Strategic Walkaway finally clicked with me today

[Plain Old Petunia]

<< 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. >>

Or maybe they were just buying a house and their magic 8 ball failed to disclose that the housing market was about to crash. You paid what you thought was a reasonable amount, suppose two years later the price had plunged by 2/3. Would it still seem reasonable? Or would it be more fair to say that you had made an emotional decision based on hype?

[jd2005]

Oh man...this hits home. I bought in Las Vegas in 2006, didn't over extend (mortgage payment is about 10% of gross), and intended to live there for a long while. Fast forward 4 years, was laid off due to the economy, house bought for $255,000 is now listed at $91,000 and no bites, and I was only able to find a job across the country in a HCOL area. Rent for a 1 bedroom apartment is higher here than the mortgage for my 2 bedroom townhouse in Las Vegas. In the process of short selling now. Never thought I would...hurts...

[reader79]

I don't think it required a crystal ball to see that there was something wrong with just how fast and ridiculous housing prices went up. My friend fell prey to the notion that if she didn't buy a house then, she would never be able to afford one. On a $34K salary, she purchased a house for $380K - freakin nuts. She kept on talking about how they promised her that she would be able to refinance when the value went up again. I asked her how exactly that would make a house 10x her salary affordable. She told me that I was an idiot for not buying a house as well. I thought that if she was able to get a mortgage that there was something really wrong with the system, and that there was no way it was going to last. Why did people believe that houses could only go up - in my area at least, I could see that they were not in any way 'worth' what they were selling for. Where was the money coming from???

[8 Bit WWBG]

...:::"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 think 50% or more in many places is the point where you might as well walk. After all, you are accepting the consequences of doing so. I remember a very insightful analysis that someone on the old boards did. Suppose you paid $300k and kept paying while everyone else had paid $150k. In 10 years, if values return to $300k, then you've broken even while everyone else has doubled their investment. During those 10 years, people who are paying 1/2 as much as you are can afford to upgrade the kitchen and bathrooms, and landscape, while you cannot. You will not fetch as high a price as someone else who has upgraded.

That may not make it morally right, but its a very strong case from a business perspective.

[midjd]

I said this in the other thread too, but I don't think morals have any place in contract law. Ethics, maybe - but not morals.

[wewillsee]

For all the people on this thread, and the board in general, who say they didn't get caught up in the "bubble" pricing because they could clearly see that home prices were way too high (and they were smart, everyone else was dumb), please share with us your crystal ball and tell us what will happen over the next 5 to 10 years for home prices, the stock market, interest rates, etc. Clearly some of you have magic vision we don't have.

[midjd]

I don't pretend to have any idea what will happen with home prices... and I think it's very area-specific. We were not part of the bubble, but have pretty high foreclosure levels because of unemployment. Whether (and when) home prices recover or increase largely depends on the employment prospects around here. Other states will have different factors.

I think student loans are the next "bubble". Not sure how it will be resolved, though.

[Deleted]

I wasn't smart enough to know that it was a bubble. But I did wonder how it would turn out with builders sticking houses everywhere there was an available piece of land around here. I thought it was weird that there was so much creative financing for people to buy these houses.

I mentioned to a friend that I wanted a newer house. She tried to convince me to go for it with an interest only loan or an ARM that I could refinance later. I didn't really see the point of interest only loans, and there was no guarantee I'd be able to refinance an ARM at any given point. I was thinking more of the possibility that something might go wrong in my life, than values dropping though. It all seemed too risky for ME so I stayed put.

I also remember looking at my friend's brand new house and wondering why the heck it cost so much. Then I shrugged and said "What do I know about real estate". Now that the house has been sold for $100k less than what she paid for it, I realize that maybe I was a little smarter about the situation than I thought at the time.

[Deleted]

I think most people knew prices were unsustainable, but I don't think that many people could've really predicted how fast they would fall. I knew some people doing 0 down loans or interest only loans, but I didn't know many people doing them.

As far as the strategic walkaway, I don't pass judgement on anyone that chooses to do that. They need to do what's best for their family.

[Plain Old Petunia]

<< I don't think it required a crystal ball to see that there was something wrong with just how fast and ridiculous housing prices went up. My friend fell prey to the notion that if she didn't buy a house then, she would never be able to afford one. On a $34K salary, she purchased a house for $380K - freakin nuts. >>

I agree that buying a 380k home when you make 34k is nuts. Your friend is an example of someone who bought a house she can't afford, not an example of a strategic defaulter.

As to being able to "see" that there was something wrong with the fast run up (and therefore should have known that a 2/3 price correction was coming), nonsense. Fast run ups followed by corrections is the norm in my state (California). However, a 2/3 correction was heretofore unheard of. 10%, yes. 20%, yes. 66% is unprecedented.

[Poppet]

<< I don't think it required a crystal ball to see that there was something wrong with just how fast and ridiculous housing prices went up. My friend fell prey to the notion that if she didn't buy a house then, she would never be able to afford one. On a $34K salary, she purchased a house for $380K - freakin nuts. >>

Exactly. By 2005-2006 I pretty much accepted the fact that dh and I would not be able to upgrade to a bigger, better home. We were priced out.

And dh and I were clueless about the creative loans. We're 15 year, fix mortgage , 20% down payment people. It wasn't until 2005 that we heard of interest only loans. It wasn't until the crash that we learned of no document loans. Now we knew how all our friends with ordinary jobs like us were "affording" their lifestyle. For a long time we wondered how all these people were paying for it all.

[Poppet]

"student loans are the next "bubble". Not sure how it will be resolved, though."


I agree. It's unsustainable.

[wewillsee]

Jun 14, 2011 11:20:13 GMT -5 Poppet said:

<< Exactly. By 2005-2006 I pretty much accepted the fact that dh and I would not be able to upgrade to a bigger, better home. We were priced out.

The issue with this in regards to upgrading is that if people did sell their current house say in 05, that they have owned for a while, they "made" a ton money, but then they bought a more expensive house. If you owned a place for a while, you had equity, but maybe not the income, to upgrade. Then the market imploded way more than anyone would have guessed.

The few owners who benefited during this boom and bust were people such as my parents who sold at the peak of the bubble at the end of 05 and then moved into a senior apartment. Their rent hasn't gone up in 5 years. Pure good luck.

[thyme4change]

The good news about the bust is young people, if they can find a job, will now be able to buy a house sometime in the next 5 years, and they will have a large inventory and decent prices. Unfortunately, they are hearing all the stories from jaded owners. I hope too many don't miss the opportunity to "buy low."

[Epiphany]

Jun 14, 2011 12:00:37 GMT -5 thyme4change said:

The good news about the bust is young people, if they can find a job, will now be able to buy a house sometime in the next 5 years, and they will have a large inventory and decent prices. Unfortunately, they are hearing all the stories from jaded owners. I hope too many don't miss the opportunity to "buy low."

Jun 14, 2011 11:24:43 GMT -5 Poppet said:

"student loans are the next "bubble". Not sure how it will be resolved, though."


I agree. It's unsustainable.

This is why many/most young people may miss out on the current buy low opportunity. The combination of low wages and huge amounts of SL debt make it very difficult to buy any priced home.

[Poppet]

The issue with this in regards to upgrading is that if people did sell their current house say in 05, that they have owned for a while, they "made" a ton money, but then they bought a more expensive house. If you owned a place for a while, you had equity, but maybe not the income, to upgrade.

This is exactly how it was with us.

Anyway, I am glad we didn't after all.