Is there really going to be any solution to the housing crisis soon? In some areas such as southern California it appears that 90% of the new houses are worth less then are owed on them. That is amazing number to me.
Is there anyone here on the dope who is in this situation where you owe more then the house is worth? If so–what are your plans. Wait it out or try and sell your home? Walk away? I think the current mortgage crisis we are seeing is maybe just the tip of the iceberg?
Many of the new housing tracts in my area (north Los Angeles county) have slashed their prices considerably. The dude and I went around just for shits and giggles a few years ago and were surprised how many people said we’d qualify for a mortgage (at the time we were both students, living off of scholarships, loans, and our good looks). These homes were in the $400-$500k range. Most of them now are going for $225-300, with some in less desirable areas going for <$200k (I’m talking the 3500 sq. ft. McMansions, here). When the market first started to dump a little, we had realtors begging us to buy $350k custom homes that the original owner had bailed on before it was even finished. I wouldn’t be surprised if the folks that managed to hang on this long are paying more than their house is worth.
I have quite a few friends that were able to get financed in this area a few years ago and are either struggling to make payments now or have been foreclosed on. One friend has a standard POS 3 bed/2 bath 10 year old house that he paid close to $400k for. I would be unsurprised it if is currently valued at far less than that (this particular area has been hit hard by the mortgage crunch, with one of the highest foreclosure rates in the country and a murder rate slightly behind Compton). But at least he’s kept it - I know others who have not been so lucky.
My in-laws owe more than their house is worth due to cashing out all the equity, then refinancing a year later when housing prices peaked, pocketing the difference. I suspect my husband and I will have to bail them out to some degree, as both are near retirement and just got the whole mess into (another) 30 year fixed. I don’t have a problem helping them, but the way they handle their money is just pure foolishness and mayhem.
Being upside down on your mortgage is only a problem if you have to sell. If you can afford the house and plan on living in it for a while, this isn’t an immediate problem.
Yep. I bought after the peak, at the beginning of the downturn. So I saved a tad, but it has turned down more since then :D.
Doesn’t particularly bother me, other than the very slight jealous annoyance of not having gotten in on the “instant wealth” boom of the late 1990’s, early 2000’s ;). I have a 30-yr. fixed mortgage which is well within my ability to pay, a rock-steady government job w/good seniority and I don’t plan on going anywhere ( nor want to go anywhere ) anytime soon. I’ll just wait it out and see where I am in 15 years or so when I retire.
ETA: I’m also in an area ( even in the Bay Area ) which is more likely than not to recover slightly quicker than average.
Also, I pretty much was anticipating this crash when I bought. It didn’t come as a shock.
I saw the writing on the wall years ago and paid my house off. I was talking about this in the late 80’s. Housing prices could not continually exceed the inflation rate. Something had to give. It was going on for a long time. And I agree with Ed. It only matters if you have to sell.
My wife & I bought just before the bubble burst. At the time, our (mis)understanding was that the market would slow for a few months and then stabilize within the year after we bought. We expected “market slowdown” and got “market crash.”
The silver lining is that while Sacramento, overall, has been hit pretty hard, the truth is that some neighborhoods in town have indeed tanked completely while others have done ok. I am in the one of the neighborhoods that is doing ok.
We are probably a bit upside down now, but not too much. If we can ride out the storm, I expect our neighborhood to rebound pretty well when things start turning around. Our goal is to live in this house for a long long time.
Here’s my basic plan to fix everything: housing lotteries.
The owner can hold a lottery for his house. Tickets would go for say $1 each. There would be a closing price for the house which would be the number of tickets to be sold for the lottery to go into effect. Until the closing price is reached, all the money from ticket sales goes into escrow. If the closing price isn’t reached within a period of time (say, a year), then the ticket price would be refunded. Once the closing price is reached, a lottery is held, and the winner takes posession of the house.
Now, that’s the basic idea. To make it work properly and ensure we don’t end up in another bubble, there’s a lot of details that would have to be implemented (which I’m skipping here for brevity). And it’s not going to fix every upside-down mortgage. But given how many people throw a few bucks at state lottery tickets every year, I think we could see a lot of people participating in these housing lotteries–after all, the odds of winning a house this way are much better than state lottery odds. And if we open up the lotteries to foreign purchasers, that could also help our balance of trade.
