I was thinking this morning about the fact that on some occasions, clients have paid more for their cars and trucks than they did for their house. And in many cases, their car payments are significantly higher than their monthly mortgage expense.
And I wonder about the thought processes that make these vehicle transactions palatable while at the same time there is so much agony over the purchase of a house.
After all, you have to live somewhere anyway, it’s not about whether you need a house or not.
And there is no more significant “declining market" than the purchase of a new vehicle, in which one always realizes that thousands of dollars will be lost the minute you drive off the car lot.
So why don’t drivers routinely abandon their vehicles because they are worth less than what they owe on them? Why don’t they expect government bailouts and other support programs? And why aren’t there millions of repossessed cars at cut-rate prices available for sale at any given time?
What makes buying a car that could bankrupt you an impulse decision while purchasing a house has become an enigma that requires weeks or months of painstaking analysis?
I really do wonder about this.
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Hi Richard, perfect analogy! I've wondered this myself. Cars are better taken care of then the homes. I mean, people will name their cars. Go figure!
Great points Richard. I had these two younger clients years ago who both drove new BMWs with combined payments of 1700 per month. They had very high incomes and good credit, but they could never pull the trigger on a new home. It baffled me that they could each spend 50k on new cars but had a huge problem buying a home for 150k. They are probably still renting.
You pose an interesting question. I have wondered the same thing many times. I am not really a car person (prefer older cars like VW Bugs)...My motto - a rusty ride beats a well dressed walk!
Good Morning, Richard.....This was an interesting post to think about....my opinion is that many people buy cars well beyond what they can afford just for the status of driving a luxury vehicle....there is no verification of income when you apply for a car loan, so as long as one's credit score is not deplorable, one would qualify.....not so with a home!!! especially today..... personally, if I can't pay cash for a car, I don't buy it....and I run it for years....my jeep looks like new, right off the showroom floor and it's 9 years old....and you can't kill the mercedes!!!
I think this is a wonderful though provoking post. And also quite funny. I never did understand the people that spend more for their cars than their homes.
It is an interesting subject Richard. I suppose the value on homes can drop far more than a car though.
Richard,
Quite the conundrum. I've never thought of it like that but the analogy works for me.
Rich
Good questions but unfortunately the logic doesn't always trickle down to those who are in the drivers seat. I've seen home owners who have stopped making payments, close the sale of their home as a short sale and then turn around and buy a luxury car. The lesson of living beyond your means does not seem to translate between consumer goods.
Richard - We are all told from an early age that cars are not bought for investment, that the minute you drive off the lot you lose $$$. On the other hand, up until this real estate bubble, we were alwas told that real estate always increases in value....why? They don't make anymore land....they do make lots and lots of cars.
I haven't heard this question for quite a while since property prices are so high here, Richard, but when I sold in Rochester it was asked frequently. It does sort of boggle the mind.
Richard, this is an interesting point. Maybe it is because cars are so much easier to buy. You walk into a show room and a couple of hours later you drive it away. There is a lot of agony associated with purchasing a home.
why don't people abandon their cars when they are worth less than owed? Because there is never an expectation that they will be worth more. Everybody knows that once you drive off the lot, you car is worth less. We aren't use to our homes being worth less. but you have to live somewhere, and I think a lot of people abandon their homes based on bad advice.
You can't drive your home to church, PTA meetings etc... How can a home demonstrate to the general public that you are rich?
Jim Cheney brings up a good point about our expectations about car purchases vs. home purchases.
Doug Rogers hits the nail on the head for SO many people. However, there are plenty of people who bought homes carrying this mentality, too, hence the irresponsibly high payment (requiring everything to go perfectly for the remainder of their lives).
Having said this, cars get abandoned pretty often. It's just not making the news. It's not new, and it's not as newsworthy to be considered "carless" as it is "homeless." No political party wants to be known as heading an administration that INCREASES homelessness.
Good post, Richard.
The car has always been more a status symblo than a house. People hang to a car when upside down because they want to be able to buy another. It is even hard to lease a car if you tank your credit!
Myself, I put my time in my home and drive an older car that needs to be washed more often than not. Usually before an appointment!
I'm with William...I love my older cars that need to be washed (and vacuumed out) before showings. It always cracks me up to see great cars parked in front of "visually challenged" rentals!
I don't "live" in my car , but when busy it seems that way. I have a passion for both. I am fortunately not a car salesman.
You have raised a very interesting question Richard. Agree with Jim Cheney there are no expectations of increased value in a car, but why do we accept the great loss?
It's simple: People don't want to walk so they are not going to walk away from their 'wheels'.
Cameron...
Good point, mo one really :walks" away from a house, they drive away!