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Post by Deleted on Jun 13, 2011 16:46:15 GMT -5
I read a hard copy of USA today so I can't post a link. But the cover story was about a building development in Las Vegas. The owners had all bought new a few years ago, generally at the over $300,000 range. Some did 0% financing, but some had made down payments as high as $82,000. These are about half price today.
Imagine having to bring $100,000 to the closing table to do the "right thing." Or perhaps having a 30 year "mortgage" but no house. Lol. These aren't people who used their houses like piggy banks. Like I said, some made really substantial down payments. Wow.
I talked with DH about the article because he's recently from Phoenix, which has also been hard hit. He said he had less sympathy because a lot of people bought houses that weren't worth what they were paying for them. He cited the condos where he used to live. They cost $82,000 when he bought his in the mid 1990s, and they were selling for $185,00 before the collapse. He sold his maybe in 2000 when he decided he didn't want a mortgage. (Poor guy married one. LOL.)
So "for fun," we went to Zillow. I know their prices are off, but they also list "for sale" units. A unit in the same complex but larger (3 bedrooms as opposed to 2) is for sale at $60,000. It seems to be for sale by owners. Again, wow. So even though he felt he bought at a fair price at $82,000, he would still have lost $22,000 (or more) over the past 15 years.
I say I wouldn't walkaway because (a) I bought the house to live in; (b) I am trying to accelerate the mortgage, anyway, to have it paid for int retirement; and (c) houses here haven't lost 50% of their value. Notice none of these are moral issues as in "I signed a contract so I have to honor it." I honestly like to think I honor my promises, but there was also an implicit promise that the house was "worth" what I paid for it. Not that it would appreciate, not that I wouldn't sink money in it for maintenance, etc. But I always thought I could always sell it for what I paid or close to it.
How would you feel if your house was 50% underwater or more? Imagine that you had done everything right . . . saved up the down payment, researched the area, and then it all collapsed?
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thyme4change
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Post by thyme4change on Jun 13, 2011 16:55:47 GMT -5
Umm - yeah - isn't that what we have been saying the whole time?
Yes, but they were worth what people were paying for them. My example houses in my hood sold for $90k in the mid-90's. The neighborhood went up to $500k at the height, and now they are settling around $275 - $300. So, if you had purchased the house for $200k in 2002 were you stupid, because it was going for less than half that 7 years earlier, or were you a genius because you got in right in time to still get appreciation even if the market crashes. That is total hindsight. You can't fault anyone for paying $350k when every house in the area was selling for $350k. Unless your crystal ball is better than mine you can't tell where the top of the bubble is, or when it is going to burst. I had people tell me the real estate bubble was going to crash in 1999 - but now, I would kill to pick up some property at 1999 levels.
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Post by Deleted on Jun 13, 2011 17:02:46 GMT -5
You live in Phoenix, Thyme, where it is happening all around of you. I live in Alabama, where it has become much harder to sell a house but home values have only dropped maybe 10-20% at most.
My point is that it finally clicked with me. I felt so sorry for the people in the article. They thought they were buying houses worth what they were paying for them. Yes, maybe they were at the time. But to have to bring $100,000 to the closing table after making an $82,000 down payment?
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Plain Old Petunia
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Post by Plain Old Petunia on Jun 13, 2011 17:03:42 GMT -5
<< How would you feel if your house was 50% underwater or more? Imagine that you had done everything right . . . saved up the down payment, researched the area, and then it all collapsed? >> I don't have to imagine, SouthernSusana
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thyme4change
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Post by thyme4change on Jun 13, 2011 17:04:22 GMT -5
Exactly - who is smarter, the person who loses $82k and walks away (or loses their $0 down) or the person who loses $182k?
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Post by Deleted on Jun 13, 2011 17:11:50 GMT -5
So i can buy a 3 bedroom in Phoenix for 60k? Am i likely to get mugged or raped in my stairwell? Or is that really just the reality of Phoenix these days?
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thyme4change
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Post by thyme4change on Jun 13, 2011 17:19:32 GMT -5
Well - there probably isn't a stairwell. Most of our condos open to the outside air. Condos have never had a good footing in the Phoenix market. Land is too cheap, so SFH's rule the roost. New condos do better than older ones. Even if that one was built in the 90's, there are hundreds more that are newer and more valuable. I'm also guessing that the condo isn't in "Phoenix" but maybe a suburb. That isn't like a downtown loft-style or anything.
