By what goes up must come down @ 36:

Kary are you holding out hope for another bubble?

Nope, I’m just stating what is obvious. Prices go up and prices go down.

Kary why do people attack you when you’ve said nothing wrong?

It seems like it happens here all the time.

On another note, If I were a real estate agent I’d love another bubble. It’s like the ice cream man hoping for a hot summer.

If the bank does any real analysis of the owner’s financial situation, the sale probably doesn’t go through.

that guy over there: the myfico website has a great consumer article about the makeup of a person’s credit score. short sale v. foreclosure will impact a person in different ways, depending on the mix. Typically a short sale is slightly less damaging than a full on foreclosure. A deed-in-lieu of foreclosure is treated like a full forclosure.

http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx

By that guy over there @ 16:

I don’t understand why you’d walk away from an upside down mortgage that you could afford. Even though it’s got to be infuriating to see the better hypothetical uses of your money, if you walk away from a mortgage, your credit rating will be destroyed and you won’t be able to buy or perhaps even rent something at a better value.

In talking with a few friends who are on the verge of walking, they are using the “everyone will be in the same boat argument”. They see themselves saving around $800 a month by renting, which over 3 to 7 years amounts to a nice amount of change.

Interesting. I just wonder how picky apartment landlords are about credit scores. I’ve only rented from corporate apartment complexes before, and every time they do a credit check and require proof of income, so I would assume having your credit score in the toilet would mean fewer lending options, as in being forced to rent from individual owners who aren’t as picky about credit.

I also wonder what impact a foreclosure has on your credit score. I mean, in the current economic climate, I’m sure less than perfect credit scores are common, but are the credit scores of people with foreclosures on their records exceptionally bad?

Home owner moved out, went to San Diego, and rentred their home out until the market recovers. He’s a realtor. I expect them to default at some point – just a matter of when.

But then again, as Kary says, prices do go up.

http://moneyfeatures.blogs.money.cnn.com/2009/06/27/can-obama-keep-up-with-falling-home-prices/

Kary are you holding out hope for another bubble?

Nope, I’m just stating what is obvious. Prices go up and prices go down.

S-crow:

What percentage of monthly income is the max lenders will approve of these days? Tales of monthly payments of 50% of income seem outragious to me. Were these liar loans, or was there a time when banks would gladly lend that much?

Thanks :)

RE: Ray Pepper @ 5 –

We’ve basically come to the conclusion that WE ARE RENTERS in our own home.

I know a friend who bought in early 2007 and believe it or not he said the EXACT SAME THING to me. I could completely feel his pain.. and couldn’t say anything back but deep down inside he also knows that there is more to go.

Mr Haybaler we are all renters. Even if you pay off your home you still have taxes, insurance, upkeep, dues, etc. You eliminate one bill of many associated with a home.

A home is always and I repeat ALWAYS an investment. If you choose to buy you made an investment. Sometimes investments work great, some ok, and some poor. We sell for gains and losses.

We took my kids to see the movie UP. It was an outstanding show that was perfect for the times we are in. Not sure if it was a coincidence but the theme pounded in my head was “it was just a house.” Family and friends are what is important. When people run into health problems and crisis they realize this quickly. As an RN for over a decade I saw it play out many times.

I applaud your decision either way. If you let your home go in the coming months/ years I assure you that you WILL be able to purchase again. Don’t let anyone tell you different. There are many ways to purchase property and they will be looking for your cash. Save as much cash as you can, keep working, and save save save.

This decade will be a “moment in time” that WILL be explained away to future lenders. I assure you!!

http://disney.go.com/disneypictures/up/

I wish somebody would wave a wand and make Cram Down so.

The wife and I have spent evenings discussing our situation. Our discussions are nearly past the emotional stage…her wanting to keep up the facade and my wanting to walk and start fresh.

We’ve basically come to the conclusion that WE ARE RENTERS in our own home. To make it less financially burdensome we have decided to take in “boarders” in part of our large house. The standard of living decreases a bit but the financial pain is decreased too… And because we are on acreage some boardiing of horses will occur too.