This plan would require changes to both state and federal laws to go into effect (AFAIK).
I do agree it is likley only an issue if you are planning on selling. I don’t have a cite on how often people sell their homes, but many have to because of job moves, etc. and that has to have an impact on the already hobbled mortgage industry. I also can see people just walking away from something that they have no equity in and that is worth less then the mortgage they do have.
But I also understand that for many people their equity is the basis for their retirement and this would seem to have a big impact on that. But then again I have never truly understood how you can truly use your equity as the basis of your retirement, but that is a different debate. I can see using your equity as a backup to your retirement, one that you could sell or reverse mortgage if you needed to. But damn man you have to live somewhere when you retire! I would think this would impact your net worth regardless if you are selling it or keeping it.
So if you find a violin in the attic with “Stradivarius” written on it, do you lose $100K in equity when the appraiser tells you it was written with a Sharpie?
Why exactly is it horrible news when we discover that housing prices aren’t insanely inflated anymore?
There are times when you need liquidity (because of a job move or an illness or whatever). Now, houses aren’t really liquid (because they take time to sell), but if you’re upside down, then they are pretty much illiquid. That completely limits your economic options.
Furthermore, if you default, now the bank is stuck with a property which is worth less then the mortgage. Which means they have to take a loss. Which reduces their ability to lend money to other people. Which means that credit markets tighten and the economy slows down. And it also means they can fail. Which means the government has to step in and bail them out.
Do you really think it’s not a big deal when banks start failing?
There’s also the ‘money down the drain’ issue. Most of your early payments on a mortgage go to interest. So if you buy a house for $300,000, and you’ve paid it down to where you owe $200,000, you’ve made probably $180,000 of payments over ten years. And now–you owe $200,000 on a $200,000 house. You could have saved a lot of money by renting for ten years and then buying after the bubble burst.
I saw Donald Trump on the tube the other day (Good Morning America, IIRC). The anchor asked about buying houses. For people hoping to buy at the lowest possible point of the curve, he said to do it within the next year. So if that’s accurate, I guess prices should start rebounding after that. Whether they’ll bounce back up to where they were, or how quickly, he didn’t say.
I wonder what happens when insurance gets involved. Suppose you bought a home for $300K and neighborhood values go down. The guy next door has to sell his $300K house for $200K. Then, a tornado comes through and razes your house. Does the insurance pay off your mortgage or do they devalue the house and leave you upside down? Or, if you luck into a neighborhood that’s appreciating, do they play it the other way? I’m sure you can arrange your own Lloyd’s of London policy, but I wonder what’s typical.
Seems like if your local taxing authorities aren’t devaluing your house, the insurance shouldn’t be able to, either.
On the broader scale, it doesn’t bode well for the housing market, sure. But in the OP I saw this:
Which is what I was addressing. It doesn’t seem to occur to people that “keep living in the house” is still viable for most people.
It’s not just here, I see this sentiment a lot lately: that the housing market would crash and we’d all get stuck with loans for way more than the house was worth, and we’d be somehow immediately in major trouble because of this.
It’s a fallacy though. It does limit my options if something bad happens, sure, but my original plan was to buy this house and live in it until it’s paid off. My 30 year fixed mortgage reflects this plan. Over the long haul, the equity I put into it combined with inflation will win out anyways.
Personally, I think anyone who buys a house for less than 20% down and then expects to be able to sell it within the first 5-10 years in the event of a job change (or whatever) is fooling themselves and in a very risky situation. Even with a flat market, by the time you account for closing costs (for both the purchase and the sale) vs. the tiny amount of principal you’re paying in those early years of the loan (interest + PMI eats up 90% of your payments initially), you are going to be taking a loss on any sale anyways. The only way you would be able to sell is if the market is going up and your house appreciates quite a bit right after you buy it, but I think that relying on this is sketchy as hell. If you buy a house with a small down payment, you are trading your mobility for a number of years up front, that’s part of the deal.
I would have no doubt I am close to being upside down on my loan right now - I closed in February, and despite putting 10% down, I probably have “lost” more than that in selling price over these six months. Not least because the idiot fuckers across the street underpriced the comparative house…
What am I going to do? Pay my mortgage. Enjoy living in my house. Carry on going to work. It’ll come back. I don’t know if that is true everywhere, but where I am, the dip is going to be relatively short lived, I would bet.
