction and the loan terms, the debtor may or may not be responsible for what remains of the debt after the property is auctioned. In practice, after a default, a debtor will likely find it difficult to obtain future loans, at least for some period of time.

        That’s it. That’s all there is to it. Mortgage bankers know this, regardless of what side of the loan they’re on. Any attempt to attach an extralegal “moral imperative” demanding that the debtor pay the loan rather than default, regardless of what is in the best interest of the debtor, is merely an attempt to cause the debtor to behave in an economically irrational manner. The lender, not sharing any moral encumbrance, is then at a greater economic advantage.

    • 0 avatar
      naterator

      If you can’t, or won’t, “deal” with your mortgage, then you are indeed free to walk away. It’s part of the risk premium embedded in the interest rate you pay. In short, mail the keys to the bank and walk away. Done deal. Personally, I wouldn’t quit making payments but continue to “squat” indefinitely, but again, the onus is on the lender to ensure that defaulted property is repossessed quickly and secured properly.

  • avatar
    mcarr

    Well, it makes perfect sense, because if you stop paying your mortgage, you can still live in your house for a year or more. I personally know several people who have done/are doing this.

    Miss a payment on your car, and Guido shows up with a bat and drives it away.

  • avatar
    Juniper

    Lots of high end pickups, towing high end bass boats with 8 matching custom wheels parked in front of trailers.

  • avatar
    GS650G

    Such a no brainer.

    You can pick up a car with a tow truck, it takes 3 years to repossess a house in some areas while you live there scott free.

    And the government isn’t throwing money around trying to help anyone stay in a car loan. They aren’t trying to save anyone from losing their car.

  • avatar

    I bought a Mazda Rx-7 off a guy that lived in a trailer … and he imported a TVR from England.

    edit: I think it goes without saying that he was single.

    • 0 avatar
      28-cars-later

      I like this guy.

    • 0 avatar
      krhodes1

      Having a super-fancy McMansion with a manicured lawn is not the end-all and be-all of human existance. My house is an old 1200sq/ft mill cottage in “OK” but hardly Better Homes and Gardens condition. I *HATE* yardwork with a blinding passion, and do the absolute minimum that will keep the nieghbors from coming after me with pitchforks and flaming torches. OK, maybe 10% less than the minimum…

      But BEHIND my crappy house, I have a 3700sq/ft garage/shop that is soon getting a good-sized workshop addition. It currently contains 5 cars worth rather better than half what I paid for the place, and I am sure the tools and equipment add up to the other half. And I am happy as a pig in crap. And very much single. Anyone who wants to be in a relationship with me and wants a nicer house and yard had best enjoy home improvement and yardwork! I’ll make sure they have a nice car to drive. Why is it that the first thing men seem to give up in a relationship is any resemblance of a backbone?

      But as to the original premise of the article – in other news, the sun rises in the East. You need a car most places in the US, you don’t need a mortgage or credit cards.

      • 0 avatar
        jandrews

        This guy ^.

        I’m single. I rent an apartment at this moment, but that’s because in my estimation the “advantages” of homeownership in the US have disappeared over the past 15 to 20 years; you don’t save any money doing it, it’s a lot more work and expense to maintain, and it’s not a true asset.

        If I *did* buy a house, it would be similar to my apartment: Utilitarian, relatively spartan, easy to clean, cheap to run.

        “Why is it that the first thing men seem to give up in a relationship is any resemblance of a backbone?”

        AMEN sir. Societal pressures being what they are, I can see why a lot of people settle for less. That said, I think almost all of them regret it down the line.

        Back to the article: Lose your car and you can’t get to work and will soon lose everything else. Keep your car and you can limit (probably not eliminate, but at least mitigate) the damage to your credit rating by remaining able to reach your place of employment. If you do lose your home, you can also use your motor vehicle to move your shit (or what portion of it is still yours) to whatever family member’s home you intend to mooch off of until you get back on your poor-decision-making feet. This is game theory 101.

      • 0 avatar
        TonyJZX

        lol

        where I am it isn’t that unusual to have people (read GUYS) who live in a modest cottage on a large-ish block but they have upwards of half a dozen cars which may be running, unregistered or otherwise quite “interesting” especially to the likes of Murilee

        problem is the local councils do not tend to like house owners with blocks that looks like car parks

        hell some councils here don’t even like trucks or boats in the front yard

    • 0 avatar
      Campisi

      Oh hell yes. My father always said that all he needed was a ten-car shop with a shower and a hot plate. He continues to be a very smart man.

