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if done correctly, the purchase of a house should have zero effect on the buyer's net worth. What is the hedge here against falling home prices? In other word
by dsp1234 11y ago
if done correctly, the purchase of a house should have zero effect on the buyer's net worth.
What is the hedge here against falling home prices? In other words, if you purchase a home a reasonable price of $500k, but changes outside of your control cause the market for that house to fall such that you could only sell it for $400k, how is your net worth not affected?
- kchoudhu 11y agoSorry, I should have been clearer: at the time of purchase, there should be a zero-impact on your net worth. As time passes, a delta opens up between the value of your house and the amount owed. This can be positive (your house went up in value, and you are now richer) or negative (you are underwater on your mortgage). If you are underwater, you have options. I wouldn't recommend it, but strategic default[1] ("jingle mail") was a huge problem for mortgage lenders during the 2008 crisis, and allows you to cut your losses if you deem your position to be untenable. [1]https://en.wikipedia.org/wiki/Strategic_default https://en.wikipedia.org/wiki/Strategic_default