Sorry, Your House Isn't An ATM Anymore

For years homeowners have been using their soaring-in-value homes as ATMs, drawing money out to finance whatever they wanted. No more. Falling home prices mean that your house is no longer a source of cash.

The NYT has a cute quote from one such strapped homeowner:

“It used to be that if I wanted it, I’d just go and buy it and finance it,” Mr. Whittey, 33, said. “I’m feeling the crunch, and my spending is down significantly.”

The bad news is that people like Mr. Whittey were driving the economy. The Times says that 9% of the nation’s “disposable income” came from people accessing the equity in their homes.

“We used to go out to eat three or four nights a week,” Mr. Whittey said. “Now, we don’t go out at all.”

Party’s over, dude.

Homeowners Feel the Pinch of Lost Equity [NYT]
(Photo:Marilyn Newton for The New York Times)

Comments

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  1. BK88 says:

    Oh no RESPONSIBILITY strikes again!!!!!

  2. namenomore says:

    That guy actually looks pretty excited to be past broke.

  3. Dead Wrestlers Society says:

    Maybe he should rent his dogs out.

  4. nickripley says:

    I do not feel any pity for anyone in that situation. “OMG We can’t live way outside our means anymore! OHS NOES”

  5. realjen01 says:

    here’s the perfect compliment to this article:

    [www.youtube.com]

  6. realjen01 says:

    complement…i’m having a bad grammar day :(

  7. LatherRinseRepeat says:

    This is great news for the rest of us. If these people get desperate for cash, they’ll be selling their plasma TV sets and fancy cars for cheap. Time to start browsing Craigslist. :-)

  8. Ausoleil says:

    We get at least 3-5 offers from mortgage lenders trying to get us to take a second and then do whatever – my favorite is the one that says we can be “debt free!” The only way I would ever take a second mortgage would be to physically expand the house or otherwise enhance or preserve its value…not go out to dinner or have ridiculously priced nuptials.

    You have to wonder what these people are planning to do with themselves when they retire. That is, if they ever can.

  9. Skiffer says:

    Ummm…houses were never a source of “cash” – they were only a source of “credit”…

    But yes, consumer spending is about to go down the toilet…

  10. ChrisC1234 says:

    So in other words, 9% of the economy was from people who were probably living outside of their means…

  11. descend says:

    Does the mortgage deduction apply to HELOCs?

  12. Zgeg says:

    @descend: In most cases it does but you will never get a bank to tell you that, they will refer you to “a tax professional” but for all intents and purposes the interest paid is deductable… But you didn’t hear that from me…

  13. descend says:

    That makes the situation even more sickening. Not exactly what the mortgage deduction was intended for.

  14. loueloui says:

    @BK88:

    He he too funny. I would give ‘em $250 for that hom theater system. No? Okay I’ll try you again in 3 months.

  15. brendanm14 says:

    i hope he wasn’t borrowing from his house to go out to eat….if so, he needs to get that plasma thrown at his head.

  16. DrGirlfriend says:

    But your house can *have* an ATM.

    [www.latestbuy.com.au]

  17. karlrove says:

    Wow, homeowners, welcome to my world. My budget=my income. It’s a bitch, isn’t it?

  18. synergy says:

    It’s those people who truly piss me off. They’re also the ones that will either get bailed out by the government (that is, me) or their banks will be pressured by the government to keep the low interest rate instead of slapping them with the higher, reset rate in which case no responsibility for everyone! >:-|

  19. ElizabethD says:

    It’s fun to gloat, but I’m betting the repercussions of this situation won’t be good news for the US economy and therefore for any of us.

  20. woodenturkey says:

    I am glad I screwed (and later fixed) my credit up when i was younger and learned not to make such dumb shit mistakes in MY 30’s!!!!

  21. @karlrove: I’ve been trying to put that into my mother’s head for about a decade now.

    *sigh* People keep saying that the economy crashing and dying is a good thing, and keep saying that the lower dollar will make the U.S. more lucrative as a an exporter to other countries. My question is: export what? We exported all of our industry already, except maybe computers.