  • avatar
    Landcrusher

    It’s totally about the lack of a car safety net. The nanny state will help with everything except a car. For that they put you on a bus. If they made car owners intelligible for extended unemployment the jobless rate would REALLY be under ten percent.
    That’s not a policy recommendation, just a reality.

    • 0 avatar
      afflo

      Depends on the state. IIRC, filing for bankruptcy in Florida protects both your home and car.

    • 0 avatar
      naterator

      “Clean reliable public transportation, the chariot of the people, the ride of choice for the poor and very poor alike.”

      -Lisa Simpson

    • 0 avatar
      Caboose

      “If they made car owners intelligible [sic] for extended unemployment the jobless rate would REALLY be under ten percent.”

      In Tennessee, they do. And Tennessee is routinely 49th in the Nation in some measures of unemployment. Proof of access to reliable (non-public) transportation is one of the qualifications for receiving any sort of unemployment benefit. You are supposed to be out there looking for suitable, full-time employment. The Agency knows that you can’t look for work, much less go to a job, without a car in the family.

  • avatar
    tankinbeans

    Can we ditch the stereotype that only ‘trash’ lives in trailers? ‘Trash’ can live in trailers, McMansions, apartments. People have different reasons for living where they live and the house/bank account does not make the person.

    • 0 avatar
      afflo

      When I was in elementary school, we lived in a doublewide. Dad bought mom a brand new car (Honda Accord) with cash. Note that the trailer was paid off, and they had zero debt. Two years later, my folks bought their first home. Ten years after that, they paid that off (and still live there).

      Mom still works because she enjoys it. Dad retired at 53 with no debt other than his every two year new car habit.

      That said, this was not a trailer park, but a rural patch of land. And growing up way out in the sticks made me NEVER want to live in the country again. Give me cafes and bistros please!

      • 0 avatar
        tankinbeans

        It sounds like your dad is good at planning what to do with his money and is happy with what he has. He sounds like he’s not constantly chasing the Joneses.

        This is exactly my point. Your dad must have had a long range plan when he, and your mom, bought their trailor/mobile home.

      • 0 avatar
        28-cars-later

        Sounds like the sort of family I grew up in minus the country.

    • 0 avatar
      threeer

      ^^^ This. Exactly. Some very smart folks I know bought and paid for nice trailers and set them up on their property. Some newer models are actually quite nice. For three years, I lived in one on the upper east side of the Detroit-Metro area. For what I bought my 2000 sq ft. mobile for, I couldn’t have touched a conventional home. I wouldn’t put it out of consideration again down the road…

  • avatar
    gslippy

    People must be paying attention to those repo reality shows on TV.

  • avatar
    VanillaDude

    JEEZ!
    Wrong! Wrong! Wrong!

    Nothing has changed regarding the correct way to handle economic priorities since 2006. You focus on keeping your mortgage current. It was correct then, and it is still correct today.

    Wheels are wheels. If you have an new car sitting in your driveway, you get rid of it immediately and replace it with a vehicle that will not cost you $300-500 a month. You will need that money for more important things than new wheels. The typical new car payment is a fiscal anchor – ditch it immediately.

    You must stay in control of your fiscal situation and not hope for a miracle to bail you out. Thinking that someone somewhere else is going to save your fiscal hide by passing some kind of legislation is dreaming. Praying for a bail out is not taking control over the fiscal reality you are facing. You act as though no one is going to save you, because in all likelyhood – no one will.

    Cars are not as important as real estate. Changes since the Crash don’t change that. You will have a ride to where you need to be without it threatening your mortgage. Cars are short term. Thinking short term is not planning for tomorrow. Tomorrow is going to be here. You have to be ready when it arrives. That is just a fact.

    What is important is to take the monthly car payment and ship it off to those holding your mortgage. What is important is keeping your credit as healthy as possible for your needs tomorrow. What is important is working with your mortgage holders to ensure that you will have a future.

    Car payments are a luxury. Ditching them is top priority. Switching from a new vehicle you cannot afford, to an older vehicle you can is simply not a sacrifice. You will also save on insurance. It is just the mature adult thing to do. Cars come and go while depreciating and rusting away. How you get your butt somewhere is not as important as where it lives.

