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As someone who just purchased a primary home, it’s unnerving to hear about a correction on the horizon and that my house won’t be worth the debt I took on. I’m

As someone who just purchased a primary home, it’s unnerving to hear about a correction on the horizon and that my house won’t be worth the debt I took on. I’m still recovering after tapping into my 6 mo emergency fund to make the down payment. I think I need to move to a more aggressive E fund regeneration strategy. The article states having ~20%~ 10% of home value in liquid cash; my ~6~ 3 month E fund is about there. I haven’t learned how to check the indicators to tell if the economy is about to go through deleveraging yet. I don’t know if I’m seeing more attention to this type of article now that I own a home or if the presence of these articles are in indication something bad is about to happen. I guess the future will tell. I’ll tighten my belt much more and get that E fund back up. I wasn’t working in 2008 during the recession; I’ll prepare just in case I lose my job. No new debt. Edit: article recommends 10% the value of your home in cash, not 20%, to get through a downturn. Updated this response.

GhostVII 8y ago
Whats the issue with your home not being worth the debt you took on? Obviously it isn't great to have an asset like that loose value, but most people don't change homes very often, so the value of the home shouldn't have much impact on your life until later. Even if the value goes to 0, you can still live in it just as well as if it's value stayed constant.
- brink 8y ago
  Nobody likes to feel stuck in a house.
- fhrow4484 8y ago
  > Whats the issue with your home not being worth the debt you took on? The issue mentioned in the article is: What if you need to sell? Like what if you lost your job, found a new one but in a completely new city, far away from where you bought your house: will you be able with the new salary to pay for both a rental near your new work, and continue paying the mortgage on your original house? > most people don't change homes very often, so the value of the home shouldn't have much impact on your life until later. This is the assumption that people might disagree with. Does it make sense?
  - GhostVII 8y ago
    You disagree with the claim that most people don't change homes very often? The average time someone owns the same home is over 5 years. I mean I get the argument that, if you loose your job and sell your house it would be bad. But for me, I would only buy a house if I was sure I was going to stay in the area.
- sovietmudkipz 8y ago
  > Whats the issue with your home not being worth the debt you took on? Good point. The problem would arise if I lost my job, had to broaden the cities I apply to jobs for and I had to sell my house to move to a new city. Presumably, the market would contract forcing employers to downsize. My employer would downsize and I would get caught up in it. I would then have to choose to keep the house but limit my job prospects or cast a wider net by applying in other cities. At that point, I would have to realize a loss on my house, potentially tapping into my already constrained finances. However; best case scenario I wouldn't lose my job and I get to weather a deleveraging in the house I just bought.
  - joering2 8y ago
    Last crash was before AirBnB that’s one. Second you could always rent the whole unit just to cover the cost of mortage. I seen friends houses going from 180,000 to 30,000 during crash, only to get back to 170,000 some 8 years later. So so long as you can get hired as McDonald burger flipper, you should be able to withstand next crisis, even if it chops off 80% of your home value.
    - refurb 8y ago
      Second you could always rent the whole unit just to cover the cost of mortage. That’s not always possible. A great example is Vancouver right now. A 2 bedroom condo is around $600k. That’s almost $5000k when you include mortgage, insurance, property taxes and opportunity cost of your down payment. Units like that usually rent for $3000 tops.