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hoops902
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Post by hoops902 on Jun 13, 2011 17:19:47 GMT -5
"How would you feel if your house was 50% underwater or more?"
What's the difference between your house being 50% underwater or paying in cash and having it worth 1/2 as much if you bought it to live in? Why even worry about how much it's worth if your plan is to live in it?
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thyme4change
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Post by thyme4change on Jun 13, 2011 17:22:18 GMT -5
If you are underwater you can walk away and not actually realize the loss. But if you paid cash you have the unrealized loss and there isn't much you can do about it, but hope.
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Post by Deleted on Jun 13, 2011 17:23:07 GMT -5
To be fair, this is Glendale, a suburb of Phoenix. But when DH left two years ago, the condos were still a safe place to live. There were no stairwells. You paid maintenance fees. There is a pool, tennis court, and all the other amenities.
He described them as nice but not particularly well-built. Let's say average. They were built in the 1980s, which apparently isn't a great decade for building. Lol.
The unit we looked at was larger. It was an end unit that was all one level. (His was two levels.) Same butcher block countertops. But it looked clean and bright. The complex was always well maintained when I visited.
However, it looked like almost every other unit in the complex was for rent. That's not necessarily "bad." Times are tough, and if you can't sell, you try to rent. But it's not somewhere I would want to buy.
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thyme4change
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Post by thyme4change on Jun 13, 2011 17:28:20 GMT -5
I think Lex bought a whole house for $60k in Maricopa. He was going to rent it out.
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Plain Old Petunia
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Post by Plain Old Petunia on Jun 13, 2011 17:32:39 GMT -5
Donna Freedman's daughter has been writing about house hunting in the 60k range in the Phoenix area on her blog, I Pick Up Pennies.
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Angel!
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Post by Angel! on Jun 13, 2011 17:40:07 GMT -5
"How would you feel if your house was 50% underwater or more?" What's the difference between your house being 50% underwater or paying in cash and having it worth 1/2 as much if you bought it to live in? Why even worry about how much it's worth if your plan is to live in it? What if you need to move? I would rather be 50% underwater & walk than know I sunk & lost all that money.
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hoops902
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Post by hoops902 on Jun 13, 2011 17:45:25 GMT -5
"How would you feel if your house was 50% underwater or more?" What's the difference between your house being 50% underwater or paying in cash and having it worth 1/2 as much if you bought it to live in? Why even worry about how much it's worth if your plan is to live in it? What if you need to move? I would rather be 50% underwater & walk than know I sunk & lost all that money. That's my point when asked "how would you feel if you were 50% underwater or more"? I'd feel pretty damn good because as it stands I own my home and would be in a lot more pain if I had to leave because 1. I can't just "walk away", I still have to sell it which takes plenty of time even to sell at a massive loss. 2. I'm losing ALL of the cost-value, not a percentage that I'd lose if i walked away simply underwater.
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hoops902
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Post by hoops902 on Jun 13, 2011 17:46:25 GMT -5
Exactly - who is smarter, the person who loses $82k and walks away (or loses their $0 down) or the person who loses $182k? Which is why people need to stop all their whiny bs about "oh my home is underwater".
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thyme4change
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Post by thyme4change on Jun 13, 2011 17:48:40 GMT -5
I don't believe I agree with your point hoops. I'm not sure it makes a lot of sense.
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Post by Deleted on Jun 13, 2011 18:07:47 GMT -5
I agree with Thyme. I don't understand why people should quit whining. If I read your other post right, you have no mortgage so if you had to move, you'd lose "real" money as opposed to the fictional money that comes from a mortgage. That makes you feel better because?
Petunia, I didn't mean to ignore your post about being 50% underwater. That must be awful.
I guess my real point is that it isn't "that" bad in most parts of the country. Like I said, it takes a whole lot longer to sell a home and prices are depressed 10%-20%. That isn't good, but it doesn't make anyone want to default. I also think people in the South (as in Alabama, not Atlanta) are more stationary. We are a state where most people's families have lived in the same general area for generations.
Phoenix is a city of "immigrants," meaning very few people are actually from "there." They all moved "there" for various reasons. No one moves to Alabama by choice. Lol. You are born here, if that makes sense.
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sil
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Post by sil on Jun 13, 2011 18:15:20 GMT -5
How would you feel if your house was 50% underwater or more? Imagine that you had done everything right . . . saved up the down payment, researched the area, and then it all collapsed? *****************************************************************************************************************************************************
Well, we didn't quite meet all of your critiera because we only put 5% down, but housing values and the neighborhood surrounding our home did collapse around us and we sold our home short for 40% of our purchase price. I think there are 2 things people forget when they look down on those who bought at the height of the bubble and then walked away.