    Fiscal insecurities will be with us for a long time. Even in “good times”, you will face fiscal insecurities. The current miasma is not an excuse to do the wrong thing. If you hunker down to save your house and credit, you will survive in tough times, and win when the times are not as tough.

    Then, you can go back out and waste your money by getting a new car.

    JEEZ.

    • 0 avatar
      jmo2

      The median home in America is falling in value by almost $700 a month and has been doing so for almost 5 year. So, your plan is for folks to continue to throw good money after bad? You know, for many folks, it’s better to just cut their losses.

      • 0 avatar
        VanillaDude

        Thats what I’m talking about. Expecting that somehow you will be magically transported away from fiscal problems by assuming that a “median” – anything is relevant to your specific fiscal dilemma is stupid.

        Cutting your losses, is still a loss. Losing while keeping your car payment is ignorant.

        Priorities must be conservatively maintained because conserving your money and fiscal situation is paramount. Hoping for a savior is not planning at all.

        No one lives in a median home. A median home is also not hit by a tornado, so when one comes at you, you don’t fail to protect yourself because it isn’t “supposed” to happen. Don’t ruin your fiscal situation because someone is blathering over an imaginary median situation. This is reality. You handle your mortgage situation first. Cars are a waste of money.

      • 0 avatar
        jmo2

        Expecting that somehow you will be magically transported away from fiscal problems by assuming that a “median” – anything is relevant to your specific fiscal dilemma is stupid.

        I know, right! Using math and statistics to formulate a strategy – foolishness.

      • 0 avatar
        jmo2

        “Cutting your losses, is still a loss. ”

        Ever hear of the first law of holes? When you’re in one – stop digging.

      • 0 avatar
        GS650G

        You have to live somewhere, unless Mom and Dad have room. Houses are places to live, not ATMs or retirement accounts.

      • 0 avatar
        bikegoesbaa

        “You have to live somewhere, unless Mom and Dad have room.”

        Rent.

    • 0 avatar
      28-cars-later

      You are wise beyond you years, VanillaDude.

    • 0 avatar
      bikegoesbaa

      Long-term planning in a dynamic and unpredictable economy requires geographic flexibility. Tomorrow the best opportunities may not be where you are today.

      It’s crazy to take out a mortgage to buy a depreciating asset that consumes nontrivial amounts of work and capital while remaining fixed in a single location.

      I’m pretty well convinced that mortgages and home ownership are obsolete. Long-term renting is where it’s at.

      I have no problem financing a car, because I can take it with me wherever I go. No way I’m going to have significant sums of money tied up in something that’s stuck in the ground.

      • 0 avatar
        VanillaDude

        –I’m pretty well convinced that mortgages and home ownership are obsolete. Long-term renting is where it’s at.–

        What convinced you? It certainly wasn’t the facts. Anyone predicting the obsolescence of home ownership for the majority of Americans is only parroting the latest social science-demographic fad being churned out at liberal arts colleges since 2008. And we all know how on-target those professors have been, right?

        So, we have a bunch of tenured urbanologists living in downtown cities predicting the end of what a majority of Americans have been doing since before we were a country. Based on what, exactly? Based on their hope that what they admired in Europe can be copied here. You see, they assume that Paris is our future, not Dallas. They are basing this latest social science fad on as much facts as they have been basing their claims that Americans will be returning to urban centers. They’ve been making that bogus claim since last century, and yet downtowns still lose massive numbers of people. In another few decades, the only folks left in downtowns across the US, could be those tenured urbanologists denying that they are the only ones left.

        Love them or not, Americans prefer home ownership to any other form of habitat. And, they prefer suburbs to cities.

        So, if you find yourself convinced that home ownership is obsolete, you have been obviously lectured to by a tenured idiot whose dreams of a utopian world is debunked by everyone else who isn’t a tenured idiot.

        You aren’t the only one studying liberal arts and the latest social science fads, you know. But, I’m too old to be gullible.

        Good news: real estate will still be a good investment.
        Good news: if you invest in real estate, you’ll find a buyer when you need to sell it.
        Bad news: if you pony up $23,000 a year for a liberal arts degree, you’ll be fed a crap load of stupid that won’t be a good investment.

      • 0 avatar
        bikegoesbaa

        Sorry, wrong on all counts. You seem to have read an awful lot of (incorrect) social commentary into what I wrote. You do that often. You’re bad at it. You should stop.

