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Were there other circumstances, like you had to move for a job or something? Walking away in a downturn for its own sake seems like a bad decision, like selling

Were there other circumstances, like you had to move for a job or something? Walking away in a downturn for its own sake seems like a bad decision, like selling stock because it took a hit.

toomuchtodo 12y ago
I bought new construction, my builder went bankrupt, and Bank of America sold the land to a new builder for pennies on the dollar. When the new homes started going on sale for half what I paid, I did the math on how long it was going to take at historical real estate appreciation rates (roughly 3%/year). I stopped paying, tried to work out a modification to reduce the principal with Bank Of America (who completely botched it), they transferred it to a "specialty servicer" who specializes in modification (who also botched it), and then ended up just letting it go into foreclosure. Was 3-7 years of less than perfect credit worth it? It appears so. Houses in my old neighborhood are still significantly underwater. This isn't isolated though. ~17% of homeowners are underwater, and appreciation has slowed to a snail's pace, meaning those people aren't going to be able to sell for a long time [1]. From zillow: > In the fourth quarter of 2014, the U.S. negative equity rate – the percentage of all homeowners with a mortgage that are underwater, owing more on their home than it is worth – stood at 16.9 percent, unchanged from the third quarter. Negative equity had fallen quarter-over-quarter for ten straight quarters, or two-and-a-half years, prior to flattening out between Q3 and Q4 of last year. > While this may not seem very notable (after all, overall negative equity didn’t go up, merely flattened out), this represents a major turning point in the housing market. The days in which rapid and fairly uniform home value appreciation contributed to steep drops in negative equity are behind us, and a new normal has arrived. Negative equity, while it may still fall in fits and spurts, is decidedly here to stay, and will impact the market for years to come. [1] http://www.calculatedriskblog.com/2015/03/zillow-negative-equity-rate-unchanged.html http://www.calculatedriskblog.com/2015/03/zillow-negative-eq...
- Domenic_S 12y ago
  Thanks for taking the time to type this up, it's really interesting. It is fascinating to me that being underwater in a house is such a big deal to people; almost every car you see on the street is underwater yet people don't care nearly as much about that. The computer I'm typing this on is definitely "underwater" in that it's worth less than I paid. Almost every investment transaction (stocks, etc) are underwater the moment you make them because of transaction fees. If your ability to pay is unchanged and you don't need the liquidity (ie, you don't need to move today), I don't see the problem. You got the short end of the stick, sure, but it was your deal to make or not make in the first place. Further, if you're considering a home purchase in financial/investment terms, you've got to consider the time scale - real estate operates in terms of decades. A lot of people got used to multi-digit yearly appreciation and to this day think anything else is a bad deal, when it's actually more on-par with other investment vehicles after the adjustment. > Negative equity is decidedly here to stay, and will impact the market for years to come. I wonder how much of this is because low-money-down lending (FHA, VA) has opened back up, with down payments barely (if at all) covering transaction costs. It could actually be a good indicator for affordability. Anyway, I assume you're at peace with your decision and I'm not trying to convince you otherwise. Just trying to understand the logic. No offense meant.
  - toomuchtodo 12y ago
    > If your ability to pay is unchanged and you don't need the liquidity (ie, you don't need to move today), I don't see the problem. > Anyway, I assume you're at peace with your decision and I'm not trying to convince you otherwise. Just trying to understand the logic. No offense meant. None taken at all. I made a mistake, and I paid for it. Keep in mind, no one cares when their car is underwater because you can cough up a few thousand dollars to get out of it. When your house is underwater for tens of thousands of dollars you're effectively trapped in it, and can't move if you need to (whether its for work or personal reasons). Those homeowners underwater are limited in their mobility now, thereby reducing their earning potential if they could possibly move for a better opportunity (either pay or experience). While that might contribute to keeping wage inflation in check, it also limits any economic growth we might realize from those people having more mobility. TL;DR Housing shouldn't be viewed as an investment, and we're going to feel the pain from the 2008-2009 crisis for many years to come.
  - shanecleveland 12y ago
    Home ownership in the US has traditional been viewed as a means toward upward mobility and a good investment. And it's certainly billed as such by the real estate industry. "Why throw your money away on rent!" When you buy a car, or most other consumer goods, for that matter, you don't view it as an investment that you will be able to sell at a higher cost in the future How many mortgage lenders do you think cautioned homebuyers against buying real estate they qualified for? Both parties entering into that agreement must assume some risk. Homebuyers may loose a home they are unable to pay for, plus anything already paid. Banks get to keep payments already made and the collateral they agreed upon when foreclosure occurs.
    - Domenic_S 12y ago
      People have unreasonable expectations of what an investment is though, just browse /r/personalfinance or /r/investing. If you need liquidity, real estate is not for you. For a tiny period of time that's a rounding error in the history of real estate ownership, yes you could buy a house and see a 100% value increase in a year. But going in expecting that isn't investment, it's speculation (see: bitcoin's run up and crash). The value in real estate - in any true investment - is over the long term. I'm talking decades, not years and certainly not months. For a primary residence it's worth it just to keep your housing payment steady. Your $3k mortgage payment is going to be $3k today, tomorrow, and forever until you pay it off. What's $3k in rent today going to be in 30 years? Nobody could say for sure, but I'd bet everything I own it'll be more than $3k. But as with any investment vehicle, you have to choose what's right for your risk profile and your liquidity needs. Don't invest in a startup if you need your capital back in 2 months, and don't buy a house if you need to liquidate it in a year. Every vehicle has tradeoffs, and each vehicle can be mis-used and end up costing the investor dearly. > How many mortgage lenders do you think cautioned homebuyers against buying real estate they qualified for? Effectively 0, and I can't see a reason it should be otherwise. Does a car dealer caution you about buying too expensive of a car? Does the Apple store encourage you to buy the smallest iPod? Salesmen are not (usually) your fiduciary, and every single person involved in a real estate transaction is a salesperson. Nobody's looking out for you except for you. > Homebuyers may loose a home they are unable to pay for Sure, that happens, and I feel bad for people in that situation. What I've heard a lot of though is from people who could pay, but won't because they feel like it's a bad deal now (see: this thread).

