This puts a name to a real mess. If I buy a new car I know up front, before I plunk down the cash, that it'll be worth less every day and every mile (unless under certain remote circumstances I keep it for 60 or 80 years and it becomes a classic).

When I was a kid people bought homes because they gave a stable place to live with control over the space - privacy - the right to paint the kitchen red - whatever.

It is recent that people have looked at homes as investments and I think the term "investment" was applied to home ownership to manipulate the lower and middle income families to feel that they could get a part of the $$$$ pie.

It helped that grandma's house sold for 20 times what she paid for it when she went into a nursing home in 2000. Everyone knew about something like that and it went on so strong and long that it became comfortable to believe in.

On the other hand some economists have been saying for years that the sub-prime market and these fancy interest only payments and fast deals made under the manicured Chinese maple in the garden could only lead to trouble.

On the other hand would a bank loan money if it didn't feel it was safe? It's hard to say what is right. The purchase of an expensive house was a risk but people without extensive reading or an economic degree might.could be forgiven not to see the extent of that risk. AFter all, main stream media only reported the good.

People who make purchases are responsible for the results but as neighborhoods lose homeowners, they lose stability, saftey and law and investing tax dollars in the maintenance of those are valid.

On the other hand those banks should have known better so the banks should be the ones to slash the principle for the homeowners. It fuels government distrust and hatred of taxes that bonuses and divideds are being paid with tax dollars but it also hurts that in my personal home our payments are up to date so there wouldn't be any bailout pie set to cool on my kitchen windowsill.

It's very complicated and when I listened to This American Life yesterday I was struck by a man discussing the Great Depression. To paraphrase - the government better not let a depression hit because when he was 17 he wasn't afraid to die but his 17 year old grandson isn't afraid to kill. People have changed that much over the years that a depression now would be a whole new experience.

 It's sure a lot to consider.

by sadelaine (1 articles, 0 quicklinks, 0 diaries, 3 comments [4 recommended, 0 rejected]) on Sunday, Nov 16, 2008 at 7:57:49 AM

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I have a friend that is trying to sell a house in Tampa.  He has not made a payment since July 07.  Every few months he gets a letter from GMAC telling him that he needs to call them or they will start pre legal proceedings.  He just got a letter last week that sounded like the letter he got in Oct.07  The bank does not want the house, although they are paying for insurance and taxes.  They also waited too long to allow a short sale.  Now Obama will have a 90 day moratorium on foreclosures.  My friend has moved out of the house, but is taking care of it.  He is tempted to send GMAC the keys, but respects his ex neighbors and had put $40,000 into the house before he put it up for sale in March 06.  He is thinking of renting it out for $1200.00 a month and wonders whether the bank actually has the original papers they need in order to foreclose.  A man in Boca Raton has not made a payment on his $2,000,000 house since Feb, 02, because they can't come up with the original papers.  BTW, my friend put down 20% and added $40,000 in improvements.  What happened was his wife became very ill and had to quit her $75,000 a year job.  Luckily they used their equity back in Jan 05 to buy a nice house in another state.  Here is an example of someone that was not sub-prime, kind of lucking out that the banks are now so swamped that what use to take six months to foreclose, now takes years.  He can't even get them to foreclose.  Crazy times.

by Daniel Gugliotta (13 articles, 0 quicklinks, 19 diaries, 24 comments [1 recommended, 0 rejected]) on Sunday, Nov 16, 2008 at 11:19:19 AM

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Strange times indeed, Daniel.  Those supposed "no documentation" loans are really coming back to bite lenders now.  I know someone who had one of those loans.  At the time they bought the home they weren't even employed, but got approved for a loan on a 5 bedroom, 3000+ sq ft home. (Scratching my head as I recall the stack of paystubs, bank statements, and W-2's I had to provide as proof of income for my fixed rate loan). 

Of course they fell behind on her payments.  Rather than foreclose the bank modified the mortgage (perhaps to cover up their unscrupulous lending practices?).  Now their payments are almost $400 lower than mine (BTW...my cat and I live in a small 3 bedroom starter home).  Talk about a freebie! Now that's a stimulus package we could all use.

by Sitafa Harden (9 articles, 12 quicklinks, 4 diaries, 21 comments) on Sunday, Nov 16, 2008 at 2:49:21 PM

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I say stick it out. When the hyper inflation comes due to the flooding of the market with worthless paper, you will be able to pay off your mortgage with cheap money. That is what happened in the 1970s and many people made out very well using that strategy.

by M. Bennett (0 articles, 0 quicklinks, 0 diaries, 109 comments [7 recommended, 0 rejected]) on Sunday, Nov 16, 2008 at 1:38:35 PM

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That might be good advice depending on how deep underwater people are, how long they can manage the payments, and how long before the inflation comes.

My concern is that we follow the same trajectory as Japan did.  In that case, real estate  might remain depressed for a very long time, while Government and the banks try to reflate the monetary system instead of really reforming the monetary system.