        First off, I’m not a liberal arts major. I’m sort of the opposite, actually, since I’m an engineer; and went to a school that only does engineering so there wasn’t a social scientist or urbanologist to be found.

        Secondly, I *live* in the suburbs right now – in a rented house. You can rent places in many locations, ranging from downtown to the suburbs to the boondocks. Why do you assume that “rental” = “downtown”?

        I’m convinced of this by the fact that every time I run the numbers for buying vs renting, renting comes up as a better value.

        Additionally, I place considerable value on my own geographic mobility and ability to relocate to pursue interesting opportunities. This is tough to do when you own a big expensive thing that can’t move.

        I also value my free time and would prefer spending it doing things I enjoy rather than house maintenance and repair, which I find to be tedious and uninteresting.

        I enjoy renting, I’m spending less doing it, I have more free time, and I could leave town near-term if I find something I’d rather do someplace else. Why exactly would I want to own a house?

      • 0 avatar
        Lokki

        I am also thinking that at least for the next 10 years that buying a house is not a good idea for many people. Even with low interest rates, you have the problem of low appreciation. You have large amounts of capital tied up in a down payment, and an unpredictable amount of cost in maintaining the property. A water heater for $500, an AC replacement for $2500, a roof for $1500 after deductible’ windows for $4000. Over 15 years you can eat up the return of any appreciation you -might- get assuming that you chose a neighborhood that is not beginning its fade.

        There was a quote that I can’t quite remember but the concept resonated:

        Unless you have significant equity, you are just renting while holding a substantial debt. Why not rent and invest the money in something that has a better rate of return than houses will for the next 10 years?

      • 0 avatar
        jandrews

        You’ve got it correct, and mostly for the right reasons. Home ownership is obsolete on a value basis. It’s not obsolete on a *fashion* or *sentimentality* basis, and won’t be for generations in that regard, if ever.

        But let’s talk about the value basis. There are a lot of misconceptions about home ownership.

        The argument that it’s an asset and you can get your money back out of a house is fallacy at best. You can if the market plays nice. And you complete the entire mortage, which requires some prescience of market conditions 20+ years from now compared to present. The fact that gobs of homeowners in the US over the past 4 years have been losing an arm and an ass on their McMansion “investments” should be enough alone to dispel this myth.

        Some people argue that while you *may* not get your money back from a house, you *definitely* won’t get it back from a rental. This is also a misconception based on inability to evaluate the true cost of things. Let me make a couple lists:

        Cost to Rent:
        – Rent

        Cost to Own:
        – Mortgage
        – Time For Maintenance (assign this whatever your hourly rate works out at at work multiplied by hours spent doing maintenance per year)
        – Cost for materials for maintenance (don’t forget gas/maintenance for your lawn care equipment!)
        – Property Tax
        – You may deduct whatever decrease in your tax obligation is “bestowed” upon you by your mortgage interest rate.

        So as can be plainly seen, while you may get the monetary appraised value of the home back (if the market is good, if you can sell it, less realtor costs), people who rent pay less in true cost.

        We also have, as you noted, “geographic flexibility”.

        And really, geographic and temporal flexibility are the two things that matter most. That is why the powers that be in the United States encourage three things:

        – Home Ownership
        – Marriage/Family
        – Monetary Debt

        These are three commitments that are almost impossible to get out of and greatly limit any individuals flexibility. Employers have become very good at leveraging commitments against their employees over the past 30 years. This is where “you should be grateful just to have a job!” comes from. They can get away with screwing you out of cost of living adjustments because what are you gonna do? You’ve got kids to support, a wife to keep happy, and a mortgage to keep current. You’ll take the shit. You have to.

        I’m not married, am doing my damnedest to get a vasectomy (most urologists won’t do one on a 28 year old), and rent. I’m lucky enough to work in a high-demand healthcare field that is under-served. I will not kowtow to the kind of bullshit most of traditional suburban America is dealing with. Fuck that.

        So to get this back around to the topic I was replying to to begin with:

        People are starting to realize tradition is a fucking boat anchor, and being dynamic actually helps. Home ownership doesn’t make sense any more from a fiscal value perspective. People holding on to homes are doing so for other reasons, consciously or not.

      • 0 avatar
        jmo2

        Vanilla,

        Hi, it’s Mark from the National Association of Realtors (Now is the perfect time to buy™) you’re check is in the mail!

