mcgato wrote:
Most of those people screwed themselves by making a horrible financial decision in a bubble market. Let's see, they probably paid way more than the place is worth (a good metric to check is purchase to rent ratio), put very little down, probably got some goofy loan with lower or no interest for a few years, and possibly paid more than they could ever realistically afford.
CORRECT!
Flagpole wrote:
CORRECT!
Yep. And even worse is the people who have had loans modified for homes they could never afford. So they still live in nicer houses for a lower cost than those of us who were conservative and bought within our means in the first place.
mcgato wrote:
probably paid way more than the place is worth PROBABLY YES, BUT WHO'S GOING TO RAISE A FAMILY IN AN APARTMENT?
put very little down WE PUT DOWN 20%
probably got some goofy loan with lower or no interest for a few years GOT A 5 YEAR ARM AT 5.25%, CURRENT AVE RATE PAST TWO YEARS WAS ADJUSTED TO 3.3%
possibly paid more than they could ever realistically afford HOME WAS 2.7 TIMES OUR ANNUAL SALARY WHEN PURCHASED. WE NOW MAKE ALMOST TWICE AS MUCH
see my responses in CAPS above.
Flagpole wrote:
where wallace at? wrote:Flagpole, are you really painting a rosy picture of this housing slump?
Some people are really getting screwed because they are currently under water and want to sell or upgrade to a nicer home. How do they sell without paying big time cash at closing, and what can they use as a down payment on the new home?
Want to schmant to. IF they put 10% down or more on their home, and IF they planned to be in it for 15 years at least before selling as they should have (meaning they've been in it for 15 years or more), and IF they had a fixed rate mortgage, then they can likely sell it and upgrade if they want. If they can't upgrade, then I don't really shed a tear for them. If their upgrading is so tied to the value of their home, then perhaps they don't need to be upgrading anyway.
Now, I do understand that some people are in a tough situation with a divorce or health issues or a job loss that they can't replace, etc. I feel bad for those people. MOST of those who feel they are in a bad spot just because they are underwater though, aren't really in a bad spot. They can still make the payment, stay in it long enough to see some price rebound, and then sell later on. Perhaps their $200,000 home won't eventually be worth $500,000 as they had planned, but people need to quit thinking of their homes as investments and just think of them as places to live.
As I see it, I meet all your 'metrics' except for wanting to stay in the house for 15 years. We planned to stay 5-10, but are probably stuck for 10-15 years.
ditto me in wrote:
Yep. And even worse is the people who have had loans modified for homes they could never afford. So they still live in nicer houses for a lower cost than those of us who were conservative and bought within our means in the first place.
I feel that I played it conservatively and bought within my means, yet I am just as much a victim of the housing bubble as those jackrods taking out 2nd mortgages to buy boats and RVs. In fact, I guess I'd be the real victim since I didn't leverage my then-meager home equity to buy myself a yacht.
My sister/hubby stopped paying on their $750k mortgage in La Jolla. A running buddy stopped paying on his $1.7M harbor home in Newport Beach. They have the money, but the mortgage is 50% higher than the property value. They say in So Cal 1/4 of the beach properties are being foreclosed on or are in default. Add to that the State of California is bankrupt. State pension funds are insolvent. If Governor Jerry Brown's proposal to extend tax increases gets shot down by voters in a few months, droves of teachers, firemen, and cops will be working at Oil Changers. It seems the 2nd wave of the Great Recession is coming to California.
On a personal note, I bought a home last year and I am probably under water on it already, although Zillow says I am up $100K. (don't know how they figure that)
People will probaby come after me here with pitchforks, but I put only 3.5% down. Yes I pay mort ins.
But I like the house very much and plan to stay there for a long time, 20-30 years.
So I am not concerned with the value going down and that will actually help with real estate taxes.
My mortgage payment is comparable to renting a similar house, although single family home rentals are hard to find.
I have another house that is under water that I rent out.
I have a slight gain in rental income there and the principle is being paid down every month.
Again, currently not concerned with being under water, I will come out ahead in the end.
Anecdotal evidence aside, it is not good for 30% of the entire country to have negative equity and be tied to their homes. Americans like to be mobile. And credit is getting really banged up.
I think people have adjusted and learned to deal with it.
But it still has an effect on consumer confidence.
I'm really sorry that you lost money. I don't know your personal situation, obviously, so please don't take my comments personally.
It's just difficult because many people I know bought within their theoretical means (not talking about 2nd mtgs), but just paid outrageous prices that logically just didn't make sense to me. We stopped buying when the prices went crazy because it just seemed obvious that they were too high.
Now we have friends in larger homes making the same payments that we are making for a smaller home because they had their huge loans modified, which of course in the end taxpayers (including those in smaller homes who pay taxes) have paid through things like bailouts. I don't like subsidizing those who are living in bigger houses and continuing to live in a smaller house. That's all. I have zero knowledge of your personal situation and whatever happened it sounds like it sucked.
What city/state are you in, X-Runner?
Sounds like you have a healthy approach to your house.
When you speak about your current mortgage pmt = rent for similar house, what is included in that mortgage pmt? Principal, interest, and pmi? How about with prop taxes, maintenace, & insurance?
Not attacking you, just trying to get a data point on true all-in costs of rent vs buy. I'm watching my area closely, but always interested to hear what others are seeing.
2nd Wave wrote:
My sister/hubby stopped paying on their $750k mortgage in La Jolla. A running buddy stopped paying on his $1.7M harbor home in Newport Beach. They have the money, but the mortgage is 50% higher than the property value. They say in So Cal 1/4 of the beach properties are being foreclosed on or are in default. Add to that the State of California is bankrupt. State pension funds are insolvent. If Governor Jerry Brown's proposal to extend tax increases gets shot down by voters in a few months, droves of teachers, firemen, and cops will be working at Oil Changers. It seems the 2nd wave of the Great Recession is coming to California.
