Goldman Sachs economists estimate that as much as $3 trillion in mortgages could be underwater by the end of the year, leaving 30% of the country’s outstanding mortgages in negative equity. Since there is roughly $1 trillion in subprime mortgages outstanding, that means a large amount of better-quality mortgages, such as prime and Alt-A — a category between prime and subprime — will be attached to negative equity.
“The focus has been on the [interest rate] resets,” said Goldman Sachs economist Andrew Tilton. “But if you’re in a deep enough negative-equity position, defaulting has its own kind of logic.”
I guess the mortgage insurers will have to start paying up.
I guess all those 3,500 square foot McMansions that I couldn’t understand people buying will now go on sale.
I guess I made the right decision to buy my 1,382 sq ft home below market value, getting a 30 year fixed mortgage at 5.75%, even though it has only appreciated 59% [and still holds its value in this down turn] after 7 years.
I guess my co-workers and I [each making about 10% shy of six figures] were right to wonder how people could afford all the McMansions we saw being built.
I guess I was right to wonder how so many could afford half million dollar homes when the household median income in my state was only $41,721.
I wonder if lenders have learned a lesson?
I wonder why the Federal Reserve is cutting rates and inflating the currency?
My wife and Believe we did the smart thing in 2003, when we sold our San Jose, CA townhome for $358,000, moved in with our daughter and family in Los Banos, put down a $100,000 down payment on our new 1,660 sq ft $258,000 single-floor home (1/8 acre lot) before it was built, and with a 5.2% interest rate. Now, we are seeing homes go into foreclosure in our area……with an average of one per block; not to mention lagging resales all over the area.
Fortunately, both of us are retired with very good incomes, and “well able to weather the storm;” otherwise, we could be in the same boat. Our daughter and her husband are doing fairly well after heeding some very good professional advice, and making some prudent decisions…..such as staying away from Adjustable Rate Mortgages.
Others didn’t, and now they’re paying the piper.
I meant to say “My wife and I.”
#1 Sick’n’Tired – You made the decision to buy your house below market value? Man, why didn’t I think of that? Was there a box to check on one of those forms they have you fill out, or what? I didn’t see it.
Wilfred, LOL your post #4!!! Of course, a large part of the trick of ‘buying below market value’ is making the decision to live in a place like Los Banos (glad you like it, but it’s certainly not my cup of tea). Also, it really helped that they had a home in hyper-inflated San Jose. They probably made beaucoups bucks on the prior home.
Cennydd, good for you! However, most of us are NOT in that position.
I am thankful for a roof over my head. We boomers have certainly re-defined what we will tolerate as acceptable housing. Were we pressed harder by economic circumstances we might well be forced to be content with far less than our inflated expectations. Notice the sub-prime debacle as a harbinger of the real possibility of a serious economic depression and re-re-definition of what is acceptable housing. Mud and wattle?? Not yet…but the standard of living we have enjoyed has been inflated by errant fiscal policy and in our complicity we will reap what we have sown. As insular a society as we have become still we should be praying for the strength to endure and bear with others the hardships both spiritual and practical of the days to come. Where will Christ be leading us and will we follow?
re #6
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/12/23/cccrisis123.xml
For your reading pleasure
Little Cabbage, yes, we did make “beaucoup bucks;” enough to make a good down payment on our new home, but also enough to help our two children buy homes of their own. Money well spent, in my opinion. We are also able to help our congregation with its building fund…..again, money well spent.
It IS rather nice living in a town of 38,000 people; we know our neighbors well, and we love the small town atmosphere. The one disadvantage, though, is the long drive over the mountains to San Jose (an over-rated, over-priced and overcrowded rathole, in our opinion) for those who work there, and I don’t recommend it.
People have to start paying off their mortgages for sure. As I see there are some clever comment writers here. It is nice to know that there are still some thinking people in the United States. Other ones have taken huge mortgages or Insurance for a Business or home usage and they can’t return it now because it is the lack of money and jobs. I can’t see any logic here. Every human nature must think 10 times before taking a mortgage. You can’t take a loan which will be taking almost all your monthly salary. You can’t act like that. You have to count and be careful in such situations. I hope that in the nearest future the situation will change and our economical situation will be strong again. Thanks for the article by the way.