        Or…are you a realtor – sure sounds like it.

      • 0 avatar
        afflo

        But people are moving back into the cities. Have you noticed the gentrification trend? Even here in Texas, there are quite a few older areas of cities that are reblooming like seedlings after a forest fire.

        The American 3 BR 2 bath 2 car garage home on a 30 year note isn’t going to disappear for good, but it will be less pervasive than it once was. I could get financed at the drop of a hat, and afford a mortgage with no problem whatsoever, but why would I want to do that? The market sucks, and I know I’ll be moving in 3.5 years (military assignment). I’d have to either sell (and MAYBE break even after closing costs, maintenance, upkeep), or rent it out (long distance, hoping that my property manager isn’t letting anything happen there that will damage my ‘investment). Maybe the neighborhood won’t turn to crap. Maybe they won’t build a Wal-Mart next to it and drag down resale.

        Or, I can live in a nice apartment, in a gated community in an upscale area, with two pools that someone else maintains, a gym on site, attached garage, lots of space, no lawn to maintain, no roof, no water heaters, furnaces, or cracked foundations that I have to fix. I can spend my money on things I enjoy, put extra money into my well-diversified investments, and save myself the headaches.

        I wouldn’t even be considering it if I weren’t in the military… Never knowing when I might get ‘right-sized,” assuming I’m not working as a contractor… or want to take an opportunity and move elsewhere? There’s no way I’d be shackled to a house. I saw that in California when I lived there… People commuting 100 miles daily because they were stuck with a mortgage they couldn’t escape. No thank you!

        Before my divorce, we seriously considered buying a house… My ex-wife was adamant that “NOW IS THE TIME TO BUY! (2006). I was very reluctant, for a variety of reasons. I’m SO glad I held off… I wouldn’t want to be stuck holding that bag right now! I think there’s a generational divide (I’m a 30 year old on the GenX/GenY cusp) and I think the draw of buying a home as “something you do when you grow up” is FAR stronger in the Xs than the Ys. The very conservative Y’s seem to cling to it most strongly.

      • 0 avatar
        vbofw

        Warren Buffet agrees with VanillaDude. Says the single best investment opportunity out there is distressed single family homes, of which there are many available. Only there’s no efficient way to buy them with scale. So they remain a great investment for the little guy.

      • 0 avatar
        NulloModo

        A house might not appreciate faster than certain other investments (or then again it might appreciate faster, with the economy finally starting to get back on track real estate should start to pick up) but it does give you something other investments don’t – a place to live.

        I bought towards the end of ’09 when the market in this area was near the bottom. I could have held out a little longer, but I would have missed out on the first time home buyers tax credit, which was a nice added bonus.

        Based on recent sales in my neighborhood I could probably sell now for about what I paid for the house, so I wouldn’t get much back except for my down payment and the small amount of principal paid out so far, but if I’d been renting I would get back nothing. My mortgage (including taxes and insurance) isn’t much higher than what I was paying in rent before, and for the money I have a 4 bedroom house instead of a 1 bedroom apartment.

        Granted, real estate is very regional. FL tanked hard and fast, and has already started to recover while other areas are still on the downward slide. It’s not fair to think of real estate and home ownership as the same kind of investment as stocks, mutual funds, CDs, etc however. While you own a house you get to actually use the house. Any amount paid in rent is money you will never see again. Buying a house you are at least building equity into something that will have value in the future.

      • 0 avatar
        bikegoesbaa

        “Based on recent sales in my neighborhood I could probably sell now for about what I paid for the house, so I wouldn’t get much back except for my down payment and the small amount of principal paid out so far, but if I’d been renting I would get back nothing.”

        Even if your selling price equals your buying price, if you have a Realtor involved you lose 5-6% right there. You also have the transactional costs to draw up the paperwork and deed and whatnot.

        I assume you have spent >0 dollars on repair and maintenance since 2009. Those are costs that do not exist for renters.

        Depending on what month you bought your house, stocks are up 20-40+% since 2009. You would probably have been better off to put your down payment in a mutual fund, rather than tying it up in a bunch of sticks and dirt. You’d have made a lot more than you saved by not renting.

        Even not allowing for the value of your time and freedom, and the opportunity cost of having thousands of dollars tied up in an investment that is not gaining value, you probably lost money compared to renting for the same time period.

