[quote]Flagpole wrote:
Here's why this line of thinking is silly and why it's shameful that owners WHO CAN PAY walk away from their loans:
Let's say I have a house that I bought for $150,000. My plan is to one day pay that house off. Fine. Let's say that in 30 years for some reason my house now is worth only $120,000. Ok. Did I LOSE $30,000? Did I lose MORE than $30,000 when inflation is factored in? I say NO. Why not? Because (unless the drop in price is only for your own specific area due to an industry leaving your town or something like that) ALL THE OTHER HOUSES DROPPED IN PRICE TOO!!! If I was planning to sell that $150,000 house and buy a $150,000 house in a southern state to retire to, well, that $150,000 house in the southern state now costs $120,000; just like my house.
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I don't follow. First of all, I'm talking about what is shameful under the likely scenario which is a house that was purchased with little down and an expected holding period well short of 30 years and/or eventual payoff. Realistically many buyers that can pay, will never have positive equity in their actual holding period.
Even so, your scenario above only looks at the change in value over 30 years. That's not the main point when you're paying interest on a higher balance for 30 years. Your mortgage balance relative to the current value can't be ignored. If you bought a $300,000 house 4 years ago with 10% down, 30 year term, 6% loan, you still owe $255,000. You're going to be making $1,600 payments for another 26 years. Your total payments would be $580,000. If that house is down 50% under the same scenario, your monthly payment is $800 with total payments of $290,000.
I know a foreclosure will mess with your finances, but even if you have to rent for 7 years, I don't see anyway you are better off financially under the scenario you discussed. You're right that all other houses will probably have experienced a similar drop, but that's only the main factor if you paid all cash. If you can cut your monthly payment in half by buying at current levels, the argument you presented isn't accurate.