27-30% of mortgages are under water

Flagpole wrote:

Some of the state layoffs have already happened, and more of the lessening will be done through attrition.

Salaries are increasing, and experts are saying that they expect more increases in the near future as salaries have been held steady for a while now.

The rising stock market means LOTS. It not only is enabling those who wanted to retire 3 years ago to finally retire, but it is allowing more spending by those already in retirement. Both of those things lead to a lower unemployment rate and more spending which helps the economy.

(1) States and the federal government have not even scratched the surface of their debt problems. Any layoffs that have already happened are no indication of what has to happen in the future if debt will be reduced. And if debt isn't reduced, there will be a disaster (rather than drawn-out pain), probably within our lifetime.

(2)If you do want to rely on the "experts," what about those who point in the opposite direction:

"Nothing on the horizon suggests that a majority of workers will take home a bigger slice of the economic pie anytime soon. The bleak wage outlook and growing financial insecurity isn't a passing phenomenon reflecting the downward momentum of a recession and the fragility of the recovery."

(3) The rising stock market means lots to the lucky people who time their retirements or sell-offs correctly. My point is the jump past 12000 is not indicative of a fundamentally sound and improving economy. It just says investors have found a way to play along as the government postpones the pain.

If pigs had wings they could fly brother! Of COURSE a house at 50% off is better, BUT if you bought a house at a predetermined price and you agreed to that price, and that house went DOWN in value, then it did, and as I said earlier, if YOUR house went down, then so did all the others in your area; it's a wash. Perhaps you just WANT to sell and go buy another house...well, too bad...either come up with the difference or ride it out. We don't always get what we want. Also, it is BOGUS that many people will never have positive equity in their house. If they stay for 15 years minimum (as they should PLAN to do) and are paying a fixed rate mortgage the vast majority would.For someone to decide not to pay their mortgage so that ultimately they can walk away from it when they could easily pay the thing...lame.

oh for sheets sake. i'm finally on the right side of a deal:

have been renting, so wasnt affected by housing bubble

huge income

saved my 20% down

interest rates are low

squeezed a desperate seller

million dollar mortgage (not a brag - relevant to the link)

and then someone posts this while i'm in escrow:

http://patrick.net/housing/market.html

thanks a...million?

Flagpole wrote:

... BUT if you bought a house at a predetermined price and you agreed to that price, and that if you didn't make payments the bank was more than welcome to take the house and ding your credit...

Fixed it for you.

Flagpole, I'm arguing with a brick wall here. First of all, I have equity in my house. I have lived there for 10 years.

I am not saying there is absolutely no moral hazard when you walk away from your house. However, while people should plan to stay in their houses longer than a few years, the reality is that wasn't the case for the majority of buyers. I am trying to deal with the likely real life scenarior versus your shangri-la scenario where everyone was planning to either pay off their house or live in it for 15+ years.

Secondly, there are two sides to every transaction. Whatever risk of default the bank perceived, they were willing to make the loan based on the asset it was backed by. I am not for a lack of financial responsibility, but I also don't think a homeowner should take 100% of the loss if they are looking at 10+ years of negative equity.

I think people that bought at the peak were, in many cases, irresponsible. However, if they go with the Flagpole payment plan they will be at a significant financial disadvantage for a decade or more.

You continue to say it is a wash, but you're talking about end value not your total payments. The fact that two equally maintained homes will move the same direction in price isn't relevant when you're talking about a leveraged deal. I consider myself to be frugal and financially responsible. However, if I was looking at $150,000 of negative equity and monthly payments close to double what I could rent or buy a different house for, to me it makes little to no sense to make that deal work. You're severly impairing your ability to save for 10-20 years. Why? Just because you think it is the moral thing to do? Because you agreed to pay that amount? The bank agreed to their side of the deal too.

That's great that you would continue to pay on the loan. In the example I presented earlier, whatever moral hazard is associated with walking away isn't worth an extra $800 in monthly payments for 26 years.

glass half full wrote:

It's a good time for people looking to buy their first home!

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You must be a REALTOR...most will always say "great time to buy1"...depending on where you are, that home you buy today will be worth 25% in a few years...we're not close to the overall bottom yet...

mylifeismovingjustfine wrote:

You can get a mighty good deal without doing a foreclosure or short sale. I bought my first house this past year. The previous owners had lived in it for about 3 years, had purchased the home for $275K, had put $40K into it (finished the basement, put on new roof and new retaining wall), and we bought it for $245K. Wasn't a short sale or a foreclosure. And we get the $8K tax credit this year.

Sounds like it was a pretty great time to buy to me.

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You think you got a deal?!?!?...it sounds like the buyers bought at the peak of the market...so it may have been "worth" 275K then but not now...half the money they put into were repairs...so you have a home at 295K near the peak...in many areas a home like yours is worth 25 to 50% less than it was 3 - 5 yrs ago...you should have gotten your home for under 200K easy plus the tax credit...you paid 50 - 100K TOO much!!!!

somebody has to make the money wrote:

This housing bubble has been FANTASTIC!!! It was like hitting the lottery for me. I flipped a bunch of houses for a few years and made great money. Then when the bubble burst, I used that money to buy houses the banks were practically giving away and rent them out. I will probably be able to retire 10 years earlier than I would have.