But basically we are dealing with a dilemma in that the property is 300K underwater while it is amortizing at more than $400 per month on the principal. If we stay 24 more years we will own it. If not it has been an affordable place to rent with no benefit of the amortization….maybe somebody can crunch some numbers around that…

RE: Kary L. Krismer @ 21 – Exactly!! These are not stocks so there is no chance that they can go up as quickly.

Why do you say that? Part of what got AZ, CA and FL in trouble was rising very quickly.

“If “everybody” seems to be defaulting, or walking away, and it strengthens their economic position by facilitating debt reduction or savings accumulation, that will be the new norm. As such, there will be no stigma or shame attached to such actions. In fact, I predict such folks will eventually come to be seen as smart and pragmatic. The law and expectations will change to reflect the new standards. That means even more will walk, reinforcing the change.”

Scotsman……..A very smart post. I agree 100%*********************

“When enough outcry is heard by politicians and the business community (NAR and the mortgage brokerage Assn’s in particular), they’ll look at this problem head on and will do their best to ramp up lending again. There may be tougher guidelines, but FICO scores may or may not be looked at with as much scrutiny.”

Dead on S Crow!!!!!!!!!!!!!!**************************

Exactly!! These are not stocks so there is no chance that they can go up as quickly. Seems like you contradicted yourself there. People who are 25% underwater need a jump of 33% in prices just to break even. Do you think we can recover that much quickly enough before they finally give in?? If you say yes to that, I will have to say you have to open your eyes towards the reality of the realty my friend.

Mr. Finiz I agree as well………………Long SRS yet??

I think 15% YOY and ~22% from top is close to that critical point where the unreal expectation of recovery in prices, “this is a long term investment”, “I bought the house to stay and not as an investment” etc starts fading away. It will be an interesting exercise to see at what price point in the down move these foreclosure business really picked up steam in the hard hit markets like LA, FL or San Diego. I think we are at that price point in Seattle right now. Everyone was hoping for a summer recovery but there is very little to speak of. There is “no hope” to latch onto after the so called summer recovery is done.

I also will not call them “stupid” for walking away – in fact I will say they are acting smart if they do it early enough – rather than being forced into it by walking (running??) away neighbors!!

There is a lot of truth to that. Further, with my experience of seeing transactions closed with borrowers just 12 mos. out of foreclosure, it would not surprise me one ‘iota to see many of the people who got in way over their heads right back into buying a home within 5 yrs. When enough outcry is heard by politicians and the business community (NAR and the mortgage brokerage Assn’s in particular), they’ll look at this problem head on and will do their best to ramp up lending again. There may be tougher guidelines, but FICO scores may or may not be looked at with as much scrutiny.

Tongue ‘n cheek scenario: “Oh, you bought in 2005? Have your proof of ownership I.D. with you that the Gov. issued? Good. You’re approved, subject to 32/38 ratios, 1040’s, VOE, income etc………” ;>

I don’t understand why you’d walk away from an upside down mortgage that you could afford. Even though it’s got to be infuriating to see the better hypothetical uses of your money, if you walk away from a mortgage, your credit rating will be destroyed and you won’t be able to buy or perhaps even rent something at a better value.

In talking with a few friends who are on the verge of walking, they are using the “everyone will be in the same boat argument”. They see themselves saving around $800 a month by renting, which over 3 to 7 years amounts to a nice amount of change.

I’ve also heard some anecdotes from people who have studied the performance of Loan Modifications, since re-default rates were found to be in the 50-70% range after mods. The only factor that made a difference on mitigating re-defaults, was if the borrower had a current LTV (loan-to-value ratio) <100. And those borrowers claim they didn't know what they were getting into when they signed the mortgage… they are acting very rationally from an economic standpoint!

Here’s an article that talks a bit about past behavioral changes and time frames:

http://www.businessspectator.com.au/bs.nsf/Article/Lacy-Hunt-$pd20090129-NR997?OpenDocument

CR had an interesting story

Yep, that is a “story.” It’s a survey of what people would do in hypothetical situations. Hardly evidence of anything, other than how people answer questions. We discussed this elsewhere here.

