Benjamin Franklin’s famous saying was in reference to homeowners in 1700′s Philadelphia who often suffered irreversible economic loss due to fire damage.  To provide a measure of protection, Franklin and his fellow firefighters founded The Philadelphia Contributionship, the nation’s oldest property insurance company.  Fast forward 250 years and we see that Franklin’s famous saying is still applicable to today’s homeowner and the financial equivalent to economic loss from fire damage, namely loss of homeowner’s equity.  The average owner now has 38% equity in their home, down from 61% a decade ago.  This is one of the lowest levels of homeowner’s equity in the post WWII United States and housing values are still in decline across the nation.  Long-standing practices for underwriting were ignored as credit providers lowered lending standards to enable mortgage equity withdrawals based on unsustainable growth in home prices.  This financed an ephemeral consumption boom that came to an end with the credit meltdown of 2008 and laid bare the underlying “temporary” employment associated with growth borrowed from future income.  An ounce of prevention could have gone a long way towards mitigating the long and painful road to recovery we now face.

Sources:  The Philadelphia Contributionship, Fed Reserve Flow of Funds Release – p. 104

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