CRASH! House values- what are people doing in this situation?

[Nancyg56]

A lot of people are walking away from their mortgages and not feeling bad about it. Take a listen to act 2 of last week's episode of This American Life http://www.thisamericanlife.org/radio-archives/episode/418/toxie . It's about a guy in your situation.

Basically the thought process is: if you want to continue living there, keep paying your mortgage. If you want to take the money and run, then default. There is nothing illegal about it, and you're not being a bum. It's the banks that are the bums for all that shady stuff. Your credit score is only really important if you plan on trying to borrow money. The score will repair itself over time. Although some employers/landlords will check credit scores too. However, don't make a decision based on this thread. Talk to an expert and do some research.

I guess I have an issue with this thought process. I understand that there are times when mortgage lenders are not scrupulous but I have to ask what happened to personal responsibility? Both of my sons purchased homes when the value was higher adn both are upside down in their mortgages. Neither is happy about that but both are making payments which they had locked into according to their means. They made purchasing decisions based on their own ability to make their commitment. I understand that lenders offered more than buyers could afford when all of their living expenses were considered but whose responsibility was that? If a buyer chose to overlook that I do not want to bear that financial burden for them.

I realize that owning a home that is not worth the original cost is stressful but I also wonder how many folks are using that as an excuse to avoid making payments on their property. A credit score is important but IMO, my word is worth more than even that. Every time someone walks out on a mortgage that affects their neighbors and their community.

 

[Nancyg56]

OP- I do not know your circumstance but if you are able to ride it out I would suggest looking at your home as a lifestyle and not an investment. Years ago shared that philosophy with DH and I and as the value of our home went up, down and back up we continued to view it as a home that we were living in and that suited our lifestyle. It is a little thing but it changes the stress level, at least it did for us.

 

[Stitchfans]

We just closed on our house this past Friday. Yes, we had to settle for a lot less then what we could of sold it for if the economy was better but we had no choice. Yep, it sure was a very hard pill to swallow. But at least now maybe we can get out of debt and we are buying a nice home in a less expensive area.

Funny thing is the house I am renting to own right now is so nice I actually like it better than the one we just sold. The down side ---- I am living farther away from my dad, my brother and his family.

 

[mrsltg]

If you walk away, the big issue is not the credit hit (give it 4 or 5 years and it won't matter), it's if your loan is a recourse loan or not. If your state does not consider mortgages "recourse" loans, you can pretty much walk away and mail your lender the keys. The lender only has rights to the equity in the house. If it is a "recourse" loan, then the lender can come after you and your other assets.

I figure it's a business transaction so you need to make a business decision. It's not a reflection on you personally if you walk away.

Sadly, this. My neighbor purchased his house at the height of the market. He then put another $100k or so in improvements. Then the market crashed and the house fell to about $450k. He was underwater by almost one half of a million dollars ! He mailed the keys in, and I completely understand why. It's not something I think is a great idea, but I also understand there are some no-win situations.

OP - Do what you need to do. We are underwater but plan to stay here for 20 years. This is temporary. If you need to sell, you need to sell. Good luck.

 

[mkel34]

Did you pay 600k or did you buy at 300 and it went to 600? My response would depend on the answer to this.

 

[bettymae1121]

Well, we bought our hourse for $186k in '05, and if we sold it today I think we'd be lucky to get $110k for it, after puting in about $20k in needed repairs. Our note is for about $140k.

We planed this purchase based on one income (mine, the smaller one) so the mortgage/taxes are low enough that we can make the payments just fine, and our jobs are stable. We figure we won't need to move for at least 5 years, so we'll just have to see where things are at that point. We've decided that we won't sell for less than $150k, if when we are ready to sell we can't get that, we'll just rent it. We aren't giving this house away for free, not after all the work we've put into it. The forclosures around us that have gone for $100k have all needed $25k-$50k of work (just like ours did) and to sell a fully refinished and updated house for what run-down properties are going for is just insane.

 

[mrodgers]

Houses are made to live in. The fact that some folks took it as an investment, well, there are risks in all investments. Sorry about your luck.

We bought our house in 2000 to live in. The value from what I can come up with on the net is about 10k less, which is about what we owe after 10 years of mortgage. Does that matter? Nope, it is our home, not an investment. I figure the value should go up by 2052, which is when I'll be 80 years old and my kids will probably sell it after burying me.

 

[GeorgeG]

Our house is currently worth a little more than we paid for it five years ago. Exactly how much doesn't matter since we bought the house to live in, not as an investment.

For quite a few years, the prices of houses were over-inflated and did not reflect the true values, but the market price at the time. Add that so many people mortgaged much more than they should have to get those houses, often more house than they could really afford. I believe that houses are probably currently going for what their real value has always been. If you bought yours as a home, you should be okay. If you just bought a house as an investment to live in for five or ten years, you're screwed.

 

[sparklynails23]

That's crazy. If you don't have many other assets or a lot of other equity, I'd quit paying on the house and wait for foreclosure. I don't think any money manager would advise you to keep that house. You'll take a hit on your credit rating for a few years, but even higher interest rates on loans won't cost you 400k.

 

[manning]

So far you have not lost any money. Huh?

You haven't sold it thus you haven't lost money, Sell it and you will. If you can afford it hang in there, The value (what you have lost) will come back.

 

[manning]

My aunt owns a villa in Florida. In '95 they bought it brand new for $140,000. Exact model several units down from her on the fairway isn't selling for $120,000. Couple years ago they were selling for over $200,000.

