More homeowners selling houses for less than they owe

Seattle Times ^ | October 7, 2003 | Kristina Shevory

[taxcontrol]

....lived in a 3,200-square-foot custom-built home on an acre, and bought a new car every year.

---

[sigh]
Must be a Democrat - spending more than they take in.
The problem is that we don't teach CASH FLOW and balancing lifestyle AND retirement with income. This is something that needs to be taught to kids - HS at the latest.

However, most don't learn it till their 30's and 40's.

[Sinner6]

Depends on how long a few years are. What I did is get a smaller starter house, that I can EASILY afford. that should appriate very fast for the next few years. In about 5 years or so I think I might have to upgrade to something larger to accomidate a growing family.

[cyncooper]

Market still whistling past the graveyard...

Sounds more like extremely poor money management and planning on the part of the sellers in these situations.

[RonHolzwarth]

re: "I posted a comment two days ago warning that California may face a similar fate soon and that right now housing is at it tip-top peak."

Yeah. A good size quake now,, wow, homes out there will be selling for a song!

and the song will sound like,

Buy me, buy me, my walls are cracked, my foundation is cracked, my pipes are burst,,,

Very few to none have earthquake insurance out there, 'cause the insurance companies wised up after the Northridge quake, when the payouts were greater than the premiums collected - for the last TWENTY FIVE years! It was not even a big quake at all. The insurance companies wised up, but the mortage companies and banks did not.

Earthquake insurance is not required to qualify for a mortage. And why?

Because, essentially, it is not available. Because the risk is to great.

So yeah, the bubble is gonna burst out there someday, for sure!

[dead]

No organization tracks short sales, but real-estate agents, housing counselors and mortgage companies say they have been seeing more of them since the economy tanked and employers began laying off workers.

This is all speculation based on anecdotal evidence by somebody writing an article from a predetermined viewpoint.

Call me when the numbers are in.

[dead]

interesting .... wonder if I should buy my house now (3000+ sq ft, 160K) or wait a few years and watch the market collapse.

I wondered the same thing three years ago, figuring that the market was near the top.

I bought anyway, and my home has increased in value about $150,000 in those three years.

The bottom line is, nobody knows which way the housing market is going to move, or even more to the point – which way its going to move in your area.

But building equity is usually a good move, as opposed to building your landlord’s equity.

[stainlessbanner]

bttt

[doug from upland]

You are correct about the anti-deficiency statute in Calfornia on a purchase money deed of trust for a single family dwelling. I haven't taught RE law for 10 years, so please verify for me --- a refinance probably changes a non-recourse note and trust deed into a recourse instrument, which means personal liability. A short sale also will affect credit.

[CatoRenasci]

Hmmm. I wonder whether if the refinance is for home improvements it retains the status of a purchase money mortgage (deed of trust); I recall a case from a law school class (Calif Real Estate Secured Transactions) where it was held that a construction loan to build (as opposed to a tradtional PMM) was still considered as a PMM for the anti-deficiency statute

[SamAdams76]

Biggest problem I see is that more people are using their home equity as "free money" to bolster their lavish lifestyles. This was not widely done a generation or so ago. Back then, people saw a mortgage as something to pay off rather than a way to get additional cash flow.

What we have today is a recipe for disaster. Many people continue to refinance their homes, taking advantage of lower interest rates to increase their total mortgage obligation. This money is then used for things like paying off credit cards (that are usually promptly run up again), taking vacations, buying boats, furniture and big-screen TVs. These people figure that housing prices will continue to rise 10-20% a year forever and that they will just "re-fi" for another influx of cash in a few more years when they need it.

Well these people are short-sighted, for as another poster pointed out, salaries have only been rising at a fraction of that of real estate. Thus the average mortgage will take an increasingly bigger bite out of one's paycheck if one keeps refinancing all the time.

A 30-year mortgage is a beautiful thing if you get one and stick with it. My parents bought a house in 1968 with a 30-year mortgage. At the time, they were paying $150 a month, which seemed to them to be enormous. But as they moved through the 1970s, that mortgage got easier and easier to pay until such time that it became a nuisance bill only. Now my parents are old-fashioned so they religiously paid that sucker right through 1997 before my father would retire. They never refinanced once nor did they ever take out an equity loan. By the end of the mortgage, my parents were sometimes paying more on the heating bill then they were on the mortgage itself! Well when the note was finally paid off, they sold the house and moved to Alabama, getting over 20x for the house what they paid for it back in 1968. Their retirement was made right there.