No one really knows what will happen, so it is difficult to give good advice.  You may be proven right, but about all I am comfortable advising is that that if a person is looking to buy now, there is no rush.  Housing prices will not turn on a dime, and I suggest people have a year to shop around for the best deal.

By the way, the drop in housing prices is a boon to young people, provided they have jobs.

by Paul Rye (7 articles, 2 quicklinks, 22 diaries, 500 comments [44 recommended, 1 rejected]) on Sunday, Nov 16, 2008 at 2:42:01 PM

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I would tend to agree that the drop in housing prices is a boon for employed young people.  But won't the tight credit market and stricter loan standards pretty much cancel out that benefit for all except those who have a near perfect credit score?

by Sitafa Harden (9 articles, 12 quicklinks, 4 diaries, 21 comments) on Sunday, Nov 16, 2008 at 2:55:11 PM

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Yes, it probably will for most young applicants who have not established a credit history.  In my opinion, the banks do not really want to lend now.  The money they asked Congress for was to save themselves, not to help people like you, me, or young people. 

Howevery, there are alternatives for young people.  If a parent has good credit or is in good financial shape, the parent can co-sign the loan, or give their child a low interest loan for the down payment.  Or, if the seller is motivated enough, and many will be in the days ahead, the buyer can ask for seller financing.  My wife and I bought our first house with seller financing.

I sympathize with the point in your article.  I'm in the good borrower category, too.  But fortunately, I'm not underwater with my loan.

by Paul Rye (7 articles, 2 quicklinks, 22 diaries, 500 comments [44 recommended, 1 rejected]) on Monday, Nov 17, 2008 at 10:51:17 PM

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That is not a question that should be asked. It's beyond the pale. Be happy you have a home and can afford to pay the mortgage. The value of the home will not remain static at its lowest common denominator. As the years go by the value will increase as God is not creating any more land at the present time, so each home's plot of land is going to increase in value as the population increases. There have always been ups and downs in the real estate market so why would anyone think its going to stay down? Just pay your mortgages and wait for your opportunities, they're coming.

by Archie (0 articles, 0 quicklinks, 0 diaries, 1750 comments [111 recommended, 0 rejected]) on Sunday, Nov 16, 2008 at 3:20:51 PM

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NY Times columnist Tom Friedman said on MSNBC's Meet the Press today regarding the financial crisis:

"Fairness is not on the table anymore.  There's only two things on the table: systemic risk in which we all get wiped out or we find a way out of this."

Scary ain't it?

by Sitafa Harden (9 articles, 12 quicklinks, 4 diaries, 21 comments) on Sunday, Nov 16, 2008 at 5:56:34 PM

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people should know better than to take out loans they can not afford. but people have never been given a fianancial education ether. this country has been dumbing down people for so long that they can't even think for themselves anymore. government is trying to take away private onership of land. read between the lines (or fine print) in the so called rescue plan. if the government saves you from forcloseure, you become a renter in your  home. you are not allowed to make money off your / government property, and if you sell the property the government gets50% even if you have paid off the loan.

by gordon kistler (0 articles, 0 quicklinks, 0 diaries, 2 comments) on Monday, Nov 17, 2008 at 4:19:22 PM

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That's a better question - Why Pay?

I am upsidedown on my home in San Diego, CA and recently had a good job offer. Because I accepted the job offer, and it took almost a month to get my first paycheck, that caused me to be behind my mortgage almost two months.

Now, at the begining of the year, I had avobe 700 fico score. I noticed that AMEX was pounding on my credit, for some ungodly reason, that was the only credit card I had and I could not explain AMEX's hawkish behaviour, so long story short, they - AMEX - wrecked my credit before even going into my financial crisis. So at this point I ask that question- with a (fixed) first, and very high second mortgage and super high AMEX card, - Why should I pay.

I have been paying my house without a hicup for over ten years. After re-fi after re-fi, now I am upside down and my credit is below 600.

Why pay?

by Frank gr (1 articles, 0 quicklinks, 1 diaries, 50 comments) on Tuesday, Nov 25, 2008 at 4:14:53 PM

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Under normal circumstances, yes I feel a great sense of responsability, gratitude and owenship about my home. BUT under a hawkish, wreckless administration who borrowed everything "we" owe. And then they all come around piling in for a "hand-out"!!!

After sinking this nation's economy to more than $10 Trillion in debt!!!

No. I don't feel bad about not paying.

A friend of mine just called me after battling for a year,  financial crisis, divorce, his buissness crash, foreclosure, etc...  and he said you know " cash is king". And the cash he is saving (by renting) makes him feel human again. And that is "Priceless".

by Frank gr (1 articles, 0 quicklinks, 1 diaries, 50 comments) on Tuesday, Nov 25, 2008 at 4:29:59 PM

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