Were there other circumstances, like you had to move for a job or something? Walking away in a downturn for its own sake seems like a bad decision, like selling stock because it took a hit.

toomuchtodo 12y ago

I bought new construction, my builder went bankrupt, and Bank of America sold the land to a new builder for pennies on the dollar. When the new homes started going on sale for half what I paid, I did the math on how long it was going to take at historical real estate appreciation rates (roughly 3%/year). I stopped paying, tried to work out a modification to reduce the principal with Bank Of America (who completely botched it), they transferred it to a "specialty servicer" who specializes in modification (who also botched it), and then ended up just letting it go into foreclosure. Was 3-7 years of less than perfect credit worth it? It appears so. Houses in my old neighborhood are still significantly underwater. This isn't isolated though. ~17% of homeowners are underwater, and appreciation has slowed to a snail's pace, meaning those people aren't going to be able to sell for a long time [1]. From zillow: > In the fourth quarter of 2014, the U.S. negative equity rate – the percentage of all homeowners with a mortgage that are underwater, owing more on their home than it is worth – stood at 16.9 percent, unchanged from the third quarter. Negative equity had fallen quarter-over-quarter for ten straight quarters, or two-and-a-half years, prior to flattening out between Q3 and Q4 of last year. > While this may not seem very notable (after all, overall negative equity didn’t go up, merely flattened out), this represents a major turning point in the housing market. The days in which rapid and fairly uniform home value appreciation contributed to steep drops in negative equity are behind us, and a new normal has arrived. Negative equity, while it may still fall in fits and spurts, is decidedly here to stay, and will impact the market for years to come. [1] http://www.calculatedriskblog.com/2015/03/zillow-negative-equity-rate-unchanged.html http://www.calculatedriskblog.com/2015/03/zillow-negative-eq...

