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People walking away from houses wasn't the problem. People walking away from houses they were underwater on was the problem. Besides, if you were underwater and

by hx87 10y ago

People walking away from houses wasn't the problem. People walking away from houses they were underwater on was the problem. Besides, if you were underwater and could still afford the payments there is no reason to walk away. I am currently underwater on my car, but I can still, you know, drive it.

codegeek 10y ago
yes, but you make the assumption that you don't have to sell the house due to factors such as sudden job loss, unplanned events such as accident/injury causing disability etc. The point of 20% down is that you have enough equity even for a turbulent market and if you do need to sell quickly due to possible factors above, you still should be ok. Otherwise, you are assuming that nothing bad will happen and you can continue paying the mortgage.
- muninn_ 10y ago
  To your point I think that you just always have that risk. But I'd rather have that 20% I would have spent either invested in a 401k or a retirement fund or even using it for other things like getting another degree. Now I'm not saying those are necessarily the wisest options, but I like the opportunity. I mean this in the kindest way but all you're arguing against here is the risk/reward. In the same token, what I'd home values appreciate 30% in 10 years and all the while I'm renting the place and having somebody else pay the mortgage? Just different risk factors is all. If I find it impossible to get a job as an engineer doing the work I do, than the entire country is probably in another depression. I'm just betting against that.
  - cmdrfred 10y ago
    I think together my fiance and I had about 8% down. Thing was, to rent our current house would be about $1600/month. Even a shitty 2 bedroom was $1200, mortgage with insurance and taxes is $1100. For some people it's not a matter of can we afford to, it's can we afford not to. Even if rent dropped 10% (that has never happened in my area, they were still going up in 2008-2009) it would be a better deal to have a mortgage.
    - jackcosgrove 10y ago
      "can we afford not to" Bubble alert!
      - cmdrfred 10y ago
        Rents have to fall a lot to put us in a situation were that's a bad thing (we aren't moving for a long time), and then at that point we can just let the bank foreclose and move into a $500 a month 2 bedroom.
    - mattmanser 10y ago
      Your mortgage is temporarily low because interest rates are low. http://www.bankrate.com/finance/mortgage-rates-history-0112.aspx http://www.bankrate.com/finance/mortgage-rates-history-0112.... If your interest rate doubled, could you afford to? Do you know how much you'd have to pay?
      - dragonwriter 10y ago
        If you get a fixed-rate loan, you don't have to worry about that.
        toomuchtodo 10y ago
        Interest rates go up, your home value goes down.
        dpark 10y ago
        Sure. That's a real risk. There are probably much bigger risks to worry about, like the market crashing again or losing your job. The risk of interest rates going high enough to significantly push home prices down seems really small for the next several years.
        fulafel 10y ago
        Historically both real estate prices and interest rates are procyclical. Central banks raise rates when inflation becomes too fast (which is closely correlated to house price appreciation). But of course you can sometimes have a local economic decline while the currency area is experiencing overheating and high inflation.
enraged_camel 10y ago
Cars and houses are not the same thing. Cars depreciate in value from the moment you drive them out of the parking lot of the dealer. House values generally stay the same or go up. Continuing to make payments on a house when you're underwater on the basis that you can still live in it is a really bad idea. Even if you can afford the payments, why would you want to overpay for something? That's why so many people walked away from their houses during the real estate crash: when you have no guarantees that the asset you're paying for will appreciate in value back to the original value, it's a much more financially sound decision to ignore the sunk cost and cut your losses ASAP.
- PretzelFisch 10y ago
  you borrowed money and already made the purchase, just like a loan for a car. Car's depreciate quickly but people don't default on the loan because they are underwater based on ltv.
  - joeblubaugh 10y ago
    The debt is collateralized by the house - give up the house and let the bank pay for the risk they took on you. You're under no obligation to the bank to overpay for housing when things change - you're just not likely to get another mortgage either.
    - dpark 10y ago
      > You're under no obligation to the bank Yes you are. You signed a contract. This gives you an ethical if not a moral obligation. You have a legal obligation to pay in all states, which is why the lender can foreclose on you if you fail to do so. In some states, you also have a legal obligation to make the lender whole if they can't recoup their loss with the foreclosure sale.
- muninn_ 10y ago
  I think it depends on your risk tolerance and world view. I think the world is just going to get more wealthy and property prices, even when there are downturns, will eventually always appreciate if you buy in the right area. I'm not saying I can predict that, but in the area I live in there were houses in the $600,000 range that sold for far less than that during the downturn, and now they're right back at the pre-recession value. On the other hand there are areas that have never recovered. I think as a general rule if you buy a place in a mixed-used development neighborhood you'll be able to weather the storms. At least that's my opinion (and take that for what it's worth).