Kary – I don’t know anybody that can rationally “afford” to make payments on a $500,000 mortgage for a condo/home that would sell for $300,000 today. It is all about the value they place on their credit rating and as consumer credit inevitably tightens (look at the skyrocketing credit card default rate, or perhaps the non-agency “jumbo” mortgage markets) the value of good credit is going to be very little.

What goes down can also go up, and just as fast if not faster sometimes. We’re talking places to live here, not certificates of stock.

When a lot of people who can pay are walking away, that will be the true sign of a bottom, because when a lot of people are doing stupid things, that’s a sign. ;-)

That’s a ~30% difference in payments.”

They lost their initial 20% down, that is a sunk cost. Of course if they put an additional 30% down in a refinance of their current property they could lower their payments by the same 30%.

Where it gets interesting is trying to figure out when prices will revert to building cost and non-recession land prices. At the low end supply is tight already. Within a year it is more likely than not that population in this area will have caught up. The impact of the alt-A remains to be seen at the high end, but I think the low end is clearly going to revert to cost. People won’t be able to afford as much as they did before, but no new units will be built for less than what they cost. All the cheap building supplies now available because people want it off their books will be gone also.

The problem is that the latter will always be a burden on our tax dollar, where as the former is arguably an anomaly.

It doesn’t take much emotional pull to consider walking away when you see property being purchased across the street for $150,000+ less than what you may have purchased your place for in 2006 and it costing substantially less to cover the monthly payment at today’s market prices. This is more prevalent in newer developments and I would guess can make for interesting neighbor to neighbor discussions.

I looked around a bit on Redfin and found a decent real-world example of the above scenario.

Development: Camwest “Tambark Springs”
Floorplan: ~1,700 sqft, 3-bed, 2.5-bath “Aspen”
Past sales: Nov. ‘06 @ $395,808, Feb. ‘07 @ $403,950, May ‘07 @ $396,975
New units’ current asking price: $319,950 (~20% off)

If we (very generously) assume that the folks that bought in ‘06 and ‘07 had 20% down payments and got 30-year fixed-rate mortgages at the going rates at the time, their payments would presently be around $2,400. Today’s buyer with the same sized down payment would have a monthly payment around $1,700.

That’s a ~30% difference in payments. The ‘06-’07 buyers are spending $8,400 a year more for the same house as their neighbors. I imagine most people can think of lots of things they’d rather do with $8,400 a year than to continuously pay for a poor decision they made years ago.

People are choosing to walk for one reason or another (those who can afford the mortgage even though it is living on the edge paycheck to paycheck, those who have had income disruption and those who have pulled enormous amounts of equity out for other purchases such as another property or bling). It is happening. It is far easier when you purchased with Zero down or have refinanced twice since buying within the last 4-5 yrs. My guess is that there is a whole lot of FHA insured loans that are going to go belly up here if we don’t experience housing inflation soon.

When you have a home that costs you $4500.00/mo in PITI and you can rent your same house or a home with better accommodations (area/condition/household features) for $1800-2300/mo, people start doing the math that should have been done prior to their own purchase and the decision becomes readily apparent. Even buying today at a discount can be tricky if the idea is to turn and burn or rent it out—-rents are soft too.

It doesn’t take much emotional pull to consider walking away when you see property being purchased across the street for $150,000+ less than what you may have purchased your place for in 2006 and it costing substantially less to cover the monthly payment at today’s market prices. This is more prevalent in newer developments and I would guess can make for interesting neighbor to neighbor discussions.

I looked at a Duplex in Nooooorth Snohomish county the other day: Asking price $500K. Rents around $800/mo/unit. I really don’t understand why anyone would bother to put this up for sale at this absurd price. And people wonder why their property does not generate even a low ball offer.

EXACTLY B

Just wait until the unemployment incomes dry up by year’s end and a massive chunk of today’s unemployed aren’t in the statistics anymore. I see the last few glimmers of economic normality this summer going out like that road sign in the 70s recession: “Will the Last One Leaving Seattle, Please Shut Off the Lights”.

After that happens, defaults/foreclosures may take a year or so to hit the listed market, although I predict it may likely be this time, the distressed owners won’t leave early [they'll have no where to go], but they’ll wait a year or so for the sherriff to evict them.