Domenic_S 12y ago
Thanks for taking the time to type this up, it's really interesting. It is fascinating to me that being underwater in a house is such a big deal to people; almost every car you see on the street is underwater yet people don't care nearly as much about that. The computer I'm typing this on is definitely "underwater" in that it's worth less than I paid. Almost every investment transaction (stocks, etc) are underwater the moment you make them because of transaction fees. If your ability to pay is unchanged and you don't need the liquidity (ie, you don't need to move today), I don't see the problem. You got the short end of the stick, sure, but it was your deal to make or not make in the first place. Further, if you're considering a home purchase in financial/investment terms, you've got to consider the time scale - real estate operates in terms of decades. A lot of people got used to multi-digit yearly appreciation and to this day think anything else is a bad deal, when it's actually more on-par with other investment vehicles after the adjustment. > Negative equity is decidedly here to stay, and will impact the market for years to come. I wonder how much of this is because low-money-down lending (FHA, VA) has opened back up, with down payments barely (if at all) covering transaction costs. It could actually be a good indicator for affordability. Anyway, I assume you're at peace with your decision and I'm not trying to convince you otherwise. Just trying to understand the logic. No offense meant.
- toomuchtodo 12y ago
  > If your ability to pay is unchanged and you don't need the liquidity (ie, you don't need to move today), I don't see the problem. > Anyway, I assume you're at peace with your decision and I'm not trying to convince you otherwise. Just trying to understand the logic. No offense meant. None taken at all. I made a mistake, and I paid for it. Keep in mind, no one cares when their car is underwater because you can cough up a few thousand dollars to get out of it. When your house is underwater for tens of thousands of dollars you're effectively trapped in it, and can't move if you need to (whether its for work or personal reasons). Those homeowners underwater are limited in their mobility now, thereby reducing their earning potential if they could possibly move for a better opportunity (either pay or experience). While that might contribute to keeping wage inflation in check, it also limits any economic growth we might realize from those people having more mobility. TL;DR Housing shouldn't be viewed as an investment, and we're going to feel the pain from the 2008-2009 crisis for many years to come.
- shanecleveland 12y ago
  Home ownership in the US has traditional been viewed as a means toward upward mobility and a good investment. And it's certainly billed as such by the real estate industry. "Why throw your money away on rent!" When you buy a car, or most other consumer goods, for that matter, you don't view it as an investment that you will be able to sell at a higher cost in the future How many mortgage lenders do you think cautioned homebuyers against buying real estate they qualified for? Both parties entering into that agreement must assume some risk. Homebuyers may loose a home they are unable to pay for, plus anything already paid. Banks get to keep payments already made and the collateral they agreed upon when foreclosure occurs.
  - Domenic_S 12y ago
    People have unreasonable expectations of what an investment is though, just browse /r/personalfinance or /r/investing. If you need liquidity, real estate is not for you. For a tiny period of time that's a rounding error in the history of real estate ownership, yes you could buy a house and see a 100% value increase in a year. But going in expecting that isn't investment, it's speculation (see: bitcoin's run up and crash). The value in real estate - in any true investment - is over the long term. I'm talking decades, not years and certainly not months. For a primary residence it's worth it just to keep your housing payment steady. Your $3k mortgage payment is going to be $3k today, tomorrow, and forever until you pay it off. What's $3k in rent today going to be in 30 years? Nobody could say for sure, but I'd bet everything I own it'll be more than $3k. But as with any investment vehicle, you have to choose what's right for your risk profile and your liquidity needs. Don't invest in a startup if you need your capital back in 2 months, and don't buy a house if you need to liquidate it in a year. Every vehicle has tradeoffs, and each vehicle can be mis-used and end up costing the investor dearly. > How many mortgage lenders do you think cautioned homebuyers against buying real estate they qualified for? Effectively 0, and I can't see a reason it should be otherwise. Does a car dealer caution you about buying too expensive of a car? Does the Apple store encourage you to buy the smallest iPod? Salesmen are not (usually) your fiduciary, and every single person involved in a real estate transaction is a salesperson. Nobody's looking out for you except for you. > Homebuyers may loose a home they are unable to pay for Sure, that happens, and I feel bad for people in that situation. What I've heard a lot of though is from people who could pay, but won't because they feel like it's a bad deal now (see: this thread).