That's all common place in SoCal. The westside market is still correcting and it sucks for everyone involved. Those who want to buy responsibly have been precluded by bubble housing prices, and those who were duped by unscrupulous lending practices and too stupid to read the fine print are stuck with underwater mortgages. It's good theater, but unfortunate that it's affecting lives. There's at least another year of shake out with 20%+ drops in property values coming and we haven't escaped the possibility of extended Japan style declines.
It's a mess, but it's hard not to love SoCal:
http://www.weather.com/weather/today/Los+Angeles+CA+USCA0638Damn! Technology is booming! I gotta get my house under water! Anybody here live under the Pacific Ocean?
Flagpole wrote:
People need to quit thinking of their homes as investments and just think of them as places to live.
Exactly. If you buy a 2011 Ford Expedition for $30k and a year later it's only worth $20k, do you freak out? No. Stop doing that with housing, you're not a professional real estate investor.
2nd Wave wrote:
My sister/hubby stopped paying on their $750k mortgage in La Jolla. A running buddy stopped paying on his $1.7M harbor home in Newport Beach. They have the money, but the mortgage is 50% higher than the property value.
People like that are unethically breaking a contract and are just as responsible for the recession as the investment banks and credit agencies. Sauve qui peut...
Yup. Home prices are still falling. Banks, Pension Funds, States, Cities are insolvent. A credit union in Oakland CA went under yesterday. I bought my two current homes in 2000 and 1987 in Silicon Valley and West L.A. area. I won't touch the real estate market for the forseeable future. I remember the 80's crash when people on the East Coast in droves walked away from their homes. But this current recession is 100 times bigger, lengthier, involving the whole USA.
2nd Wave wrote:
My sister/hubby stopped paying on their $750k mortgage in La Jolla. A running buddy stopped paying on his $1.7M harbor home in Newport Beach. They have the money, but the mortgage is 50% higher than the property value.
People like that are unethically breaking a contract and are just as responsible for the recession as the investment banks and credit agencies. Sauve qui peut...
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I am soooooooooooooo underwater right now & am struggling to pay the mortgage. I didn't do anything stupid (per se), except marry a woman who left me with the house payments. I'm seriously thinking about defaulting on purpose. Why pay the mortgage when I can get an apartment for 50% less!?!
I don't think there's anything wrong with breaking the contract. You'd leave your job (and break the contract). Why can't you leave your bad investment behind?
kartelite wrote:
2nd Wave wrote:My sister/hubby stopped paying on their $750k mortgage in La Jolla. A running buddy stopped paying on his $1.7M harbor home in Newport Beach. They have the money, but the mortgage is 50% higher than the property value.
People like that are unethically breaking a contract and are just as responsible for the recession as the investment banks and credit agencies. Sauve qui peut...
This is actually the magic of the free market at work. Free market economists call this "efficient breach." Under this theory, when the economic burden of performing a contract outweighs the economic benefits, the obligor should breach the contract.
Of course this also shows the ignorance of free market economists. There is no accounting for the cost externalities. When a homeowner walks away and leaves a property to rot, the neighbors lose property value. When the neighbors lose property value, they too may walk away and so on and so forth. Thus, the inefficiency is the failure of the market to account for the domino effect of the efficient breach.
If the government had a clue, it would set up something like the resolution trust corporation to force lenders to write down loans instead of foreclosing on everyone. There is no benefit to foreclosure in the current bust market, especially compared to writing down a loan to get a borrower to a point where they can pay. But banks just see the world in terms of quarterly balance sheets and cannot see beyond Q1-4, even if doing so would lead to their own demise.
Underwater Runner wrote:
I am soooooooooooooo underwater right now & am struggling to pay the mortgage. I didn't do anything stupid (per se), except marry a woman who left me with the house payments. I'm seriously thinking about defaulting on purpose. Why pay the mortgage when I can get an apartment for 50% less!?!
I don't think there's anything wrong with breaking the contract. You'd leave your job (and break the contract). Why can't you leave your bad investment behind?
A job contract generally includes stipulations regarding rights of either party to terminate the contract.
Defaulting on a mortgage is like your employer deciding he doesn't want to pay your salary for the previous month's work you put in, or your bank deciding they're not going to give you back the money you deposited with them.
terminate the employment*
kartelite wrote:
A job contract generally includes stipulations regarding rights of either party to terminate the contract.
Defaulting on a mortgage is like your employer deciding he doesn't want to pay your salary for the previous month's work you put in, or your bank deciding they're not going to give you back the money you deposited with them.
Likewise, a mortgage contact includes stipulations regarding rights of either party to terminate the contract.
The house is collateral. Additionally, the particular state determines if the the loan is recourse or not.
What exactly is the problem? And why are you inconsistent in your comparison?
Precious Roy wrote:
If the government had a clue, it would set up something like the resolution trust corporation to force lenders to write down loans instead of foreclosing on everyone. There is no benefit to foreclosure in the current bust market, especially compared to writing down a loan to get a borrower to a point where they can pay. But banks just see the world in terms of quarterly balance sheets and cannot see beyond Q1-4, even if doing so would lead to their own demise.
The problem with that is that it creates a moral hazard, whereby people who over-borrowed get forgiveness for making stupid financial decisions, and it induces future risky behavior since, hey, if the value goes down, it's the bank's loss not mine.
The banks were way too liberal in giving loans with small down payments, and the legal ramifications of defaulting are too lenient (i.e. buyers only had to put the real property itself as collateral and aren't forced to declare bankruptcy), so we have situations where people who are perfectly capable paying refuse to do so, which creates a negative ripple effect through the whole economy. All in our mindset of looking out for number one.