1) In 2005, only a rather small minority of financial writers were predicting a collapse of the housing market.
In our case, we were watching housing prices grow far faster than our downpayment savings account. Because of this, the longer we saved for our downpayment, the farther away we were from having 20% or even 10% set aside for our downpayment. So, we lowered our expectations and bought a "starter" condo, because we believed that if we didn't buy something soon, we'd be priced out forever (this was the majority opinion, at least vast majority of the press I was reading, at the time). That starter condo cost about 2.5 times our annual income, it was a good size for the 2 of us, and it was in a decent neighborhood. Which leads me to my second point...
2) The house may be the same, but the neighborhood is going to sh**
Fast forward a few years. Our favorite neighbors were starting to sell. Prices weren't dropping, they were plummeting. We listed our home at $40,000 less than we purchased it, and planned on taking a personal loan to cover the difference, but no one was buying...at least not at that price. Other neighbors began walking away. Many owners were trying to rent their units, and the competition led to a sharp decline in rental prices. Some units became unoccupied, others had renters who moved in from a less desirable part of the county. Property crime began to rise. We frequently saw police cars visiting neighbors, and on occasion we'd have police heliocopters flying overhead. HOA couldnt keep up with graffiti removal, and there were less of us paying dues, so HOA kept climbing. A homeless shelter and a foodbank both opened up within a mile of our home, and the local school's rankings were dropping.
We did a short sale 5 years after we bought. In that time, we both lost jobs and got new once much farther away from our house, we had our first child and after several years, we decided to have a second baby. I remember a couple of fights because I didn't want to try for a second child because we were so far upside down in a 2-bedroom condo with no yard in a neighborhood that was becoming less safe, with schools that were on the decline. We sold our condo last year for $180k less than our purchase price.
In the same situation, others would have made different choices. But given the information I had at the time, the choice to buy when we did and the choice to sell short when we did both still make sense to me. Honestly, the biggest mistake we made was to buy a starter condo in a neighborhood on the outskirts at 2.5x our income, vs. buying a small single family home closer to the city for 4x our income. I could have dealt with the decline of our home's value, but it was the decline of our neighborhood + being trapped in a starter home, presumably until my kids were ready to go to college, that I would not accept
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Post by Deleted on Jun 13, 2011 18:15:32 GMT -5
"Maricopa" "Glendale"
This is part of the problem. As Thyme suggests there aren't very many physical constraints in the Phoenix area to keep a builder from buying another plot of land further out and building another subdivision. The limit seems to be how far folks want to commute. So you see folks letting their further out suburb homes foreclose and move closer to the core and more desirable areas.
I remember the same drill in the early 80s and again in the 90s.
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Post by Deleted on Jun 13, 2011 18:20:01 GMT -5
SIL, your story is exactly the same sort of angst that was in the USA Today story.
One thing the USA Today story made clear is that you should also probably declare bankruptcy if you are in a recourse state. The banks aren't actively pursuing borrowers at the moment, but they have lots of time to do that. The article stuggested that when the dust settled, the bank will be selling the shortfall to collection agencies.
That will be another nightmare.
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Plain Old Petunia
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Post by Plain Old Petunia on Jun 13, 2011 18:51:24 GMT -5
I read that prices in my area are expected to take another big drop in the next year or two as "shadow inventory" hits the market. If that happens, I will have to seriously evaluate whether maintaining my perfect credit rating and doing the "right" thing are worth it. (I actually do not feel it is a moral decision, but a financial one.)
I put 20% + closing down, which amounted to 52k and change. I also immediately spent another 10k before moving in (house had been empty and was a foreclosure, not in great shape). If I wanted to sell today, I estimate I would need to cough up about 70k for the privilege of being out from under.
Yes, it is definately a bummer. Granted, not the end of the world either.
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cronewitch
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Post by cronewitch on Jun 13, 2011 19:09:49 GMT -5
My neighbor's house is empty for over 6 months. They bought at the height of the bubble and were good neighbors. The house is worth less than half now. It was a woman and her husband and her parents and last spring a baby girl so 5 people in a two bedroom house. Her parents were taking of moving back to China because it was cheaper. I am wondering if they didn't move back to China too rather than pay double price for the house over what they could buy for now. She was the only one that spoke much English and the family seemed really close so maybe it would be good to move to China if her parents did.
