New Financial Term – New Financial Terms
This really isn’t a new financial term in the truest sense of the word. However, it is to me as I have never encountered it in my travels through the financial kingdom.
That term is dead-fish assets. In today’s market it refers to homes that are underwater. That is, the house is worth less than what is owed on the mortgage. Hence, it is a dead-fish asset.
People keep these homes for various reasons. The most often given reason is it is the only thing they own. The value could be as low as zero depending on the mortgage but the people still hold onto the home. The perfect portrait of the new financial term.
Of course, they may believe paying the mortgage is cheaper than renting. This may be true in the big cities but probably isn’t in America’s mid-size to small towns.
What makes this new financial term so fitting is the advice the owners receive from various home owner counseling groups. When people consult with these groups they tell them to hang on to their homes. What they don’t tell the people is that their group is bank or mortgage loan industry sponsored.
Homes are not to be considered appreciating assets in the truest sense of the term. However, early in this century the real estate market has had a tendency to show appreciation. Couple that with the gurus and hawkers of how to get rich in real estate programs on late night television and people begin to believe their house is a money-making machine.
Yes, the responsibility still rests on the homeowner not to fall into the Svengali like trap being laid by these pitchmen of fast and easy dollar bills. But, wanting to make some extra dollars is only natural in a free market. Most of us would agree with that statement and it isn’t a new financial term.
People then get over extended because they don’t have a well thought out in place real estate investment strategy. They are buying and selling and before long they can’t sell. They are stuck with one or more properties and they are upside down. The new financial term enters their lives.
The appreciating asset has become a depreciating asset. It is a never ending cycle. This particular down cycle in the market has stayed on the downside of the curve far longer than usual. And, its prognosis for improvement is not that good.
Buying a home today is like buying a car. When you drive it off the lot, you know you lost anywhere from 20% to 40% in value depending on the make and model. The automobile has been and still is the prime example of a depreciating asset or should I say the new financial term.
Obviously the health of your local economy is a big determinant in the home values. If you live in a community where unemployment is under the national average, chances are excellent if you buy a house selling for $160,000 it will be worth $160,000 a year from purchase date. It may even be worth more if people are moving into the community because of job availability. They have to live somewhere. Most of them will be homebuyers further stimulating home prices.
The new financial term for those communities may only be applicable to autos and home appliances. That could be a good thing.
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