This Month's Feature

From the October 2008 issue of Money Matters

Mortgage Meltdown: Roots of the crisis; a Christian response

By Norman Coe

Part Two of Two

The current housing cycle has swung so far downward that we have reports of home value decreases in many parts of the country.

Three changing factors have influenced this cycle, and we looked at one of them, mortgages, in last month’s issue of Money Matters.

This month we’ll discuss the other two factors, speculative buying and decline in equity. And, we’ll look at how Christians should respond to all the media hype about the housing market.

Speculative buying

Housing prices rose tremendously in the past several years. Yet, people were buying without concerns about being unable to pay back their loans. This market was definitely not traditional.

The National Association of Realtors says that in 2006, 37.2 percent of home purchases were made for a purpose other than the buyer’s residence.¹

Many of them were no doubt speculating, hoping that the value of their recent purchase would go up by more than the cost of the interest on the mortgage.

But the speculators, the second home buyers, the flippers, and the people who just wanted to dabble in real estate, quit buying. People were caught with real estate they could not resell.

Decline in equity

Home equity as a percentage of home value went below 50 percent in 2007—the first time this has happened since the Federal Reserve began keeping records.

Compare this to an equity-to-value ratio that was more than 80 percent in the 1940s and more than 65 percent for most of the 1950s through the 1980s.²

Some of this decline in equity can be attributed to the ability to borrow higher amounts on the purchase of homes. But a whole lot of it can also be attributed to Reverse Mortgages and the increased activity toward borrowing against homes that people have owned for years.

The proceeds from these Home Equity Loans can now be used for items other than home improvements. This means borrowing can actually take place against our homes without putting any increase in value back into them.

Responding to the housing crisis

How should Christians respond to all the media hype about the housing market? Things have changed, but for the average family that’s buying and maintaining a house to live in, raise a family, and live in peace and harmony with their neighbors and God, is all this really a big deal?

The majority of home buying will continue to be driven by the factors that relate to the previous sentence: location, proximity to certain school districts, features of the house, and affordability.

Some may believe they’re missing out on a big investment by not purchasing a bigger house and watching it go up in value. From 1990 to 2006, the average square footage of living space in newly built houses in America rose by 406 square feet, or 19.8 percent.³

At the same time, the average size of households has remained relatively the same: 2.63 compared to 2.61 in 2006.⁴

It makes you wonder how big a house it takes to accomplish God’s purpose for our lives. In addition to the cost of purchasing and mortgaging a bigger house, there are other costs such as taxes, insurance, and furnishings.

And remember, when you go to sell your house and buy another, the home you are buying has gone up in value, too.

The fourth chapter of Philippians provides the Christian with a way to put any circumstance in perspective. For those who may find their mortgage payments rising, Paul challenges us to rejoice. Then he says in verses 11-13, “I have learned to be content in whatever circumstances I am. I know how to get along with humble means, and I also know how to live in prosperity….I can do all things through Him who strengthens me” (NASB).

Paul has instructions in 1 Timothy 6:17 for those whose timing was just right in the most recent real estate market: “Command those who are rich in this present world not to be arrogant nor to put their hope in wealth, which is so uncertain, but to put their hope in God, who richly provides us with everything for our enjoyment” (NIV).

But Paul’s greater advice to us as Christians is not to rely on what we have or even what we experience, but on Christ in us. Philippians 1:21 says, “For to me, to live is Christ and to die is gain” (NIV). Prosperity can be here one day and gone the next.

Some would like to believe that just because they are Christians, they will always prosper. Consider the life of Joseph. He was born into a prosperous home, was sold into slavery, and was soon promoted to be head of his master’s estate, only to be accused falsely and put into prison before he ultimately became the Prime Minister of Egypt.

There will be bumps in the road of any responsibility that we assume. This will be true for those who take on the responsibility of home ownership.

But the investment side of owning your own house should not be the driving force toward making the purchase.

The biggest benefit of maintaining your own home will be the peace and comfort that it provides your family. Any increase in value will be good, but it will only average out over time to that of other investments such as stocks and mutual funds

We can be grateful there is no shortage of housing in our nation. There is plenty of square footage for everyone to have adequate space in which to live.

It all comes down to stewardship. God owns it all; we need to find the best way to utilize His resources to meet our needs and share Jesus with the 6.4 billion people of the world.

¹ www.indices.standard&poors.com
² Federal Reserve
³ National Association of Home Builders
⁴ U.S. Census Bureau

Norman Coe’s first career was that of a residential building contractor. Then God called him into ministry, where he served two churches in Kentucky as associate pastor/administrator for a total of 27 years. While serving the church, he counseled many families who had become overextended financially by too much mortgage. Currently he directs an evangelism initiative for Vietnam called 2ND MISSION (www.2ndmission.com).