For almost two years, home foreclosures have swept the nation, spreading misery among once-buoyant families, spattering lenders with red ink and undermining efforts to restart the economy.
But a bigger problem may turn out to be the millions of Americans who are still faithfully paying their mortgages, but on houses worth far less than before the bubble burst. It’s not that these homeowners will stop making their payments. It’s just the opposite ”” that they will keep doing it.
How could that be a source of future trouble? Because, with home prices stagnant in much of the country, payments on mortgages that are underwater could absorb billions of dollars that might be used for other forms of consumer spending ”” a drag on family finances, the housing market and the overall economy.
My wife and are still paying on an underwater mortgage, and here’s why: I’m 73, she’s 66, we’re both retired, and our home is the last one we’ll ever buy. We love the area where we live, we’ve set our roots down here, and we really don’t care about how much our home is worth. We had our home built seven years ago, and we are not going to sell it. It’s a well-designed and built Italianate-style home, and is ideal for two people; we’re staying put. Not being too concerned about buying something new every time we turn around, we’re not above-average consumers, but we do manage to live pretty well. Our vehicles are fairly new and in excellent condition; she has a 2000 Ford Focus wagon and I have a 2004 Pontiac extended Montana minivan. We don’t plan to trade either of them for a new one. So I guess you can say that we’re happy and satisfied; and we’re not market-driven consumers.
And we have our vehicles maintained and serviced regularly by a local garage, we use a great local car wash once a week, we get our gas in town whenever we can, we buy most of our groceries locally, and we manage to do the same for the other necessities of life. And that includes shopping at our farmers’ markets.
Thanks, Cennydd13, for sharing such personal info here. It helps to put a face on this widespread problem.
Fortunately, my wife and I are well above water with the mortgage in our case, but not so with our son (age 31) and his family. He has a great job and brings in about $100K a year as a salesman, but their four bedroom home in the western Chicago suburbs is definitely underwater, yet they have no plans to move, and will continue to pay on their mortgage indefinitely, since they really have no attractive alternative.
FWIW, my son used to be a mortgage broker, but got out of the business when the housing market went bust. That’s another aspect of the whole housing crisis, it’s driving a lot of career changes too (construction and home furnishing as well as mortgage industry, etc).
David Handy+
I am one of those deeply up side down in our mortgage. Our home is up for short sale in Cape Coral, Florida, the second worst area in the nation for foreclosures. There are so many vacant homes you can rent or sell your home. Home values have dropped a minimum of 60 to 70 %.
The days of rectories is long past. However, many clergy are losing their scant savings in this economic and real estate bust. Also, without rectories, clergy cannot be as mobile as they once were.
I am sure we are not alone out there. Please keep us in your prayers. We do need to sell our home and be out from under that burden.
Creighton+ (#4),
I’m sorry to hear about your desperate plight. But if you’ll accept a friendly amendment, I’m pretty sure you left out a negative in the last sentence of your first paragraph. Didn’t you mean, “There are so many vacant homes you CAN’T rent or sell your home?”
Again, thanks for being so personal and sharing your difficult situation. May the Lord sustain you and provide a buyer and a way out of your distress (1 Cor. 10:13).
David Handy+
The area of the San Joaquin Valley in which we live…..Los Banos…..has been hit particularly hard, and at last count, the number of foreclosures and abandonments is around 2500 in a city of 42,000. However, we are seeing an increase in home rentals, with the income from such rentals designed to at least help with the mortgages on those homes. It will be interesting to see what the figures will be like when the forecasted next round of foreclosures hits next year, but things seem to have levelled out a bit here.
How about this for a reason to keep paying on an underwater mortgage– I borrowed the money and I agreed to pay it back under the terms outlined in my mortgage documents. Unless I am truly unable to pay because of catastrophic health or loss of job issues, I ought to pay the money back that I borrowed.
Just sayin’.
Isn’t it also a question of buying a house as a place to live? To a large extent the value of a dwelling is its value to you and not what some appraiser thinks its worth. If you paid 200K for a house wasn’t it worth that to you? So any “decline” in value is irrelevant. There was never any law that said that house values always went up.
#8, as you know so many homes were bought as investments, not as places to live. the walk away rate on those must be much higher…
Market value does not always equal the value to a person/family.
A. If the house is in a location you like, schools, shopping etc. and it fits the family’s needs,
and
B. If the difference in the market value and your mortgage balance is more than the costs associated with buying another plus moving expenses and selling the old
(or the costs associated with letting it go into foreclosure, i.e. damage to credit rating, which reduces the chances of getting another job, increases cost of insurance, increases the cost of financing anything for several years, and the possibility that in some states the lender can come after you for the deficit.)
Then,
It makes no sense to dump the old.
I know some of these theoretical economists look at the fact that one could
dump a $1000 a month mortgage payment for a $800 a month rental in the same subdivision and declare one would then have $200 a month to spend on other things that would help the economy. But
after one takes in the costs I mentioned above, plus minor ones like, buying new curtains, etc. to fit the new place, getting you drivers license changed, getting utilities disconnected/reconnected, and the loss of the tax and interest deductions,
considerably less than $200 is available for discretionary spending. And if property
values go up next year, so will your rent.
Dumping the old mortgage and renting is a short term fix, possibly a long term disaster. Each family will need to sit down
with a spreadsheet program and weigh all
the financial possibilities, plus the emotional ones, and the probability that
one of the parents might need to job-hunt in the next 2 or 3 years, before making a decision to stay or go.
Nos. 7 & 8, yes, people do buy homes to live in. But they also buy homes, knowing that the kids will grow up and move away and they assumed that they would then be able to sell for a good price, get their money out of it to put with retirement, and get into something smaller and less expensive. That was part of the American retirement dream. Retirement planning had three parts – a pension or 401K type savings, social security, and equity in your house, if you needed it. This recession and stubborn economy has basically destroyed that last 1/3 of retirement planning. That’s why for people now in their early 60s, it is so frightening to hear about the potential of Fed gov’t taking over 401Ks or changing SS. They don’t even have their house equity to fall back on anymore.
Yes, David I did.
Creighton +, I will keep you in my prayers.
This article is written as if mortgage payments were somehow being sent to the moon or the bottom of the ocean or in some other way kept out of the economy.
The house was originally BOUGHT from somebody. That somebody has the money that was paid for it; ergo, that money is part of the economy right now.
The buyers are PAYING BACK the money they borrowed to buy the house. Would there be yet more money circulating in the economy if the buyer’s did NOT pay back the money? Not really, because the losers would be the banks and mortgage companies which would then drop in value.
I used to work for Merrill Lynch and about 1/3 of my net worth was in Merrill stock which went into the toilet and was then converted into Bank of America stock after the buyout. My BoA is somewhere down at the very bottom of the bowl — you know, right at the point where it’s half in the pipe already. If people default on their mortgages it just drives my stock further down, thus reducing MY “buying power.” Why does the writer of this article seem to think that the mortgage money came from nowhere and went nowhere?