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

[mamacatnv]

When I see this type of discussion I think it is important to note that the option to walk away should be discussed as just that, an option. It should not apply to people who are dealing with job losses etc, it should apply to those who CAN make their house payments but have OPTED not to.

I live in the heart of one of the hardest hit housing markets in the country. I have a forclosure across the street, next door, down the street and directly behind me. I also have several neighbors living the high life because they have chosen to stop paying the house payment and just wait for the bank to foreclose. A few of them are going on 1-2 years and have not even had a notice of default filed on them meanwhile they are traveling and spending like crazy.

I understand the arguments on both sides, to keep or to walk away and honestly I think it really is a personal decision, I see it around me every single day. I have friends doing it and I have friends who are toughing it out.

We currently are toughing it out. We bought our home for approx. $185K before the housing boom and the following bust. At the top our neighborhood was at approx $375K and today, is roughly at $90-100K IF one could even find a buyer. The "experts" are suggesting that IF the market EVER recovers it will take 20+ years. That is a long time to make a house payment on an if.

The other thing this swing has done for those of us chosing to stay in our houses is that our once $250-350K neighborhood is now a $75-100K neighborhood and that dramatically changes the demographics of my schools, my neighbors etc. It might sound a bit snobby or elitiest but most of us buy in the best neighborhood we can afford and to watch that neighborhood decline is very hard. Meanwhile, the folks that have decided to walk away, are renting in nicer areas and are planning to re-buy in a couple of years in the neighborhoods that were once out of reach. Meanwhile.....I'm doing my "duty" and paying my mortgage. Sure my credit is intact but is it the best overall financial decision for us? I honestly am not sure of the answer.

 

[robinb]

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.

I also bought a whole lot less house than we were approved for and we refinanced years ago into a 15 year mortgage. Where we are different is that I don't look down on the people who got caught in the whole housing mess.

 

[goodeats]

The other thing this swing has done for those of us chosing to stay in our houses is that our once $250-350K neighborhood is now a $75-100K neighborhood and that dramatically changes the demographics of my schools, my neighbors etc. It might sound a bit snobby or elitiest but most of us buy in the best neighborhood we can afford and to watch that neighborhood decline is very hard.

This.
I don't view this as a moral decision. Businesses/corporations/developers foreclose on their own properties as a business decision all the time. They don't keep paying on a property that is now worth 1/3 of what they owe. They just don't. You need to weigh the pros and cons. You need to make sure you can find a place to live once your credit tanks and you also need to know your legal liability in your state. Also there may be tax implications.

 

[NMAmy]

I also bought a whole lot less house than we were approved for and we refinanced years ago into a 15 year mortgage. Where we are different is that I don't look down on the people who got caught in the whole housing mess.

Sheesh, thanks for putting words in my mouth. I don't look down on them. I just think that they should have to live up to their obligations just like the rest of us.

 

[robinb]

Does anyone know if it make a difference in your credit score and ability to buy another house eventually if you "mail in the keys" and move out or if you wait to be foreclosed on and get evicted?

 

[daughtersrus]

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.

That is true for pretty much every house unless you pay cash for it.

The worst part of the closing process was seeing how much, after interest was added, we were really paying for the house.

 

[mamacatnv]

Does anyone know if it make a difference in your credit score and ability to buy another house eventually if you "mail in the keys" and move out or if you wait to be foreclosed on and get evicted?

It is my understanding that a short sale is more "credit friendly" than a foreclosure. I am assuming if one mails in the keys that the eventual result will be foreclosure but I don't know. I thought the home owner had to approach the bank about a short sale but I could be way off.

 

[punkin]

"mailing in your keys" is basically a foreclosure. It has exactly the same credit score effect.

I do not see this as a moral issue either. It is purely a business decision. When I bought my house, I bought a lot less than we could afford. I put a huge down-payment down. We are not underwater, but we have significantly less equity than we started out with. I have made a business decision not to walk away from the house because my mortgage is lower than any comparable rent I would pay. I would also lose whatever equity I still have in the house (none of which is appreciation but my own down payment money). If there comes a time where all my equity is gone anyway and I can find equivalent housing for less money, I would walk in a second.

