Buffett on home ownership … desirable, but not a primary objective

Excerpted from the Berkshire Hathaway 2008 Annual Report

Commentary about the current housing crisis often ignores the crucial fact that most foreclosures do not occur because a house is worth less than its mortgage (so-called “upside-down” loans).

Rather, foreclosures take place because borrowers can’t pay the monthly payment that they agreed to pay. Homeowners who have
made a meaningful down-payment – derived from savings and not from other borrowing – seldom walk away from a primary residence simply because its value today is less than the mortgage.

Instead, they walk when they can’t make the monthly payments.

Home ownership is a wonderful thing … Enjoyment and utility should be the primary motives for purchase, not profit or refi possibilities.

And the home purchased ought to fit the income of the purchaser.

The present housing debacle should teach home buyers, lenders, brokers and government some simple lessons that will ensure stability in the future:

Home purchases should involve an honest-to-God down payment
of at least 10% and monthly payments that can be comfortably handled by the borrower’s income. And, that income should be carefully verified.

Putting people into homes, though a desirable goal, shouldn’t be our country’s primary objective. Keeping them in their homes should be the ambition.

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