The relentless slide in home prices has left nearly one in six U.S. homeowners owing more on a mortgage than the home is worth, raising the possibility of a rise in defaults — the very misfortune that touched off the credit crisis last year.
The result of homeowners being “under water” is more pressure on an economy that is already in a downturn. No longer having equity in their homes makes people feel less rich and thus less inclined to shop at the mall….
About 75.5 million U.S. households own the homes they live in. After a housing slump that has pushed values down 30% in some areas, roughly 12 million households, or 16%, owe more than their homes are worth, according to Moody’s Economy.com.
The comparable figures were roughly 4% under water in 2006 and 6% last year, says the firm’s chief economist, Mark Zandi, who adds that “it is very possible that there will ultimately be more homeowners under water in this period than any time in our history.”
I bought a small house for under market value…something that we could afford even if times were hard. We put 20% down. We got a 30 year fixed rate. Our house is not in a particularly desirable neighborhood, but it is in an OK one. For years now, as I would drive back and forth to work, I would wonder how people were affording all the McMansions that I saw. I was making nearly twice the median income and I knew that it would be a stretch for me to afford such housing, let alone heat it and pay taxes on it.
Now, I am being forced to pay for these idiot’s homes through the coercive confiscation of “tax” money. My “wise” decisions are being used against me. Not only do I not have the wonderful housing that these folks have…I am being forced to pay for theirs.
Oh Lord of heaven and earth, I cry out to you for justice from these oppressors. They steal from me and my children to live in luxury. Have mercy on my family and spare us from the usurers and the powerful and cruel men that plot to take from me what you have given me. They take from the poor and spend it on their lusts. They demand from your children the bread that you have provided them, not from hunger but from greed. Spare us, Lord. Have mercy. Defend us from injustice. Defend us from the devourer. Defend us from those who plot and scheme to steal from us.
Then this shoe is still a-droppin’, because a number of these people are going to conclude that even bankruptcy is better than paying $750K (or more) over time for a house that’s worth less than half that.
I have to admit that I feel much like sick and Tired. I have always lived in less house than I could “afford”. I view a house as a place to live and only incidentaly as in investment. And after years of making conservative financial decisions I now have to bail out, not only those who didn’t, but listen to liberal politicions who want to buy votes, through largess, by using my money.
DITTO!
I’m with you all, and my frustration builds as excuses are made for those who took out loans that nobody in their right mind should have undertook. Nuance could be speaking for me almost word for word. Perhaps the re-introduction of sumptuary laws is in order.
#1. Sick and Tired…
AGREE.
But are you just now waking up to the “System”? Most of your taxes anyway are going to may for people who won’t/can’t take care of their own business. This “bailout” is nothing.
It is called Socialsim. Welcome to Socialism.
bl
The relentless slide in home prices has left nearly one in six U.S. homeowners owing more on a mortgage than the home is worth, raising the possibility of a rise in defaults — the very misfortune that touched off the credit crisis last year.
OK, I have to admit that I’m baffled. So someone is living in a house whose current market value is less than they paid for it (I happen to be in that position). Why should that result in defaults? My income is not less than it was when I bought, and I could afford the mortgage then–why should the current market value (which is sure to go up again someday) make any difference?
David, if you think of your house as a place in which to live then you are right. If it is an investment then you should cut your losses and foreclosure is the cheap way out.
“So someone is living in a house whose current market value is less than they paid for it (I happen to be in that position). Why should that result in defaults?”
David [#7]: Good point. The problem arises when your house is worth less than you OWE on it. That doesn’t make you default, but it does reduce your incentive to continue making payments.
Irenaeus is right. With no money down and interest only loans – lending instituitions put the renter class into homeownership on paper only. Many have been evicted before – with no investment in the home – they will find a cheaper place to live. The bank/investor class/taxpayer will now take the hit. This is what comes of government social engineering via lending.
“This is what comes of government social engineering via lending”
—#10
No, this is what comes of unsound lending.
