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Was Henry Ford Stupid About History?
An Important Question
Recent archaeological evidence suggests there was actually a time when people needed something called a "down payment" in order to buy a home.
The size of this down payment was apparently between 10% and 20% of the purchase price. I figure that these prehistoric folk either emptied out their savings, or earned and saved until they had a lump sum big enough to fork over. Only then did they become homeowners.
In these enlightened times, of course, lenders implied that it wasn't even normal to build equity in your home. Many homeowners liked the new definition of normal. It became much more fashionable to cash it all out, and then some. Saving -- as in, "for a rainy day" -- well, really, it is such a quaint notion.
And if you wanted to buy a home, lenders found a way -- dusty words like "down payment" were painted over by glossy phrases like no-doc loans, subprime loans, shares of stock as collateral, ARMs, no-equity loans. Never mind that these and other creative financing schemes shifted all the risk to the borrower, often in flagrantly onerous ways. Lenders even bought "mortgage insurance" policies when the borrower had little or no money at closing. If the homeowner defaults on the mortgage, the lender still gets paid. Whatever it takes, ya know? Wish fulfillment matters above all.
Thus as the bubble bursts, let's remember that overpriced real estate was the effect, while psychology was the cause. Housing became a bubble when buyers, sellers, and lenders all thought they could ignore history -- if they gave history any thought at all.
The olde-timey way of buying a home may have kept the real estate market stable for decades, but let's face it: that way took too much time and money…Especially when millions of people found a shortcut.
And,
A lot of people still believe "This time it's different," and agree with Henry Ford: "History is more or less bunk. It's tradition. We don't want tradition. We want to live in the present, and the only history that is worth a tinker's damn is the history that we make today."
And he was right… wasn't he? If you think otherwise, you'll find what we have to say interesting indeed.