  22. Also, and as I’ve learned from Consumerist commentors, why are you backing consumer debt with a secured loan AGAINST YOUR HOUSE when you can use unsecured credit cards??????

    (Commenters or commentors? Spell check likes neither.)

  23. mexifelio says:

    “Budget? Is that a new type of hybrid, negative amortization, arm loan I can pull more money out on? Sign me up!”

  24. iamme99 says:

    ELIZABETHD AT 02:08 PM – It’s fun to gloat, but I’m betting the repercussions of this situation won’t be good news for the US economy and therefore for any of us.

    Sorry, but it WASN’T god for us either when people like this guy were borrowing to the hilt to fund petty expenses. Doing so caused housing prices to escalate out of the reach of many, increased prices in many consumer items and increased inflation (even though the fake government statistics claim inflation is low). Were you complaining when everyone thought that borrowing on their houses and credit was a good idea? Probably not.

  25. valthun says:

    I love how everyone is referring to that tv as a plasma. Its a rear projection DLP. Not all flat screens are plasma tv’s. While still spendy, its not as spendy as a plasma.

    I do agree that the man was an idiot for pulling out equity to pay for food and entertainment.

  26. lincolnparadox says:

    I can’t wait for the Housing bubble to hit rock bottom. Then, I’m gonna be me a house!

  27. Bodgy says:

    I recently was was laid off from one of the top mortgage companies in the US. I worked in the Home Equity area purchasing loans from other lenders. I saw some crazy stuff. People got HE loans/lines to buy cars and vacations. Would you finance a car for 30 years? Hell no! How about a vacation? Maybe you don’t need to take that vacation if you have to use the equity in your home.

  28. theblackdog says:

    @lincolnparadox: Amen to that!

  29. dantsea says:

    The next couple of years are going to be one long, hard lesson in personal responsibility and hardcore budgeting for many people.

    Unfortunately, most of them won’t understand that lesson and will whine incessantly about being victims.

  30. RottNDude says:

    @Bodgy: “People got HE loans/lines to buy cars and vacations”

    Buying a car with a HELOC is fine if the interest rate is lower than what you’d otherwise get, provided you PAY IT OFF in a timely fashion.

  31. gibbersome says:

    Credit is NOT free money!

  32. gibbersome says:

    Credit is free money! Not for you though, just your lender. :)

  33. slowinthefastlane says:

    @ROTTNDUDE

    No, it’s not okay to finance a car with a HELOC. Your home is the collateral for the HELOC – which means if something happens and you can’t pay that car loan, the bank can take your house. If it’s a simple car loan, then all they take is the car (plus gap potentially). This is true even if you take out a $10k car loan on a $1M house.

  34. Froggmann says:

    This is why i have to laugh at these people. Now instead of paying for your nice $75,000 house your paying for a $345,000 mortgage on a house that will level out to $150,000 if you can sell it on the same income, filled with a bunch of was expensive crap that isn’t worth $.02 anymore. Yep welcome to the real world.

  35. Bodgy says:

    @RottNDude:

    A lot of people are in trouble because they got HELOCs for things like cars. When the interest rates were going up, people were screwed! What may have been a great APR at the start, suddenly turned into an above average APR. It’s the same reason ARMs are bad news, the interest rate fluctuates. The only HELOC worth it is a HELOC with Fixed Rate Advance Option. You can lock in advances at the current APR, it then turns into a loan. But then again, none of these are worth it right now.

  36. Akamaru says:

    This is ridiculous. Why would anyone use equity as a substitute for unsecured credit? Your home is your investment. Why would you add more parties to the mix than necessary to own a home?

    Eating out 3 to 4 nights a week? Wow, they must be the type to eat out for lunch every day at work as well.

    I’ll admit, I’m feeling resentful of all of the subprime loan BS. Like someone else said above; What I make = what I spend (less savings). If you can’t afford to buy a house because your credit sucks, then you need to work on fixing your credit before you focus on making a house purchase.