        “Buying a house you are at least building equity into something that will have value in the future.”

        Given everything that has happened in the housing market over the last 5 years, how can you be so confident that a house will have any specific amount of value in the future? There are lots of people who are underwater on their mortgage today who thought the same thing.

    • 0 avatar
      TireIrony

      Correct, VanillaDude, assuming you still have the financial wherewithal to get that cheap transportation.

      Most people aren’t financially smart to begin with. This changes what the least-stupid next move is.

      When you’re talking about people choosing which payment NOT to make, they’re already in a deep hole.

      If they have no equity in the car, and no cash reserve to buy another one, and their credit position is already weak, how do they buy that cheaper car?

      • 0 avatar
        Patrickj

        The average person in an large urban area, who has to pay $110 a flat rate hour for the most marginal of mechanics, is clearly not well served by buying whatever beater they can find for a couple of thousand bucks.

        Assuming they bought a reasonable mainstream vehicle in the first place, driving what they have already is nearly always the best choice. The same answer goes for $5.00 a gallon gas.

        In general, a modest car bought new, or near-new, is usually the best choice for a non-expert buyer in a high cost urban area. It is a far better choice than finding an adequate used car in the current market. Keeping said new car for 20 years, while getting smarter about cars, is a perfectly good idea.

    • 0 avatar
      highdesertcat

      Vanilla, following Maslow’s Hierarchy of Needs works for most people, even when it comes to shelter and transportation.

  • avatar
    M.S. Smith

    Lack of car safety net is one thing. But that has always been true in America.

    No, the reason for this is probably the fact home prices have dived and show little sign of going back to previous levels.

    In 2006 people were paying for property that was going up in value. Losing that would be absurd.

    Now the house market is basically stagnant or in some parts of the country, still slipping. If your are short on cash, why pay for a mortgage you already are upside-down on? Foreclosure might seem like a favor when you’re 50k+ in the hole on your house.

    No – pay for the car. It’s losing value, too, but at least you can get to work in it.

  • avatar
    Steven Lang

    Great topic! An issue that I deal with quite a bit!

    The Business Insider headline is misleading.

    It should have been along the lines of…

    Study Finds Homeowners Prioritize Car Payments Over Mortgage and Credit Card Payments

    instead of….

    “Americans Prioritize Car Payments Over Everything Else”

    which is not even remotely true.

    The article ignores three salient facts…

    1) A disproportionate number of renters have sub-prime auto loans and do NOT have credit cards.

    2) Banks are still not willing in most cases to restructure loans. The ‘two to three’ year foreclosure process mentioned in the article (which is closer to one to two years in most cases) has nothing to do with the bank’s willingness to work with people during that time. It has everything to do with the current backlog on foreclosed properties.

    3) The repossession rate for a sub-prime customers generally ranges from 6% to 8% (manufacturer sub-prime) to 30+% (buy-here pay-here lots.) Overall sub-prime credit card issuers have lower default rates on their credit cards due to the longer period most customers have to pay off their debt before it is charged off and sold to a collection agency.

    Otherwise I like the Transunion quotes and the final paragraph which highlights the difference between secured and unsecured loans. Prioritizing the former over the later has become a big issue in the world that is ‘financial counseling.’

    One other little thing. I worked for a credit card and auto finance company for over 2 years and liquidated over 10,000 vehicles a year for them (Capital One.) I can guarantee you that all major banks and credit card companies use decision models to figure out whether they are willing to work with a given customer. Buy-here pay-here lots are far more flexible when it comes to restructuring a loan agreement because in most cases they simply want the money… not the car.

    • 0 avatar
      28-cars-later

      If I recall correctly most ‘buy here pay here’ lots around here take their cost of the car (or most of it) in the initial down payment. I think it was something like 1/3 of price down, finance 2/3 @ X percent for typically 1 year… so in 2006 when I was still in the biz the reasonably clean $5995 panther with 100K+ was in fact a 2K car in real wholesale value. You would put down the 2K and owe the rest… if the car had to be repo’d and it came back destroyed, you at the very least broke even, collected some payments, and have whats left of the car to dump quickly or junk for scrap.

      • 0 avatar
        Steven Lang

        I would love for that to have been the average. Perhaps in the 1970’s those opportunities existed. But it’s not even close these days.

        The breakeven point on a BHPH vehicle is usually anywhere between six to fifteen months. Most down payments are well south of the $2000 level.