None of this will show up on the NAR statistics The Tim uses, until the sherriff comes.

We find that 26% of the existing defaults are strategic. We also find that no household would default if the equity shortfall is less than 10% of the value of the house.
…
The willingness to default increases nonlinearly with the proportion of foreclosures in the same ZIP code.

Most people keep their finances to themselves. And appearances are often deceiving (e.g. 2 $30,000+ cars less than 2 years old, but drowning in a sea of debt).

I agree I only said they could afford it because that is what they said. But they bought as an investment and had an intrest only 100% financed loan. I don’t believe they could afford it, but it is all relative. What I think is affordable is different from others i.e. many feel 50% debt to income is affordable or at least doable. Many on this site have a very different idea of what is affordable than the majority of homedebtors.

SO TRUE KARY

I was at Applebees last night for their 9PM and later 1/2 price appetisers with $3 mico brews [they have Blue Moon :-)]; and a public school teacher sat down with me when I was talking RE.

It seems the rentor and married double income 20 something had a spouse that was dealing at a casino, after a lay off….the school teacher was on summer break, juggling two jobs to get by, serving tables. The couple are praying for lower home costs, so they can squeeze their budget to afford one. They don’t have kids, they can’t afford them. We both agreed that the unemployment and deflation today made this economic mess we’re in a depression in our educated opinions.

The new car debt has already come to an end. Autotrader’s 2-3 YO low milage used cars are worth more than they were two years ago; because people are buying on price tags now. Cheap new cars like Kia and Hyundai are selling much better [only a 15% drop in purchases] than 50-75% purchase dropped rates American/Japanese/European, as people are down sizing on car purchases and are picking the lowest priced ones. Irrespective, the more expensive when bought new, used American cars, do sell for about the same prices as similar milage/year used Hyundai/Kia, Check it out lately.

Also, if they could truly afford it, and the bank somehow figured that out, they’d be slightly more at risk of a non-judicial. I’ve heard stories of banks going that route, but quite frankly I don’t put any more faith in those stories than the stories of people walking away who could afford to stay.

It hurts people to pay each month knowing they are upside down 10-70%, while paying taxes, insurance, and upkeep. Then they see their neighbors or friends getting handout refi’s for not paying 90-150 days.

Oh ……………they are coming back alright………Don’t judge these people. They have families and they must move on with their lives. It started 2 years before it hit here in Washington. Nevada, Calif, and Az I witnessed it first hand and blogged about it many times.

Today, tomorrow, next month, or next year at the first sign of trouble with health, work, marriage, anything these homeowners will walk and the short sale parade will go on for a decade. The public does NOT have the money now and they wont have it in the near future.

Once the consumer decides to render their credit poor, by non payment of a Mtg -due to rapid deceleration of home value, all the unsecured lines of credit go with it. This has been reiterated on the CC’s numerous times by AXP, COF,BAC, and DFS.

There is hope…………MTG Cramdown……..Until this happens, or some variation, the short sales,foreclosures, and bankruptcies will continue relentlessly………………………………………Again, we are a mobile society and combined with life forces we MUST MOVE.

We don’t have enough to cover the negative equity we have and the expenses related to selling. We are in a terrible mess. However, as a long time student of the capital markets I stress again……….Don’t fight the FED. Watch for programs that will roll out causing anger for some and the “deal of a lifetime” for others.

Consider someone who bought at or near the peak with little to no money down. Let’s say they even got a fixed mortgage that they can technically afford. At the time they bought, it made sense to them to squeeze their budget, because they bought into the notion that if they didn’t get something right away, they would be priced out forever.

Now they’re stuck spending 50% of their income on payments for a house that is worth 10-15% less (conservatively) than what they owe on it. Meanwhile, the mortgage payments on comparable homes purchased today are 20% (or more) cheaper than what they’re paying. Rentals are even cheaper.

Every month such a person spends in their peak-purchased house they’re basically “throwing away” hundreds (sometimes thousands) of dollars. Selling isn’t an option, because they owe so much more than the home would sell for. Walking away starts to make sense.

I’m not saying I necessarily recommend it (or that I don’t) as a course of action, but I can absolutely understand the rationale.