During the Great Depression, home foreclosure reached an all time high at about 10% of all homes being bank owned Foreclosure Stats). Interestingly enough, homes that were owner occupied were the last homes to get foreclosed upon and the stats for owner occupied home foreclosures was significantly lower. How do we explain this phenomena?
The Psychology of a Home Owner
There were several demographic trends during the Great Depression. We are all familiar with stories of people losing their homes and moving into Hoovervilles (shabby shanty towns built by homeless). But we are less familiar with another demographic trend: multiple families moving into the home of an owner and sharing the cost of the mortgage. This trend only makes sense when you consider the psychology of a home owner. Home owners want to keep their home. They will do scrimp and save, work overtime, and do anything it takes to make their mortgage payment because they love their home and they do not want to lose it. What I’ve found in my research is that while these home owners would cut on other expenses–their food budget, their clothing, their toys, etc, their house payment was the last responsibility that they defaulted on. This finding stands in stark contrast to what happened in houses that were being rented. Lots of people who were renting in Great Depression times, simply walked away from these homes and left their landlord with a problem on his hands. These same people often moved in with their friends and family and contributed money to pay their friend/family’s mortgage.
I find this trend both very interesting and also reassuring. This bit of information teaches us that in a wort case scenario, investors who own houses can always seller finance them and still securely make money on their investment. So if you are a landlord and times get really, really tough and your renters start deserting you, rest assured that you can seller finance your homes and when you get home owners or potential home owners in your house, you’ll also reap the benefits of working with people who have the psychology of a home owner. Their mortgage payment will be the last thing they’ll default on. And if they do default, they’ll go kicking and screaming and squeezing out every last cent from their couch to try to pay you.
So my business has a Utah Rent to Own program that allows future home owners to get equity in a home with each payment, if things get worse and I start having problems with people leaving, I will seller finance these homes in a heart beat. Follow the link to view some of my Utah Rent to Own Homes.