 

[palavra]

It is my understanding that a short sale is more "credit friendly" than a foreclosure. I am assuming if one mails in the keys that the eventual result will be foreclosure but I don't know. I thought the home owner had to approach the bank about a short sale but I could be way off.

Not according to Clark Howard, a financial guru based in Atlanta. He has a show on CNN. He said that credit is affected in almost the same way as a forclosure. In fact, he told one guy that a foreclosure would be better than if he were to short sale his house at a significant loss and bring that money to the table at closing.

 

[Colleen27]

Just my opinion, but people decide to upgrade houses far too often. I undertand having to move for a job, but I've been in my house almost 27 years, and my parents have been in theirs 50. We never found a need to move up.

I agree to a point, because some of what I read has gotten downright silly (2500sq ft starter homes, families with 1 or 2 kids looking for 5+ bedroom homes), but to some degree those upgrades are natural over the course of life. More kids generally mean a need for more space, and with so many people buying their first homes before marriage/children now, there's bound to be more mobility than in generations past when it was married couples buying a home to raise their kids in.

 

[Colleen27]

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.

Something to consider as the counterpoint to the "ride it out" advice is this - How likely is a rebound in your area, really? What does the future of your neighborhood look like? Is there a reason people would want to live there when times improve?

The hard truth is that this country is overbuilt and some areas aren't going to rebound. Mine is probably among them; there are no jobs, the climate sucks, there's just nothing to draw people in. We're losing population as people move where the jobs are, and there are more homes than people to inhabit them even if you take affordability out of the equation. Some of the pricey new subs around here are ghost towns with little hope for a recovery; more likely they'll decay uninhabited as a magnet for crime and further pull housing values down for those families trying to ride it out. And I personally wouldn't feel one hint of guilt about walking away if I was, as the woman I was talking to this afternoon at the bookstore is, the only family left on an otherwise foreclosed/abandoned/vacant cul-de-sac who owes a pretty penny on a McMansion in a supposedly family-friendly development that is now having problems with scavengers and squatters.

 

[Christine]

Something to consider as the counterpoint to the "ride it out" advice is this - How likely is a rebound in your area, really? What does the future of your neighborhood look like? Is there a reason people would want to live there when times improve?

The hard truth is that this country is overbuilt and some areas aren't going to rebound. Mine is probably among them; there are no jobs, the climate sucks, there's just nothing to draw people in. We're losing population as people move where the jobs are, and there are more homes than people to inhabit them even if you take affordability out of the equation. Some of the pricey new subs around here are ghost towns with little hope for a recovery; more likely they'll decay uninhabited as a magnet for crime and further pull housing values down for those families trying to ride it out. And I personally wouldn't feel one hint of guilt about walking away if I was, as the woman I was talking to this afternoon at the bookstore is, the only family left on an otherwise foreclosed/abandoned/vacant cul-de-sac who owes a pretty penny on a McMansion in a supposedly family-friendly development that is now having problems with scavengers and squatters.

Thanks for your perspective. As I sit here in the Northern VA area, outside of DC, this situation is VERY hard for me to imagine. I read about people walking away from stuff and, I admit, it's hard not to be judgmental about it because I only *see* things from my Washington DC area perspective where, while we've had a huge downturn, the market is probably still considered healthy as compared to many other areas of the country. Hearing what is going on where you live makes it really more clear to me as to why someone would do this. I don't understand why they would do it *here* as I think our market will rebound and normalize (no more bubble) but I agree that other areas may never recover.

 

[manning]

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.

Not really. You don't lose anything until you sell it for a loss. What is going down is the value. That is called a paper loss, not a real loss. The real loss takes place upon the sale.

 

[manning]

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.



I agree.

And you wreck your credit rating.

 

[dicar123]

For quite a few years, I was totally bummed out hearing about housing values other than mine. Our value barely moved during all the boom years. Most of the foreclosed homes here are IMO way overpriced because our homes are older and most are in need of work.