by hx87 10y ago

codegeek 10y ago

yes, but you make the assumption that you don't have to sell the house due to factors such as sudden job loss, unplanned events such as accident/injury causing disability etc. The point of 20% down is that you have enough equity even for a turbulent market and if you do need to sell quickly due to possible factors above, you still should be ok. Otherwise, you are assuming that nothing bad will happen and you can continue paying the mortgage.

muninn_ 10y ago
To your point I think that you just always have that risk. But I'd rather have that 20% I would have spent either invested in a 401k or a retirement fund or even using it for other things like getting another degree. Now I'm not saying those are necessarily the wisest options, but I like the opportunity. I mean this in the kindest way but all you're arguing against here is the risk/reward. In the same token, what I'd home values appreciate 30% in 10 years and all the while I'm renting the place and having somebody else pay the mortgage? Just different risk factors is all. If I find it impossible to get a job as an engineer doing the work I do, than the entire country is probably in another depression. I'm just betting against that.
- cmdrfred 10y ago
  I think together my fiance and I had about 8% down. Thing was, to rent our current house would be about $1600/month. Even a shitty 2 bedroom was $1200, mortgage with insurance and taxes is $1100. For some people it's not a matter of can we afford to, it's can we afford not to. Even if rent dropped 10% (that has never happened in my area, they were still going up in 2008-2009) it would be a better deal to have a mortgage.
  - jackcosgrove 10y ago
    "can we afford not to" Bubble alert!
    - cmdrfred 10y ago
      Rents have to fall a lot to put us in a situation were that's a bad thing (we aren't moving for a long time), and then at that point we can just let the bank foreclose and move into a $500 a month 2 bedroom.
  - mattmanser 10y ago
    Your mortgage is temporarily low because interest rates are low. http://www.bankrate.com/finance/mortgage-rates-history-0112.aspx http://www.bankrate.com/finance/mortgage-rates-history-0112.... If your interest rate doubled, could you afford to? Do you know how much you'd have to pay?
    - dragonwriter 10y ago
      If you get a fixed-rate loan, you don't have to worry about that.
      - toomuchtodo 10y ago
        Interest rates go up, your home value goes down.
        dpark 10y ago
        Sure. That's a real risk. There are probably much bigger risks to worry about, like the market crashing again or losing your job. The risk of interest rates going high enough to significantly push home prices down seems really small for the next several years.
        fulafel 10y ago
        Historically both real estate prices and interest rates are procyclical. Central banks raise rates when inflation becomes too fast (which is closely correlated to house price appreciation). But of course you can sometimes have a local economic decline while the currency area is experiencing overheating and high inflation.

enraged_camel 10y ago

Cars and houses are not the same thing. Cars depreciate in value from the moment you drive them out of the parking lot of the dealer. House values generally stay the same or go up. Continuing to make payments on a house when you're underwater on the basis that you can still live in it is a really bad idea. Even if you can afford the payments, why would you want to overpay for something? That's why so many people walked away from their houses during the real estate crash: when you have no guarantees that the asset you're paying for will appreciate in value back to the original value, it's a much more financially sound decision to ignore the sunk cost and cut your losses ASAP.

PretzelFisch 10y ago
you borrowed money and already made the purchase, just like a loan for a car. Car's depreciate quickly but people don't default on the loan because they are underwater based on ltv.
- joeblubaugh 10y ago
  The debt is collateralized by the house - give up the house and let the bank pay for the risk they took on you. You're under no obligation to the bank to overpay for housing when things change - you're just not likely to get another mortgage either.
  - dpark 10y ago
    > You're under no obligation to the bank Yes you are. You signed a contract. This gives you an ethical if not a moral obligation. You have a legal obligation to pay in all states, which is why the lender can foreclose on you if you fail to do so. In some states, you also have a legal obligation to make the lender whole if they can't recoup their loss with the foreclosure sale.
muninn_ 10y ago
I think it depends on your risk tolerance and world view. I think the world is just going to get more wealthy and property prices, even when there are downturns, will eventually always appreciate if you buy in the right area. I'm not saying I can predict that, but in the area I live in there were houses in the $600,000 range that sold for far less than that during the downturn, and now they're right back at the pre-recession value. On the other hand there are areas that have never recovered. I think as a general rule if you buy a place in a mixed-used development neighborhood you'll be able to weather the storms. At least that's my opinion (and take that for what it's worth).