        I would put my average breakeven point right around the eight month level.

  • avatar
    redav

    If you aren’t current on your debt payments, it’s most likely because you don’t have enough to cover them. Thus, the question is what to cover. For example:
    You have $1000 to pay your bills:
    $850 mortgage
    $300 car note
    $200 cc bills

    In this scenario, if you pay the mortgage, you’ll be short on both others. Or, you can pay both the car & cc bill, and be short on only the mortgage. I understand the feeling that paying off two bills is better than one regardless of which ones they are. I expect plenty of people would rather have one company hound them than two.

    Also, the typical balance on a mortgage will be $100k or more. That’s why they are so long. The car debt may be $10k and the cc balance might be similar. Both of those have a light at the end of the tunnel–you feel you can actually get rid of them. The mortgage, however, won’t go away for a decade or more even if you keep paying it in full.

    In short, I’m not convinced that people are paying their car off because they like their car more or because of insight into foreclosure laws or cratering property values. It may be as simple as it being easiest to keep up with.

    • 0 avatar
      VanillaDude

      Most folks do not live out the length of their mortgage. Thinking you have 30 years to pay it back isn’t correct. You must keep up the mortgage payment for when you move on to another house. If you do not keep up, you are shorting yourself with your next home. You will be paying more for the next mortgage. You will be paying more for all your future credit needs.

      A car is not an investment. Credit cards are not. Your house is. You don’t screw up your mortgage.

      • 0 avatar
        jandrews

        See above – the idea of houses as an investment is debatable at best.

        The idea of maintaining your credit rating for your next mortgage – well, that’s a good idea if you’re going to have a next mortgage, but why not drop that shit entirely and rent, which has no interest rate? Let someone else assume the maintenance, lawn care, insurance, property tax, and asset damage/loss risks?

        Buy renter’s insurance for $100 a year if you don’t want to lose the stuff IN your rented space.

        Don’t get me wrong – everyone SHOULD maintain their credit rating. It’s just that mortgages have fuckall to do with it. Why go from one mortgage to the next? Oh right, I forgot: The wife wants a house to compete with her co-workers/friends/lunch club/whatever in the passive-aggressive way that faux-nouveau-riche women do.

        Don’t get married. But DO maintain your credit rating. Why? So you can finance that smokin’ pony car or euro-luxbarge at a good interest rate and use it as one tool in your arsenal to help your chances of serial dating late 20 to late 30somethings for life. Because you can afford the payment and the dates because you maintained your credit rating and didn’t get married and pump out three kids to spend all your money for you.

        Simple, right?

      • 0 avatar
        MBella

        A house is not an investment any more than a car is. It is a depreciating asset. It requires expensive maintenance, and taxes. As the house get’s older, it’s value goes down just like a car. Thinking your house will mot depreciate is a fallacy that has been excepted for a while in the U.S. and has finally crashed. Their is very little investment to be made unless you pay cash. Paying interest for the first 10 years of a 30 year mortgage is also damaging to the “investment” argument since most people don’t live in their houses for more than 10 years. You are therefore left with nothing.

      • 0 avatar
        Steven Lang

        You are both wrong.

        Historically houses have yielded a 3% real return. This is not enough obviously to bank on a retirement except in the most extreme cases.

        However, in times of long-term economic stability, it can serve the function of offering capital preservation. Here’s an excerpt from William Bernstein that explains the historical function of real estate as it applies to investing.

        To quote William Bernstein:

        “..the best data on house price suggests that after taking inflation into account, the answer [to how much a house appreciates] is slim to none. These data focuses on historical data from three nations. Real house prices (TMW- in other words after inflation return) in the United States did not rise at all between 1890-1990…Thus, at most you will receive a 3 per cent real (1 per cent price increase plus 2 percent net ‘dividend’) return on your home …”

        The study Bernstein cites on real returns from 1890-1990 is a 2006 piece by Robert Shiller. Shiller, as many of you know, was one of the more famous economists who called the housing bubble before it burst.”

        Source: http://www.thickenmywallet.com/blog/wp/2010/01/18/what-is-a-realistic-expectation-of-return-for-stocks-and-real-estate/

      • 0 avatar
        NulloModo

        Even if the return is 0%, i.e., you just break even and get back out what you’ve put in, you’re doing better than you are with rent where you’ve lost all of the money you’ve put into payments.