      - Bombthecat 8y ago
        But that is an indication where rent will go to, no?
        kgwgk 8y ago
        Or an indication of where the selling price will go to....
- twblalock 8y ago
  > Whats the issue with your home not being worth the debt you took on? There were tons of short sales during the last recession because people could not afford their mortgage payments and their houses were worth less than they owed. It's a very bad situation to be in, and if you lose your job you might have no choice. Another less bad situation is that you might need to turn down better career opportunities in other cities because you aren't able to sell your house. Being in that kind of a jam really diminishes your control over your future.
  - GhostVII 8y ago
    The morgage payments don't change with the house price though, right? People couldn't afford to pay their morgage because they got more house than they could afford initially. But yeah being stuck in the same house because it lost value wouldn't be good.
    - twblalock 8y ago
      > People couldn't afford to pay their morgage because they got more house than they could afford initially. Or they lost their jobs because of the recession.
      - derekp7 8y ago
        Not just that, but they got talked into 5-year balloon mortgages, where they would be forced to refinance after 5 years (the upside being that they got lower monthly payments than a 30-year fixed). Well, 5 years later rates have gone up to where they can't afford the new payments, so end up losing the house.
  - bradleyjg 8y ago
    > Another less bad situation is that you might need to turn down better career opportunities in other cities because you aren't able to sell your house. If the house price stays the same this still ends up costing you roughly 6%.
    - 8y ago
sigstoat 8y ago
> The article states having 20% of home value in liquid cash; my 6 month E fund is about there. it says >=10%. which taken as some absolute rule, is absurd. if you're not moving in the next 10 years, the current value of your house is meaningless.
- pcarolan 8y ago
  For some it actually reduces their financial burden because you can appeal to have your property taxes repegged to market value. As long as the economy doesn’t tank with the housing market, it can be a welcome adjustment.
  - derekp7 8y ago
    Where I'm at, property taxes are based on the previous couple years "qualified" sales. So what happened last time, property values tanked, so no one was willing to sell. No sales means no comps. The only sales happening were foreclosures and/or short sales, which weren't considered qualified sales.
- sovietmudkipz 8y ago
  > If you’re dying to buy a primary residence today, make sure you can withstand a 20%+ correction over a five year time frame, if history is any guide. If you don’t have a financial buffer equal to at least 10% of the value of your property after putting down 20%+, then you are not financially prepared for a downturn. Better yet, pay cash. You're right, the article does say 10%, not 20%. Thanks for the correction!
stanleydrew 8y ago
> my house won’t be worth the debt I took on. Don't you mean your house won't be worth the equity you put in? Assuming you put 20% down, your debt is 80%. I would think it's pretty tough for a house to lose more than 20% of it's value. Also, if the house isn't worth the debt you took on, that's technically the debt holder's problem not yours.
- buzzdenver 8y ago
  I'm not the GP, but I'm guessing he means what he said. Being "under water" means that the debt is more than the house's value. So ignoring the various costs of bankruptcy, it would be better to just walk away and lose the current equity, then buy the same house at current market price.
- rahimnathwani 8y ago
  "it's pretty tough for a house to lose more than 20% of it's value" Yes, June 2006 to April 2009 was pretty tough on the US housing market! "if the house isn't worth the debt you took on, that's technically the debt holder's problem not yours" Right, unless you care about having zero net worth and/or not having a roof over your head.