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muttleynfelix
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Post by muttleynfelix on Jun 13, 2011 19:43:06 GMT -5
I live in the country and my next door neighbors were forclosed upon. They actually left the house and a whole bunch of trash in August of last year. The forclosure went through 1 month ago. The home was custom built and if there value was anything like ours it was worth around 10% less than what they had paid. They moved out pretty much 3 years to the day they moved in, so I'm not sure if it was an ARM or not but even that didn't make much sense since mortgage rates were so low. No one else in the neighborhood knew what was going on either. I'm glad we did our refi last year (for a lower rate) because a foreclosure would have been hell on our property values. The bank did hire a clean up company to remove the chairs, bikes, strollers, grill and just general trash laying around the house and to mow the grass and who knows what else. The outside of the house looks better than it ever has... at least from where our house stands. I wish i knew what happened to them (more for curiosity, they weren't friendly people). But I don't and neither does anyone else.
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Post by Savoir Faire-Demogague in NJ on Jun 13, 2011 19:44:15 GMT -5
I believe, and someone can correct me, but there may be tax consequences in walking way
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Post by Deleted on Jun 13, 2011 19:54:26 GMT -5
I think it depends on the state SF.
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Plain Old Petunia
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Post by Plain Old Petunia on Jun 13, 2011 20:07:06 GMT -5
Not right now, SF, under the Mortgage Debt Forgiveness Act of 2007, provided it is your primary home and you haven't done any "cashing out".
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Plain Old Petunia
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Post by Plain Old Petunia on Jun 13, 2011 20:09:37 GMT -5
<< A bit of common sense would do people wonders. There are times that people can get caught, especially from illness, divorce, or job loss, but just paying to much, which is beyond your means to begin with and some of the over the top crazy financing,well, it was bound to happen.
I have sympathy for some, but not many. We always made sure that no matter what happened we could live on only 1 salary, that was how we conducted our affairs. It apparently served us well.
Now the mess is coming back to roost and it "ain't" pretty. >>
It sounds as though you are talking about people who lose their homes because they can't afford to keep them, not about strategic defaulters.
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Lex Luthor
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Post by Lex Luthor on Jun 13, 2011 21:02:50 GMT -5
Diddo. And I have the 1099-C for $99k to prove it. We put 5% down, plus additional $$ for improvements, and the payment was <20% of our gross. As I've said before though, the biggest factor in why we walked had more to do with the fact that we could rent something for half of our mortgage payment - a choice that did not exist before the bust. To add to what lsil said - Another thing people forget about strategic defaulters and defaulters in general - is that they have probably paid a significant amount of interest to the bank prior to default. Yes, the principal amount is 50% underwater, but that doesn't include the gobs of interest paid to the bank over the years prior to default. So when we talk about a defaulter try to remember that it is quite possible that they ended up repaying the original loan amount to the bank (and possibly more) - depending on how long they've had the home - what their interest rate was - and how far underwater the home was when it was sold. Just because someone is 50% underwater and they walk away, doesn't mean the bank lost 50% of the loan value. $51k. Not Maricopa though, much closer in. And hopefully I have a renter - just waiting for the background check to complete.
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giramomma
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Post by giramomma on Jun 13, 2011 21:57:40 GMT -5
How would you feel if your house was 50% underwater or more? Imagine that you had done everything right . . . saved up the down payment, researched the area, and then it all collapsed?
See, but I would argue that getting all caught up in the housing bubble was "doing it right."
We bought our condo in 2002, before the market took off. We paid what we thought was a reasonable amount for the condo. In the height of the bubble, people were paying 20-30K more for the same damn condo. Because they bought into the emotional hype of the bubble. Now, they have to eat at least 40K if they want to try and sell. We sold last year, and had to eat 5K. While our condo didn't loose 50%, it did loose more than 10% from when we bought it in 2002 over the last year. From the height of the bubble, yes, our condo lost about 40% of its value.
Yes, there weren't very many predicting the collapse of the housing market, but, I would think, at some point, common sense would kick in that the rise in prices would be not be sustainable long term.
To me, honestly, it's like buying stock at it's high and then selling when it goes low. There's nothing "right" about managing your investments based on emotion.
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schildi
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Post by schildi on Jun 13, 2011 23:45:51 GMT -5
I would probably walk if it made financial sense and would be 100% legal. It's a business decision. A bank on the other side of the table would do the same if they could limit a loss in any way. Our house is still worth 80% more than what we paid, so no need to think about it much more though.
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