        Plus, there is the benefit of owning the property and thus being able to do whatever you want with it. If I want to paint my house lime green, I can do it. If I want to plant a grove of citrus trees, I can do it. If I want to get a dog or rent out my back bedroom, I can do it. Generally while renting none of that is allowed and renters have to also suffer the indignity of making the premises available for inspection by the landlord.

  • avatar
    Speed3

    To each their own. Who cares if you live in a shitty home and drive a Viper. I think some people who don’t have the means to afford everything (nice house, car, etc) sometimes decide to splurge on one thing–like a car or entertainment system, iphone, etc. I’ve certainly been surprised to see Aston Martins and Bentley’s and GT-R’s pull out of apartment garages where I live (the apartments are nice, but nothing to get too excited about).

    I don’t see the problem if some people prefer to spend their money on a nice car or go on cool vacations rather than buy a nice house? It’s their money. (Car’s obviously aren’t the best investment, but that’s their problem, I’m not going to judge)

  • avatar
    ajla

    Buying a house was the worst financial choice I ever made.

    I should have just saved that money for retirement. Or bought a Wendy’s franchise. Or bought a GT500. Or taken a hot-air balloon trip around the world. Or expanded my Pog collection.

    • 0 avatar
      Ubermensch

      I have to agree with you. I have read several articles recently that question the conventional wisdom that buying a home is the best decision. I have to say they make some pretty good arguments. Overall, it really doesn’t save you any money in the long run, it only defers long term expenses for when you retire and need someplace to live. I like having a place I can call my own,a garage, privacy etc… but it has just been a never ending series of headaches.

  • avatar
    daviel

    I’m on the side of the “priorities” poster-boy. I’d live in a trailer if I could have a ‘vette. But that’s just me.

  • avatar
    Caboose

    In other news: Dave Ramsey beams his alien brainwaves into the skulls of the TTAC B&B. Early reports indicate they may have been lured into the car- and prosperity-hating cult with promises of “no debt” and “Suze Orman naked”.

  • avatar
    panzerfaust

    The de-motivational poster reminds me of a trailer house near where I used to live. The resident owned a 2007 Ford Excursion, which was almost as long as the trailer, taller and without a doubt ten times its worth.

  • avatar
    DenverMike

    Home ownership is overrated I’ll agree, but I’m talking ownership, free & clear. I found a rat hole on 2 acres in the nicer part of town. It wasn’t for sale per se, but I convinced its owner to sell and carry the note. Ten thousand a month with zero interest and zero down for 12 months. That was 12 years ago and although my income is way down, I can still afford a new pickup every 5 years because of it and have a couple other houses I’ve bought since by not giving a third of my pay check the fricken lending institutes (of any sort).

  • avatar
    krhodes1

    I am going to somewhat disagree with the arguments for not buying a house. If you are renting a house, in most markets you will be covering someone else’s mortgage, insurance, taxes, maintenance, and in theory some profit as well. Now sure, you can rent an apartment for less SOMETIMES, but see the previous, and you get to deal with having other tenants around you.

    Real estate is too local to make sweeping generalizations though – in some places you can rent a house for less than you could buy that house. Not in Portland Maine though – I lived in a nice 2br apartment with off-street parking for 6 years from ’95 to ’01, the rent was $570/mo, utilities NOT included. Now that same apartment is $1500 a month! My mortgage on a bigger house with a HUGE garage is $1300/mo with taxes and insurance, and I get to deduct a huge chunk of it from my income for tax purposes. My marginal tax rate is pushing 50% (Fed and State), so that is a HUGE savings. Obviously, if I had a more average income there would be much less savings. I was lucky to buy pre-bubble though, so even with the slide in house prices, it is still worth 50% more than I paid for it. I certainly have friends who bought at the top of the market who are underwater.

    The mistake most people make is buying TOO MUCH house. The average size of a house in the US has more than doubled in the past 30 years. I don’t get why people seem to think they need all that space. My 1200sqft is bigger than I need, even with a roommate I have two whole rooms that we don’t even really use, a guest room, and one we use as storage and for our indoor hobbies. Either could disappear and not be particularly missed.

    Now the garage on the other hand, 3700sqft and it is too darned small, hence the addition. :-) Actually, the real problem is lack of ceiling hieght for a two-post lift – THAT is the real reason for the shop addition.

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