6 ms·

That's a bit of a stretch, isn't it? Being underwater on a loan doesn't instantly bankrupt you. As long as Mr. Bob is actually living in his house and not just

That's a bit of a stretch, isn't it? Being underwater on a loan doesn't instantly bankrupt you. As long as Mr. Bob is actually living in his house and not just speculating on the market, he's still quite likely to come out ahead in the long run, despite the unfortunate setback.

ricardonunez 5y ago
You don’t have to declare bankruptcy to default on a house. Many people did it 2008.
kazinator 5y ago
Sure, as long as Mr. Bob doesn't have to move for reasons having nothing to do with speculation.
14 5y ago
This is kind of my mentality. I want to buy a house to live and die in it I don’t care if price goes up or down I just want my own place. Can someone explain why a market crash would be bad for someone like me who was poised to buy when the pandemic priced me out of the market? Why do I car if someone has multiple houses loses all their investments? This is a genuine question I would like to understand. Thanks
- jhickok 5y ago
  It impacts your evaluation by lenders. If you are underwater on your house, even if you can afford the payments, carrying a net-negative balance on your house (owing 500k on a house valued 350k resulting in net assets of negative 150k), it can make it harder to buy a vehicle or cosign loans for your children etc etc.
  - pxeboot 5y ago
    Source? I have been underwater on a home, and it's current value was never considered for anything not related to that property. It's not like banks send appraisers to your house everytime you apply for a credit card or auto loan.
- mixmastamyk 5y ago
  Good reasons by another post above: https://news.ycombinator.com/item?id=29337344 https://news.ycombinator.com/item?id=29337344
- CyanLite4 5y ago
  Because “life happens”. You may need to move jobs, stay closer to your parents to help them as they get older, downsize after kids go to college, you may have grandkids that you want to be closer to. You may even have to move because your neighborhood demographics change and crime begins to rise. Climate change also will seriously mess things up since it’s not easily predictable at a local level. When that life change happens, if you try to sell your house in a market downturn, it would be at a tremendous loss where you would have to cover that shortfall in one single payment. Ex: you owe $500k mortgage on a house that’s only worth $300k, you would have to find $200k in cash (and no bank will lend this) to be able to sell your property. And if you can’t do that, well…then you can’t move. Alternatively, in a hot market, you could sell your house for 650k, and since you only owe 500k on it, you would get a $150k lump sum (tax free here in the USA). Even if you didn’t want to sell the place, you could still rent it out, and also take out a home equity line of credit, where you still could get nearly 80% of that 150k in a tax-advantaged lump sum and still have the rental cash flow coming in to pay for that loan while you’re living that lavish lifestyle. Since it’s a line of credit, you can extend this lavish lifestyle for quite a while until… you guessed it, the market tanks and you’re back underwater on your mortgage.
- olau 5y ago
  Not trying to make a point, just some data: There was a show on national television in my country that had a bunch of cases like this after the 2008 crash. The typical scenario was a couple buying a house pre-crash to start a family, then breaking up after the crash and having to deal with that and a house that neither of them could afford on their own, and with the prospect of ending up with a high-interest mutual consumer loan if they sell to cover the rest of the loan. I remember reading a forum post from a dude who was being forced by the bank to start paying his ex-wife's share of that consumer loan because the bank had given up on her. Now, there are some theoretical ways out. They could haved stayed together for perhaps 10 years more, even if not romantically. Perhaps easier said than done. They could try renting out - but not all people have what it takes to do that on top of a full-time job. And it requires coordination between two people who may be fighting. They could try to make the bank write off some of the debt, or lower the interest. Actually, that solution sort of worked in some cases, not that they managed to do it on their own, but the show had a financial expert who negotiated on behalf of them.
refurb 5y ago
It takes a lot of mental effort to pay off a $400,000 loan on a house worth $200,000, especially knowing you could default and drastically reduce your monthly expenses.

ricardonunez 5y ago

You don’t have to declare bankruptcy to default on a house. Many people did it 2008.

kazinator 5y ago

Sure, as long as Mr. Bob doesn't have to move for reasons having nothing to do with speculation.

14 5y ago

This is kind of my mentality. I want to buy a house to live and die in it I don’t care if price goes up or down I just want my own place. Can someone explain why a market crash would be bad for someone like me who was poised to buy when the pandemic priced me out of the market? Why do I car if someone has multiple houses loses all their investments? This is a genuine question I would like to understand. Thanks

jhickok 5y ago
It impacts your evaluation by lenders. If you are underwater on your house, even if you can afford the payments, carrying a net-negative balance on your house (owing 500k on a house valued 350k resulting in net assets of negative 150k), it can make it harder to buy a vehicle or cosign loans for your children etc etc.
- pxeboot 5y ago
  Source? I have been underwater on a home, and it's current value was never considered for anything not related to that property. It's not like banks send appraisers to your house everytime you apply for a credit card or auto loan.
mixmastamyk 5y ago
Good reasons by another post above: https://news.ycombinator.com/item?id=29337344 https://news.ycombinator.com/item?id=29337344
CyanLite4 5y ago
Because “life happens”. You may need to move jobs, stay closer to your parents to help them as they get older, downsize after kids go to college, you may have grandkids that you want to be closer to. You may even have to move because your neighborhood demographics change and crime begins to rise. Climate change also will seriously mess things up since it’s not easily predictable at a local level. When that life change happens, if you try to sell your house in a market downturn, it would be at a tremendous loss where you would have to cover that shortfall in one single payment. Ex: you owe $500k mortgage on a house that’s only worth $300k, you would have to find $200k in cash (and no bank will lend this) to be able to sell your property. And if you can’t do that, well…then you can’t move. Alternatively, in a hot market, you could sell your house for 650k, and since you only owe 500k on it, you would get a $150k lump sum (tax free here in the USA). Even if you didn’t want to sell the place, you could still rent it out, and also take out a home equity line of credit, where you still could get nearly 80% of that 150k in a tax-advantaged lump sum and still have the rental cash flow coming in to pay for that loan while you’re living that lavish lifestyle. Since it’s a line of credit, you can extend this lavish lifestyle for quite a while until… you guessed it, the market tanks and you’re back underwater on your mortgage.
olau 5y ago
Not trying to make a point, just some data: There was a show on national television in my country that had a bunch of cases like this after the 2008 crash. The typical scenario was a couple buying a house pre-crash to start a family, then breaking up after the crash and having to deal with that and a house that neither of them could afford on their own, and with the prospect of ending up with a high-interest mutual consumer loan if they sell to cover the rest of the loan. I remember reading a forum post from a dude who was being forced by the bank to start paying his ex-wife's share of that consumer loan because the bank had given up on her. Now, there are some theoretical ways out. They could haved stayed together for perhaps 10 years more, even if not romantically. Perhaps easier said than done. They could try renting out - but not all people have what it takes to do that on top of a full-time job. And it requires coordination between two people who may be fighting. They could try to make the bank write off some of the debt, or lower the interest. Actually, that solution sort of worked in some cases, not that they managed to do it on their own, but the show had a financial expert who negotiated on behalf of them.

refurb 5y ago

It takes a lot of mental effort to pay off a $400,000 loan on a house worth $200,000, especially knowing you could default and drastically reduce your monthly expenses.