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The Rise Of Mortgages: Too Much House?

Economists sometimes argue that more choices must either be neutral or good. The logic is that if you don’t want any of the additional choices, then don’t take them, and you are equally well off. If you do want one of the additional choices, you are then better off. Of course, this argument is not airtight. It assumes that there are no costs of evaluating more choices, and it presumes that the chances of choosing wisely and well are not diminished as the number of choices rises.

For one case in which these issues arise, consider the many changes in financial markets and government regulations that have made it vastly easier for people to take out a mortgage loan and buy a house. I certainly view the option to take out a mortgage loan as beneficial to me, because rather than spend years saving up enough money to buy a house outright, I can live in the house while paying down the mortgage over time. But this additional choice also brings dangers. People are often notably bad at evaluating situations where the costs and benefits are spread out over time. We find ourselves in situations where we would like to save money, or start exercising more, or eating healthier – but always starting tomorrow, never today. Many people find themselves running up credit card bills to have the benefits of consumption now, with the costs of paying shoved into the future. Thus, it wouldn’t be surprising to find that when the option to take out a long-term mortgage becomes available, people are tempted to over-borrow.

My grandmother used to have a saying about people who bought all the houses that the bank told them they could afford, and often a little more: “You can’t eat bricks and mortar.”

via The Rise Of Mortgages: Too Much House? | Seeking Alpha.

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