I also wonder if things will really recover. Along with the housing crisis, we also have demographics working against us. Baby boomers own a lot of houses... Maybe the best solution for some places is to reduce the supply by selling to the county and bulldozing the homes.

 

[WDWisTheBest]

Not according to Clark Howard, a financial guru based in Atlanta. He has a show on CNN. He said that credit is affected in almost the same way as a forclosure. In fact, he told one guy that a foreclosure would be better than if he were to short sale his house at a significant loss and bring that money to the table at closing.

Clark Howard has good advice. Bottom line is what C.Ann said. If you can stay there, do it.

 

[mefordis]

Okay, this answers a big question I had. I know someone who walked away from a mortgage in MI and they are in a beautiful, huge house that they bought while trying to sell the one they walked away from. I wondered how they did this without getting their current home taken away. Now it makes sense.

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.

 

[mamacatnv]

Something to consider as the counterpoint to the "ride it out" advice is this - How likely is a rebound in your area, really? What does the future of your neighborhood look like? Is there a reason people would want to live there when times improve?

The hard truth is that this country is overbuilt and some areas aren't going to rebound. Mine is probably among them; there are no jobs, the climate sucks, there's just nothing to draw people in. We're losing population as people move where the jobs are, and there are more homes than people to inhabit them even if you take affordability out of the equation. Some of the pricey new subs around here are ghost towns with little hope for a recovery; more likely they'll decay uninhabited as a magnet for crime and further pull housing values down for those families trying to ride it out. And I personally wouldn't feel one hint of guilt about walking away if I was, as the woman I was talking to this afternoon at the bookstore is, the only family left on an otherwise foreclosed/abandoned/vacant cul-de-sac who owes a pretty penny on a McMansion in a supposedly family-friendly development that is now having problems with scavengers and squatters.

This is a very good point. We have a 14.5 unemployment rate and no one to buy up the standing inventory that is falling into disrepair. The "experts" don't see the growth coming our way and they don't see our home values springing back ever. This is what I was talking about when I mentioned how the neighborhood declines with the value of the house. We keep a very close eye on the empty houses as they do become attractive to squatters, we had it happen 4doors down.

Lots of areas of the country did not feel the housing crisis like others. My Brother is in the San Francisco bay area and while the value of his house tanked, they did not deal with the foreclosures like the central areas of California did and his housing value is already starting to climb back up. We are still declining here.

And you wreck your credit rating.

BUT your credit will recover much quicker than the housing markets in some parts of the country.

 

[manning]

Originally Posted by palavra
Not according to Clark Howard, a financial guru based in Atlanta. He has a show on CNN. He said that credit is affected in almost the same way as a forclosure. In fact, he told one guy that a foreclosure would be better than if he were to short sale his house at a significant loss and bring that money to the table at closing.

Clark Howard has good advice. Bottom line is what C.Ann said. If you can stay there, do it.

It is better than foreclosure but understand the owner may owe the bank the difference. IE short sale was 100,000 and amount owed is 250,000. Owner still owes 150,000. The amount owed will depend how well he negotiates with the bank.

 

[Colleen27]

Thanks for your perspective. As I sit here in the Northern VA area, outside of DC, this situation is VERY hard for me to imagine. I read about people walking away from stuff and, I admit, it's hard not to be judgmental about it because I only *see* things from my Washington DC area perspective where, while we've had a huge downturn, the market is probably still considered healthy as compared to many other areas of the country. Hearing what is going on where you live makes it really more clear to me as to why someone would do this. I don't understand why they would do it *here* as I think our market will rebound and normalize (no more bubble) but I agree that other areas may never recover.

Yeah, we didn't really have much of a bubble here. My best long-term frame of reference is my grandparents' home; they bought for 49K in the late 60s. My mom bought in the same community for 65K in the late 70s. At the peak of the market, both of those homes were worth about 140K. But in the national picture the loss of value in this area has been among the worst anywhere - in a lot of cases, houses are back to 1960s prices and still not selling.