Agreed the lending was not sound – but the DOJ/congress was leaning on the lending institutions and in some cases I believe had filed suit in order to force them to lend to disadvantaged groups. ACORN was part of the agitation. The banks/fannie Mae et al were being forced to lend money when they should not have ie the subprime market Then some very “clever” people saw a way to make big money off the risky loans and off to the racetracks we went.
The rationale for many “creative” (interst only, ARM, etc) mortgages was that the mortgagee could refinance based upon appreciation in home value. The whole house of cards was based on the assumption that home values always go up. Many home owners now find themselves unable to refinance because the value of the home is less than the amount owed, and they can’t pay the monthly payment which has increased because the adjustable rate adjusted upwards. Foreclosure is now inevitable.
I can’t believe the experts did not see this coming. How smart do you have to be to figure out that if you loan money to someone who can’t afford the loan, it’s a bad loan? How smart do you have to be to figure out that if you bundle all these iffy mortgages together and sell them as an investment products you’re on thin ice. How do the loans get better if they are in a big group that wall street investment banks buy? We are all learning about “justice” and what it really is. Justice ain’t got nothing to do with it. Unregulated free market greed and irresponsibility; anybody read about the $400,000 executive retreat for AIG big shots – after they were bailed out? Anyone else think the country is under judgment like I think it is? We made some real bad decisions in the last 8 years. This is no time to feel sorry for ourselves. If you have a house you can afford to live in, thank the Lord and be grateful.
That’s the situation for my wife and me: we CAN afford our home, but we truly feel sorry for those who can’t. We are trying to help those who are homeless and hungry, and we do whatever we can. Our city is in the final stages of building truly affordable apartments (they’re actually quite nice….we’ve seen them), and the rents are based on one’s ability to pay. We also participate in the Manna Ministries program, in which our church feeds homeless and hungry people at our local Methodist church every fifth Sunday. Lately, we’ve noticed an increase in the number we feed.
Br. Michael, Irenaeus, and chips: Thanks very much for the explanations. They make sense. I think we’ll stay put for a while. 🙂
Br Michael – You should never, except as a last resort, let a home you own be foreclosed on. You should never default on debt you willngly took on. You gave your word – your bond – that you would repay the money you owed.
Now, if you are not able to repay, that is one thing. But to default simply because it is not in your best interest to pay is wrong and sinful.
Irenaeus and chips – I would have to say that you both are right. Government encouraged the lending practices that caused this. Banks engaged in them and people took out loans they could only repay if the value of homes did not go down. Politicians, banks, and borrowers are to blame for this crisis.
YBIC,
Phil Snyder
Phil, I think you misunderstand the comments. We are explaining what people are doing, not whether it is right or wrong in a moral since. If viewed from the standpoint of Christian morality I agree with you. On the other hand if viewed from the secular viewpoint (they like to point out that the US is not a Christian nation after all, dog eat dog and the devil take the hindmost) then why not cut your losses (factoring in your credit rating of course)?
RE: “The problem arises when your house is worth less than you OWE on it.”
Anybody who buys a house, though, oughta know that the “worth” of the house fluctuates day to day and is completely unreliable.
When you buy it, what the market says it is “worth” isn’t the same as it is “worth” six months down the road or three years down the road.
That’s why people ought to buy their primary residence with a view to how much it is “worth” to *them* — which they do or they wouldn’t pay the money and sign the mortgage.
An interesting analogy might be an antique auction — a favorite event of mine.
One goes, selects a piece of furniture, and then sees where the market prices it. But the key is to set the limit of where *you* price it, and stick with that.
I’ve seen many a fine piece of furniture slip from my grasp due to the fact that the “market” valued the piece more than I could afford.
And I’ve actually managed to grasp the fine piece, on occasion, at a “steal of a deal” to my mind.
But the key is buyer discipline and paying what *you yourself* can afford.
We don’t have to do that with houses anymore, I suppose, now that McCain has promised to take care of all of our mortgages for us.
Wish he would take care of any foolish auction purchases I might make.
The answer to this mess is simple: Live within your means! Don’t buy a home that you know you can’t afford! Don’t try to keep up with the Joneses! Stop trying to impress others with the home you “own!” Stop living the champangne lifestyle on a beer salary!