Would you continue to pay your mortgage if you find out your house depreciated 150k and your ARM just reset,and your monthly payment went up $300, and you may have only put down 50k for downpayment?

Keep paying and pray that house will appreciate back up?

Don’t buy things you can’t afford and pay for the things that you do.

I suppose it all depends on your definition of “sane” when people are deciding whether to walk away from a home that is under-water. If your monthly payment is considerably more than the cost of renting an equivalent home (in the same area) and there is a strong prospect that your home will lose even more value (e.g. because there notices of default are spiking in your area, indicating that foreclosure rates will be rising soon), then it would be INSANE to keep making payments.

Where is the logic in sitting in a home, continuing to make payments, as it drops to 50% or less of the value of the mortgage? There has got to be SOME point at which a person would decide they can’t take it anymore.

It is those who are facing an increased, reset payment or who are struggling already with a suicidal mortgage who will.

As far as the idea that inflation will make everything OK on the long run for those who bought more house than they could afford, doesn’t that assumption mean that wages need to inflate too? I just don’t see that happening in today’s global economy. If anything, inflation in the areas of fuel, food, consumer goods, durable goods (which I agree is rampant) puts deflationary pressure on home prices when wages are stagnant. There is simply less left over for the mortgage payment. I know I go against the grain on this, but I yet to hear a reasonable argument otherwise.

This has nothing to do with the topic…but what the heck.

Actually, a RE purchase/sale is more involved and more time consuming. If I am not mistaken there is also additional liabilty should something go amiss. Keep in mind when a property is transferred from one person to another there is a state excise tax. All in all….more reporting, disclosure, paperwork, liabilty, etc in a purchase/sale transaction.

Iam sure an escrow expert here can better explain.

Here is a serious question though, why is escrow fee based on sliding scale when it’s purchase, but not when it’s refinance?

It’s the same work.

You said that “if I were happy and secure in my job, the family was happy here, good schools, etc and the house didn’t require any expensive repairs, I’d eat the loss.” Is this really true if your house was worth less than the mortgage, and all indications were that prices were going to keep declining?

I really wonder how many people are going to bother to keep up their mortgage payments once their homes are deeply under-water (i.e. worth much less than the mortgage), particularly if there are similar residences available for rent at far cheaper rates.

You do know that you are dissing S Crow with your generalizations, right?

See you in hell, escrow agents!

just count on inflation to make things seem ok. so long as you don’t consider what else you could have done with the money, it will seem like buying was a good enough decision.

but if everyone in the family is ok and everything is going fine, giving the house to the bank (assuming they’ll take it without payment to cover the difference between loan value and house value) would be too disruptive to be worthwhile.

most people don’t live strictly according to economic benefit.

I’m kind of curious what people who can afford their mortgage payments and who are happy with their houses will do if they go underwater. I could do a straw poll on my friends, but they generally consider the question nonsense, so it doesn’t yield much information. :-)

I’m with you. I never said we’re back to reality, just that some tomorrow there will be a different reality than today. I think that lending reality will be significant and it’s a wildcard right now.

I know exactly where that place is (605 Shore).

Did you notice that it apparently sold in Sept 06 for $830,280 and now it’s on the market for $700,000! Am I missing something here?

If you read my post above you’d see that exotic mortgages are still being hocked in today’s market. 100% financing deals with $5,000 buyer’s bonuses does not equal a return to reality.

I think this will be a very very significant aspect to where prices go. If next spring only fixed rate mortgages with at least 20% down still remain, things would get desperate indeed. If you can still get a 5% down fixed rate however, that would create a very different picture.

People will just walk. They will have no interest in restructuring their mortgage on a home which is now worth 30% less than what they paid and continuing to depreciate. Idiots like Senator Dodd are either too stupid or too detached from real life to understand this.

Tim…great post. I think you have won quite a few future customers from your posts on this blog.

If borrowers do leave and a home is sold via short sale or foreclosure, then the neighborhood fallout speaks for itself. These properties with dizzying escalation of prices were being used against each other as “comps” justifying yet another list price when the market was full throttle. The same will go for home prices in the opposite direction. And therein lies a large problem. I’ve got a couple homes around my neck of the woods I’ve been watching carefully. They are struggling and if they sell for quite a bit less than asking, short sale or otherwise, in theory there goes the perceived value of my place. In some communities across the country, this is what really hacks off neighbors, especially if builders start to undercut even resales.

Some of the stuff I’m watching makes me believe that people are chasing the market and they don’t know what to do. Some are increasing the prices (logically flawed), some are taking off the market only to go back on as FSBO, some are dropping prices by pennies, some are dropping prices by the tens of thousands. The market is trying to find it’s legs, for better or for worse.

Gotta run!

Yes, debt levels are an important factor in determining the strength of the real-estate market. However, I think it is even more critical to look at equity levels. People with little equity in their homes have little incentive to tough things out if the market turns south — even if they have adequate income and/or savings to keep making payments.

Why would you keep making payments on a home that was worth substantially less than the mortgage? Particularly if you thought there was a good chance it would depreciate even more…

Yes, “unprecedented.” That’s the word I wanted to convey. There may very well be homeowners with a good cushion, but it’s the overall household debt load that is the burden for so many. I’ve done a lot of research over the last couple years and there are a lot of people that owe more than what they paid for the home initially.

The United States of Subprime
Data Show Bad Loans
Permeate the Nation;
Pain Could Last Years
By RICK BROOKS and CONSTANCE MITCHELL FORD
October 11, 2007; Page A1

As America’s mortgage markets began unraveling this year, economists seeking explanations pointed to “subprime” mortgages issued to low-income, minority and urban borrowers. But an analysis of more than 130 million home loans made over the past decade reveals that risky mortgages were made in nearly every corner of the nation, from small towns in the middle of nowhere to inner cities to affluent suburbs.

The analysis of loan data by The Wall Street Journal indicates that from 2004 to 2006, when home prices peaked in many parts of the country, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined $1.5 trillion in high-interest-rate loans. Most subprime loans, which are extended to borrowers with sketchy credit or stretched finances, fall into this basket.

About 10.3 million high-rate loans were made in the past three years, out of a total of 43.6 million mortgages. High-rate lending jumped by an even larger percentage in 68 metropolitan areas, from Lewiston, Maine, to Ocala, Fla., to Tacoma, Wash.
http://online.wsj.com/article/SB119205925519455321.html?mod=googlenews_wsj

A far higher percentage of Puget Sound home-owners have a good cushion of equity to help them weather out a tough patch. This leaves our local market much more susceptible to any hiccups that might occur.

http://redfin.com/stingray/do/printable-listing?listing-id=1033682

Keep up the great work!

“A bad boom is based on bad money,” Bonner continued. “When
the United States Treasury prints up an extra dollar bill,
the gesture lacks sincerity; like a duelist who first
smiles and shakes your hand, then walks back twenty paces
and pulls a trigger; you know he didn’t really mean it.
Instead of being built on real savings, the faux boom is
built on monetary inflation and credit. And when it comes
to an end, people are no better off. Their money is worth
less than it used to be. And the average fellow has dug
himself deeper into debt in order to enjoy the boom years.”