Warrren Buffet Addresses shareholders at annual meeting

Here is an excerpt taken from Warren Buffet's letter to Berkshire shareholders this weekend at the annual meeting in Omaha.

"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."

I know this has been historically true but my assumption is that we may see these statistic begin to change. The "seldom" Buffet refers to has been during less dramatic shifts in real estate and the economy. It is true most people buy a home as a place to live and raise a family but in today's world this very home could be a sinking ship that could take down any dreams of college for the children or financial freedom for the parents. I don't think the majority of people realize just how value the home has been to Americans and the fiscal life blood for USA. I have said it before and I will say it again now: the government, in combination with the financial system, has killed the goose that laid the golden eggs. It was such a great vehicle for improving people's lives and have "potentially" ease the strain on the social security system. The miracle cure for all the ridiculously wasteful spending that goes on in Washington was to be home ownership. The government thought it worked so well for 60 or so odd % of the American people that it should work just as well for 70, 80 or 90%. Barney Frank and his cohorts had their mission: increase the percentage of home ownership in the country. The congress mistakenly believed that owning a home could make every financial problem in the country go away. They set out to make it easier for those people who have historically kept from owning a home because of affordability or lack of a down payment. These policy shifts unleashed a massive assault on the financial system by just about anyone who could benefit financially from this "easing" of credit and increase in home ownership. Congress thought a more socialistic view of home ownership could be implemented by capitalists everywhere. I can't argue with the fact that they really did implement the program but once they were allowed more freedom in doing so creed took over and future consequences were seen as irrelevant as long as the profits flowed freely.

It is historically true that people tend not to walk away from their homes because they are "underwater" with their mortgage. However, unless we see the government put more pressure on the banks to write down the principal on some of these loans when they take the losses, we will be enslaving out future once again to the success of the real estate market. Many people will be forced to leave their home purely to try and get a fresh start putting their funds toward something other than a black hole. So Warren Buffet is right when he says that most people don't leave their home unless they can't make the payment but the extreme conditions effecting housing prices may lead to an asterisk being used for 2007-2012 when siting historical data.