GhostVII 8y ago

Whats the issue with your home not being worth the debt you took on? Obviously it isn't great to have an asset like that loose value, but most people don't change homes very often, so the value of the home shouldn't have much impact on your life until later. Even if the value goes to 0, you can still live in it just as well as if it's value stayed constant.

brink 8y ago
Nobody likes to feel stuck in a house.
fhrow4484 8y ago
> Whats the issue with your home not being worth the debt you took on? The issue mentioned in the article is: What if you need to sell? Like what if you lost your job, found a new one but in a completely new city, far away from where you bought your house: will you be able with the new salary to pay for both a rental near your new work, and continue paying the mortgage on your original house? > most people don't change homes very often, so the value of the home shouldn't have much impact on your life until later. This is the assumption that people might disagree with. Does it make sense?
- GhostVII 8y ago
  You disagree with the claim that most people don't change homes very often? The average time someone owns the same home is over 5 years. I mean I get the argument that, if you loose your job and sell your house it would be bad. But for me, I would only buy a house if I was sure I was going to stay in the area.
sovietmudkipz 8y ago
> Whats the issue with your home not being worth the debt you took on? Good point. The problem would arise if I lost my job, had to broaden the cities I apply to jobs for and I had to sell my house to move to a new city. Presumably, the market would contract forcing employers to downsize. My employer would downsize and I would get caught up in it. I would then have to choose to keep the house but limit my job prospects or cast a wider net by applying in other cities. At that point, I would have to realize a loss on my house, potentially tapping into my already constrained finances. However; best case scenario I wouldn't lose my job and I get to weather a deleveraging in the house I just bought.
- joering2 8y ago
  Last crash was before AirBnB that’s one. Second you could always rent the whole unit just to cover the cost of mortage. I seen friends houses going from 180,000 to 30,000 during crash, only to get back to 170,000 some 8 years later. So so long as you can get hired as McDonald burger flipper, you should be able to withstand next crisis, even if it chops off 80% of your home value.
  - refurb 8y ago
    Second you could always rent the whole unit just to cover the cost of mortage. That’s not always possible. A great example is Vancouver right now. A 2 bedroom condo is around $600k. That’s almost $5000k when you include mortgage, insurance, property taxes and opportunity cost of your down payment. Units like that usually rent for $3000 tops.
    - Bombthecat 8y ago
      But that is an indication where rent will go to, no?
      - kgwgk 8y ago
        Or an indication of where the selling price will go to....
twblalock 8y ago
> Whats the issue with your home not being worth the debt you took on? There were tons of short sales during the last recession because people could not afford their mortgage payments and their houses were worth less than they owed. It's a very bad situation to be in, and if you lose your job you might have no choice. Another less bad situation is that you might need to turn down better career opportunities in other cities because you aren't able to sell your house. Being in that kind of a jam really diminishes your control over your future.
- GhostVII 8y ago
  The morgage payments don't change with the house price though, right? People couldn't afford to pay their morgage because they got more house than they could afford initially. But yeah being stuck in the same house because it lost value wouldn't be good.
  - twblalock 8y ago
    > People couldn't afford to pay their morgage because they got more house than they could afford initially. Or they lost their jobs because of the recession.
    - derekp7 8y ago
      Not just that, but they got talked into 5-year balloon mortgages, where they would be forced to refinance after 5 years (the upside being that they got lower monthly payments than a 30-year fixed). Well, 5 years later rates have gone up to where they can't afford the new payments, so end up losing the house.
- bradleyjg 8y ago
  > Another less bad situation is that you might need to turn down better career opportunities in other cities because you aren't able to sell your house. If the house price stays the same this still ends up costing you roughly 6%.
  - 8y ago

sigstoat 8y ago

> The article states having 20% of home value in liquid cash; my 6 month E fund is about there. it says >=10%. which taken as some absolute rule, is absurd. if you're not moving in the next 10 years, the current value of your house is meaningless.

pcarolan 8y ago
For some it actually reduces their financial burden because you can appeal to have your property taxes repegged to market value. As long as the economy doesn’t tank with the housing market, it can be a welcome adjustment.
- derekp7 8y ago
  Where I'm at, property taxes are based on the previous couple years "qualified" sales. So what happened last time, property values tanked, so no one was willing to sell. No sales means no comps. The only sales happening were foreclosures and/or short sales, which weren't considered qualified sales.
sovietmudkipz 8y ago
> If you’re dying to buy a primary residence today, make sure you can withstand a 20%+ correction over a five year time frame, if history is any guide. If you don’t have a financial buffer equal to at least 10% of the value of your property after putting down 20%+, then you are not financially prepared for a downturn. Better yet, pay cash. You're right, the article does say 10%, not 20%. Thanks for the correction!

stanleydrew 8y ago

> my house won’t be worth the debt I took on. Don't you mean your house won't be worth the equity you put in? Assuming you put 20% down, your debt is 80%. I would think it's pretty tough for a house to lose more than 20% of it's value. Also, if the house isn't worth the debt you took on, that's technically the debt holder's problem not yours.

buzzdenver 8y ago
I'm not the GP, but I'm guessing he means what he said. Being "under water" means that the debt is more than the house's value. So ignoring the various costs of bankruptcy, it would be better to just walk away and lose the current equity, then buy the same house at current market price.
rahimnathwani 8y ago
"it's pretty tough for a house to lose more than 20% of it's value" Yes, June 2006 to April 2009 was pretty tough on the US housing market! "if the house isn't worth the debt you took on, that's technically the debt holder's problem not yours" Right, unless you care about having zero net worth and/or not having a roof over your head.