    I’m only 23 and I know how to live within my means. It’s hard, but self control is a virtue. Believe me, I want 51″ Sony Bravia TV, a $4,000 computer, new car and a vacation across Europe like any other person. But we aren’t all independently wealthy like Paris Hilton. So sometimes we have to wait. I make a decent living and I can buy all of those things on credit NOW, but why bother? They aren’t necessities, so why take on the burden of debt for something fleeting like a new computer?

    This “me” and/ or “instant gratification” mentality is ruining America. From large corporations to individuals, priorities are screwed up. Let’s think about the long-term repercussions of our actions.

  37. tspack says:

    I don’t see why financial responsibility is a bad thing. Isn’t living within your means kind of obvious?

  38. Eliamias says:

    The issue is right there in his wording. He would/could re-fi anytime he wanted. Not needed, but wanted. I sit here and watch these people and I can’t fathom what’s going through their heads. I think I spend more time debating on whether or not to spend my mad money, i.e. cash on hand, than they do considering climbing deeper into debt.

  39. Charles Duffy says:

    @slowinthefastlane: Ehh. My credit union’s rules are such that if you default on one secured loan and they can’t make their money back by selling the asset acting as security, they can then sell off items which are security for other loans — thus, effectively the same as a HELOC.

    Which is why, while they’re really great people (and I’ve yet to have my mortgage serviced by anyone I’ve been wholeheartedly happy with), there’s not a chance in hell I’m refinancing my mortgage with them while my car loan is still outstanding.

  40. dirtymoney says:

    I had a former friend get a home equity loan less than 3 years after he bought it & he used the $ to go on vacation & pay some bills. THEN he went out & bought a brand new truck (when the 0% interest craze was going on back then). This was all before the housing craze.

    He eventually defaulted on the truck & bought a beater… apparrently he was having money problems (because he bit off WAY more than he could chew). He was a moron anyway & I hope he had to sell his home & got rent a place somewhere. He would make fun of me because I rented a cheap place & saved up all my money & didnt spend it on crap I didnt need. Saying by the time he had his house paid off… that i would be buying one outright with all the money I saved up. I hope he is living with his mom right now.

  41. Ailu says:

    Geesh, some of you guys are unbelievably self-righteous. Reveling in other people’s financial disasters like you are. Even if you felt you went without while they seemed to prosper, it’s pretty nasty to rejoice in their misfortune.

  42. mol666 says:

    Ailu –

    I’ll continue to laugh at them. Because they willfully got into financial trouble for stupid crap. If they got into this same trouble for unexpected events (health care, death in the family, disabled child), then they’d have my sympathy.

    Right now I’m pissed at these idiots. They played a large part in making it impossible to buy a decent house or a decent car on a more-than-middle-class income. So to hell with them.

  43. stephdmonkey says:

    Oh god, you mean we might have to be “responsible”? Not buy a new car when we’re bored one Saturday afternoon? Only go on vacations when we can ‘afford’ them? That’s so boring.

    Honestly though, how can this not be a good thing overall? There’s no way society could continue if everyone kept digging themselves deeper and deeper in the hole without considering how they were going to get back out.

    I’m hoping this gets just bad enough to shock people, and maybe convince the next generation they need to not use their parents as an example of financial responsibility.

  44. Morton Fox says:

    Only thing I want to know is when are they going to foreclose so I can pick up a cheap house?

  45. Ailu says:

    BY MOL666 AT 10:30 AM: “Right now I’m pissed at these idiots. They played a large part in making it impossible to buy a decent house or a decent car on a more-than-middle-class income. So to hell with them”

    @mol666: Hey, the greedy lenders are the ones that loaned them money they didn’t deserve to have. Let’s put the blame at the feet of those taking the lead in this debacle.

  46. gingerCE says:

    A lot of people have been using their houses where I live like an ATM. I grew up in Napa (this guy lives in the Napa Valley region). First, I have to say that in Napa, there’s pressure to live a certain lifestyle and the reality is few can really afford it. It’s not just there, there’s lot of places like this–mix that with easy refinancing and skyrocketing house values–it was just a disaster waiting to happen.