Monday, January 21, 2008

Oprah & Orman's Housing Advice

by Ken Houghton

I spent the usual ca. 90 minutes in the doctor's office Friday night (follow-up to this, which appears to be "just" a sprained shoulder). Most of that time was an Oprah episode that visited three families (and re-visited a fourth) that were overextended.*

Now this was a fine set of interviews, I have to tell you.** The returnees (saved for the end) were a couple where he worked full-time and somehow they didn't have health insurance for their children.*** There was also the couple with two SUVs, the second of which they describe as "an impulse buy" due to "pressure from the salesman"—who apparently sold them two SUVs on the same day, so they now have three cars and two drivers.**** And there was the couple making $6,600/month (not certain if that was net or gross) who spend $1,800/month on child care. And there was another, whose details I probably slept through.

They were all interchangeable, so I have no memory of anything that distinguished the fourth couple. Their common claim: Our marriages are falling apart, and we would do anything to keep them together.

And who knows more about finances and marriage than famed lesbian Suzie Orman?*****

There was one piece of advice that was given to all four couples: sell your house(s). You cannot afford it (them).

Think about that in the context of this (h/t Dr. Black). And I don't have the impression these people were in a bubble area, though at least one may have been in the suburbs of Chicago.

Note the plural above. This is because one family—the one with the SUV "impulse buy" above—got into their dire straits because three things occurred in rapid succession: (1) the bought the new house without being able to sell the previous one, (2) the bought the new SUVs, and (3) he was laid off, turning a dual-income family into single-income.

Now, don't get me wrong. It is likely that, even if the first house had been sold, then would have had some troubles paying for two cars, a house, and children on a single income. But it's difficult to avoid the reality: the inability to sell the first house triggered their problems.

So telling them "sell your houses," as if those are liquid assets, isn't the best idea in the world.

This was made most clear by the "returning" couple. The wife's hair was cut.****** And they had moved into an apartment, and were trying to maintain a budget.

But they haven't sold their house yet.

So, basically, they're covering a mortgage, property taxes, and an apartment rent now. Or maybe they're not covering a mortgage; maybe they're just moving closer to foreclosure.

One way or another, this appears to be poor financial planning advice—or at least poor execution of same.

But in Oprah-world, they're "trying to stay together," so everything is great.

Meanwhile, there are four houses on the market, and at least one spare SUV for sale, and people are thinking they should make their carrying costs even higher by renting an apartment as well.

What did I learn from Oprah? Houses are not quick assets. But I knew that already; it just seems that Suzie Orman and her clients don't.

*Wait! Didn't we just have six years of prosperity. How do they find these people?
**Not fine enough to keep me fully awake, so I may mix up a few people.
***They declared that this was because the wife spent all their monies on Starbucks and her hair (without noticeably good results), but this does leave one to wonder about the "good job" the man supposedly has "full-time" that did not offer health insurance for his family.
****Keep this couple in mind.
*****That she is gay relates to the link, since straight people don't have to worry about "losing 50%" of their inheritance. Otherwise, let us be generous and assume her knowledge of finance and financial planning needs is accurate.
******To her benefit, I think. Not that that means much.

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