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Home prices are set by the market, not just by affordability. If home prices dropped 50%, very very few homeowners with rates in the ~5% range would be willing

Home prices are set by the market, not just by affordability. If home prices dropped 50%, very very few homeowners with rates in the ~5% range would be willing to sell even if they could afford to do so without bankruptcy.

WillPostForFood 4y ago
Like the previous housing busts, when prices drop 50%, there is so much general distress that there will be foreclosures everywhere, distressed sales, bankruptcies, and general economic misery. Sitting on a 5% mortgage on an underwater is ok, if you have a job, if you believe the market is coming back, if your neighborhood isn't descending into chaos.
- rcpt 4y ago
  Home prices dropping 50% puts us in 2018. Why do you think we'll all be knee deep in skeletons clubbing each other to death if that happens?
  - usrn 4y ago
    Because the prices have been so high all of people's wealth is tied up in their homes. It won't happen though unless there's already widespread violence.
    - foogazi 4y ago
      > Because the prices have been so high all of people's wealth is tied up in their homes. Housing has been so high for 3 years All of people’s wealth was tied up in housing before then too - if they sell they’ll just get less for it now
refurb 4y ago
When home price drop 50% usually the economy is in the toilet too, which means jobs are lost, which means people can't afford their mortgages. Hell, if you're far enough underwater, youd be smart to declare bankruptcy rather than pay an $800,000 mortgage on a $500,000 home.
- hiram112 4y ago
  This is exactly what happened in 2009-2010. Not everyone lost their job. Not everyone had taken out an adjustable rate loan that reset at payments they couldn't afford. Some people were perfectly able to continue paying their mortgage, but due to life circumstances and / or some sort of psychological refusal to continue to pay for a house hundreds of thousands of dollars worth less than the loan, they simply defaulted. It was called jingle mail because they just sent the keys back to the bank and walked away (sometimes taking the appliances and copper on their way out the door).
  - Slartie 4y ago
    It should be noted that this "sending keys back to the bank" thing is a rather funny US-specific possibility. In most of the remaining parts of the world (speaking for Germany myself, for example) you can't just drop a houses' keys into the banks' mailbox and be done with the entire mortgage. Instead, you are bound to a mortgage that's suddenly not backed by sufficient securities anymore and it's up to the bank to decide whether they just ignore this situation, attempt to somehow mitigate the additional risk by raising rates or requesting additional cash from you, or whether they try to liquidate the security in order to limit their losses and then come after you to cover the outstanding balance. So if you want to do the bankruptcy play in case the bank requests your last shirt, you actually need to go on full personal default, with all the negative side effects that has on your credit rating everywhere else and all the subsequent obligations like the necessity to show good financial behavior for X years to have your debts be deleted eventually.
    - refurb 4y ago
      Not sure why this is down-voted, but it's generally true. For example, only 2 provinces in Canada are "non-recourse". Default on a mortgage, they lender takes the home and absorbs any loss that remains. Most of the US is like this. "Recourse" provinces mean the lender takes your home, recovers what they can, then comes after your other assets to make up the difference. Not sure the exact laws but usually primary homes and retirement funds are protected, but they can take other property and auction it off.
whateveracct 4y ago
Gotta live somewhere
cudgy 4y ago
Many would walk away from the house and/or short sale and then renting at 30-50% of what they were paying to keep a house that will take 10 years to break even.

WillPostForFood 4y ago

Like the previous housing busts, when prices drop 50%, there is so much general distress that there will be foreclosures everywhere, distressed sales, bankruptcies, and general economic misery. Sitting on a 5% mortgage on an underwater is ok, if you have a job, if you believe the market is coming back, if your neighborhood isn't descending into chaos.

rcpt 4y ago
Home prices dropping 50% puts us in 2018. Why do you think we'll all be knee deep in skeletons clubbing each other to death if that happens?
- usrn 4y ago
  Because the prices have been so high all of people's wealth is tied up in their homes. It won't happen though unless there's already widespread violence.
  - foogazi 4y ago
    > Because the prices have been so high all of people's wealth is tied up in their homes. Housing has been so high for 3 years All of people’s wealth was tied up in housing before then too - if they sell they’ll just get less for it now

refurb 4y ago

When home price drop 50% usually the economy is in the toilet too, which means jobs are lost, which means people can't afford their mortgages. Hell, if you're far enough underwater, youd be smart to declare bankruptcy rather than pay an $800,000 mortgage on a $500,000 home.

hiram112 4y ago
This is exactly what happened in 2009-2010. Not everyone lost their job. Not everyone had taken out an adjustable rate loan that reset at payments they couldn't afford. Some people were perfectly able to continue paying their mortgage, but due to life circumstances and / or some sort of psychological refusal to continue to pay for a house hundreds of thousands of dollars worth less than the loan, they simply defaulted. It was called jingle mail because they just sent the keys back to the bank and walked away (sometimes taking the appliances and copper on their way out the door).
- Slartie 4y ago
  It should be noted that this "sending keys back to the bank" thing is a rather funny US-specific possibility. In most of the remaining parts of the world (speaking for Germany myself, for example) you can't just drop a houses' keys into the banks' mailbox and be done with the entire mortgage. Instead, you are bound to a mortgage that's suddenly not backed by sufficient securities anymore and it's up to the bank to decide whether they just ignore this situation, attempt to somehow mitigate the additional risk by raising rates or requesting additional cash from you, or whether they try to liquidate the security in order to limit their losses and then come after you to cover the outstanding balance. So if you want to do the bankruptcy play in case the bank requests your last shirt, you actually need to go on full personal default, with all the negative side effects that has on your credit rating everywhere else and all the subsequent obligations like the necessity to show good financial behavior for X years to have your debts be deleted eventually.
  - refurb 4y ago
    Not sure why this is down-voted, but it's generally true. For example, only 2 provinces in Canada are "non-recourse". Default on a mortgage, they lender takes the home and absorbs any loss that remains. Most of the US is like this. "Recourse" provinces mean the lender takes your home, recovers what they can, then comes after your other assets to make up the difference. Not sure the exact laws but usually primary homes and retirement funds are protected, but they can take other property and auction it off.

whateveracct 4y ago

Gotta live somewhere

cudgy 4y ago

Many would walk away from the house and/or short sale and then renting at 30-50% of what they were paying to keep a house that will take 10 years to break even.