Self righteous folks like yourself is why we're in this mess...you'll be bankrupt in 5 - 10 years...if not sooner...

[quote]Flagpole wrote:

True (about localization), but if you're in Southern California and want to move out of your house and buy another one also in Southern California, then the loss is a wash. If you can't sell your house without having to borrow more to cover the difference, then you just have a choice to make -- again, no one is guaranteed to have the value of their home rise.

In these down market times, you can also compare regions. Arizona and Florida were hit hard like Southern California was, so you could move around in those three areas and it will likely be a wash.

The BULK of the people who are in trouble because the value of their home dropped are so because either A) they weren't in the home very long (so shame on them for wanting to sell; people in hell want ice water -- we don't always get what we want exactly when we want it); B) they took out loans against the equity which has now disappeared; C) they bought more house than they could afford to begin with. That's pretty much it.

If you do the following when you buy a house, you will NOT be in trouble if the value drops significantly:

1) Fixed rate mortgage ONLY; no ARMs or sub prime loans.

2) No more than 25% of your take home pay per month.

3) Do NOT take loans out against the equity.

4) Plan to be in the house 15 years MINIMUM, so if you're in the military or know that you will be moving on in a few years, DO NOT BUY.

It's pretty easy really.

[quote]Flagpole wrote:

My point is if you're stuck with a jumbo loan in one of the harder hit areas of the country and are underwater the loan it's hard to rationalize NOT walking away. If it were me, and I'm glad it's not, I would walk away without hesitation. There's no way I'd continue to pay down a mortgage that's lost 30 - 50% of it's value with little chance of recovery. In 15 years we still might not be back to 2006 / 2007 prices in some areas of the country.

Staying in a house 15+ years was goo practice in 1960, 1970, 1980, 1990, 2000 and 2010...it's just a good idea. Too many of these people thought they're house would just go up up up, and so they signed up for sub prime loans and ARMs and no interest loans, etc. Foolish. And NOW they want to be able to walk away. It's a shame they only get a ding on their credit. I favor public beatings.And, you're not affecting your ability to save. You bought the house with it in your plan -- 25% should go to the mortgage, and that leaves PLENTY to invest with, even if you're underwater on the house for a while. Big deal.Public beatings. That would be nice. I'd sell popcorn.

Flagpole wrote:

Public beatings. That would be nice. I'd sell popcorn.

Be careful what you wish for. They might also implement public beatings for LetsRun posts containing moronic economic forecasts.

mwwwin wrote:

somebody has to make the money wrote:

This housing bubble has been FANTASTIC!!! It was like hitting the lottery for me. I flipped a bunch of houses for a few years and made great money. Then when the bubble burst, I used that money to buy houses the banks were practically giving away and rent them out. I will probably be able to retire 10 years earlier than I would have.

Self righteous folks like yourself is why we're in this mess...you'll be bankrupt in 5 - 10 years...if not sooner...

There are always two sides to every story. While all the sadsacks just talk about the negatives, there are always people who have to make that money that others are losing. Where do you think it goes?

I was just an innocent bystander to all this. That is why I consider it hitting the lottery. I started remodeling and renting houses long before all the idiocy started. My first house I bought was when I was in college. I bought a duplex with the owner financing it. I paid 32k, put 8k down, and paid 10% interest. I thought that was a great deal. Rented the bottom out and it only cost me about $100 a month to live there. Back then you didn't buy a house unless you had 20% down. If you wanted a loan on an investment property, the minimum was 35% down.

I was doing this full time since the middle 90s. When it got so easy to buy houses, I knew being in the rental business was not the best way to go so I sold those houses and used that money to flip. I rode that market until 2008 when it was very easy to see it begin to crash. I then turned back to more rentals and less houses to sell. I also only do "first time buyer houses" which there will always be a better market for.

For years people would ask me if I would do financing on the houses I sell and my response was that I would have to be an idiot to be the bank.

The only way to clean up this mess is to go back to the way it used to be. That would be that investors put their money in the local bank, the local bank made and held the loans, a substantial down payment was needed, and the appropriate ability to pay was taken into account. As it is now, nobody is really accountable for anything beyond how much money they can make in the next 5 minutes.

Of course the result of this would be a lowering of the value of real estate initially, but over time it would stabilize and everybody would be better for it in the future.

The mess was caused by greed. The irony is that the real winners were the very conservative investors who had the ability to take advantage of the situation.

I don't really know much about bankruptcy, but don't you have to some sort of debt before you can file for bankruptcy?

Well then, I'd be in no danger.

no problem wrote:

Flagpole wrote:

Public beatings. That would be nice. I'd sell popcorn.

Be careful what you wish for. They might also implement public beatings for LetsRun posts containing moronic economic forecasts.