 

[pioneer89]

I keep hearing that the housing prices will come back, but I can't figure out how they will do that this time.

Median Houshold Income has been effectively flat for the past 10 years, in general, there are not enough people earning the kind of money needed to afford the houses on the market now. The 'shadow inventory' that banks and other lenders have, combined with the huge group of people wanting to sell, but 'waiting' for the proces to rise ensure that supply will far outstrip demand.

There will be some volitility yet to come, as specific markets correct to local conditions from the current national crisis, but overall, I doubt housing prices move up much more than inflation, and unless the past decades stagnant income growth is changed, housing prices could drop a little more.

 

[Carly_Roach]

I guess I have an issue with this thought process. I understand that there are times when mortgage lenders are not scrupulous but I have to ask what happened to personal responsibility? Both of my sons purchased homes when the value was higher adn both are upside down in their mortgages. Neither is happy about that but both are making payments which they had locked into according to their means. They made purchasing decisions based on their own ability to make their commitment. I understand that lenders offered more than buyers could afford when all of their living expenses were considered but whose responsibility was that? If a buyer chose to overlook that I do not want to bear that financial burden for them.

I realize that owning a home that is not worth the original cost is stressful but I also wonder how many folks are using that as an excuse to avoid making payments on their property. A credit score is important but IMO, my word is worth more than even that. Every time someone walks out on a mortgage that affects their neighbors and their community.

Personal responsibility for individuals is finally going the way that ethics, good business practices and doing the right thing went for businesses. What are businesses except a grouping of individuals who, for at least 10 years now if not longer, have not been all that concerned about personal responsibility in their business dealings. There are no nameless, faceless corporations: just a collection of individuals doing business as ethically or shadily as they can.

If businesses are going to flush ethics and personal responsiblity down the toilet in the name of profit, then I'm not going to dun the American citizens who've finally said, "ENOUGH!" and walked away from bad business deals and left the bank to hold the bag. After all, American businesses have been doing that to Americans for decades now.

 

[robinb]

So far you have not lost any money. Huh?

You haven't sold it thus you haven't lost money, Sell it and you will. If you can afford it hang in there, The value (what you have lost) will come back.

If the OP is paying on a $600,000+ mortgage for a $200,000 house then they are in a way losing money every single month.

 

[sparklynails23]

So far you have not lost any money. Huh?

You haven't sold it thus you haven't lost money, Sell it and you will. If you can afford it hang in there, The value (what you have lost) will come back.

But if she allowed foreclosure and re-purchased the house for 200k, she would make money when it appreciates. It doesn't make financial sense to keep it.

If the OP is paying on a $600,000+ mortgage for a $200,000 house then they are in a way losing money every single month.

I agree.

 

[FlightlessDuck]

But if she allowed foreclosure and re-purchased the house for 200k, she would make money when it appreciates. It doesn't make financial sense to keep it..

Wouldn't your credit be negatively affected by the foreclosure? And you'd have to come up with the down-payment and closing costs.

You might be able to renegotiate based on the fact that the house is now worth less, but I'm not sure if the bank would be willing to actually forgive some of the balance or just refinance. In mean, after all, the bank did pony up $600k for the house. It's not their fault it's now worth 1/3 of what it was worth before (well, maybe it could be, depending on how you look at it).

 

[FlightlessDuck]

A lot of people are walking away from their mortgages and not feeling bad about it. Take a listen to act 2 of last week's episode of This American Life http://www.thisamericanlife.org/radio-archives/episode/418/toxie . It's about a guy in your situation.

Basically the thought process is: if you want to continue living there, keep paying your mortgage. If you want to take the money and run, then default. There is nothing illegal about it, and you're not being a bum.

Except now whatever asset that includes your mortgage, which may be invested into by some union or church or company or individual is now losing money, which was the point of the This American Life episode, and a large part of our economic troubles, to begin with.

 

[m&m's mom]

If the OP is paying on a $600,000+ mortgage for a $200,000 house then they are in a way losing money every single month.

It's still the same house though!
When we bought our house 6 years ago, 2 separate appraisals came up with different square footage- varying about 200 square feet. I was so upset since this affected the price we paid per square foot. My brother said "Didn't you see the house several times before you bought it?" I said "Yes" and he said "Well then you knew what you were buying". Very good point.
You buy a house based on what YOU are willing to pay. It IS unethical to abandon your house and make others pay because now you have changed your mind.

 

[NMAmy]

If the OP is paying on a $600,000+ mortgage for a $200,000 house then they are in a way losing money every single month.

But buying a home is an investment risk just like anything else. If the OP's home was now worth $800,000, the bank wouldn't be able to charge more for the mortgage. The owner takes the risk values might drop and also reaps the reward when prices go up.

It seems that people have gotten so used to the housing market going up that they feel they've been cheated when it went down.

I'm not upside down but we bought a lot less house then we were approved for with a big down payment and a 15 year loan. If we sold, we'd never get what we paid for it. I find it hard to feel sorry for those that bought a huge house and now want to walk away when times get tough. With housing prices the way they are, pretty much everyone has lost money on their home.

 

[mamacatnv]

Most people I know are refinancing with current mortgage companies to get their interest rates as low as possible, thus their house payments down and staying put. Our house has lost about $30K in value but we have no plans on moving any time soon so it really is just a number on a piece of paper for now.

One cannot refi an under water house.