Many older people factor in their home equity for retirement. When the kids are grown up and they are ready to retire, they sell the family home and move into a smaller place, using the cash to help fund their retirement. So many younger people are going to have nothing but a humongous mortgage to pay off when the retire!

Personally, I think things are going to get very bad for a lot of these people. I'm 41 years old and I have nearly 60% equity in my home and I'm still nervous about it. If I was like some of these other people my age who are tapped into their homes for 100% (or more) of its market value, I wouldn't be able to sleep at night.

[VxH]

>> live well below your means and save the rest.

Badabing.

Consider the Lilies of the field - see how they never want nor worry?

[mewzilla]

Another problem is mobility and people not doing their homework. A lot of the folks in deep doo doo around here are new to the area. They didn't know diddle about the area, the local economy, the tax base. Now they're stuck with places they can't unload without taking a bath. Sigh.

[Rubber_Duckie_27]

It's downright depressing for my fiance and I to look at the real estate listings. We were planning on buying a home in about 2 years (gives us a year after the wedding to save up the downpayment), but there's no way we could afford the kind of home we'd like at these prices. We are planning our budget based on my income only, since I have better job security and benefits, and he will be a stay-at-home dad when kids come along.

Actually, yes we could afford a home...if we lived in a slummy, crime-ridden city with very poor schools, farther from my workplace. Simply ridiculous.

Really, when a fixer-upper of a 1940's-vintage 3 bedroom/1 bathroom ranch on a small lot in a decent town in central Connecticut costs in excess of $170K, it's pretty daunting for a young couple to try to buy a home.

[doug from upland]

It seems that purchase money is no longer purchase money when one does a refinance.

[petercooper]

Hopeflly the bubble will burst or deflate somewhat in the next 2 years. We're in a similar situation

[XBob]

52-"They didn't know diddle about the area, the local economy, the tax base. Now they're stuck with places they can't unload without taking a bath. Sigh"

i was caught in a similar situation in the 80's in the oil crash in Houston, when 3500 homes were foreclosed in Houston every month. I got laid off, jobs just couldn't be found, and my home lost 40% of its value in 1 year, and the house couldn't be rented eve except for 60% of the mortgage payment. It was terrible.

I found out then that if you make money selling your home, it is taxable, but if you lose money, it is not tax deductable.

the whole time, the nightly news was spouting about how great the economy was. So I leaned that 'the economy' means the economy in Washington, NY, and LA - and the rest of the country doesn't count.

[Indrid Cold]

Personally, I never had more disposable cash than when I was a renter. We bought our first house, a 3-bedroom built in 1936 for $34,000, re-did wood floors, painted, re-did plumbing and electrical, put in furnace and appliances. Owned it for 4 years. Now it won't sell (at a reasonable price, anything will sell for $500) and I'm paying 2 mortgages since my job necessitated a move. Say it did sell--I'd have to use the "profit" to pay off the bridge loan I got to put money down on the new house, so the money's still tied up. In fact, I'm not gonna see that "profit" until I stop living in houses, at which point I'm gonna be in a nursing home or dead, so either the state or my descendants get the $$$.

I hate, hate, hate real estate, and granted my current situation may have something to do with that. And I will probably never own the property "free and clear", because 1) it's the cheapest money I'm ever going to borrow, and 2) I can write off the mortgage interest. But where that leaves me, in essence, is renting from the bank with the additional proviso that I'm on the hook for the remaining balance if something terrible occurs (eminent domain, discovery of Indian burial ground on property, etc.)

[Rutles4Ever]

The only way the real estate bubble (in most areas) is if interest rates head north of 8% or so. The fact is, jobs will always fuel the power of location. And whether we like it or not, there is A LOT of immigration (legal and otherwise going on in this country, which is depleting real estate in urban areas. Add to that the naturalized population growth, sickening low interest rates, and demand for real estate within an acceptable commute of job centers, and there really isn't anything standing in the way of this boom. I know that sounds sanguine, but the laws of supply and demand will persist as long as a much greater part of the population has access to home loans than did in the past.

The fact is, there's no point in trying to time the real estate market.

[hunter112]

Me, too, and I've seen this coming for quite some time now. When the slide in interest rates skidded to a dead halt, and rates actually started going up, the die was cast. I've worked at a title insurance company part-time while going to school the last couple of years, and I'd constantly see people that would refinance every 6, 9, or 12 months. They would refinance credit card debt into their old mortgage, with the lowering of rates, the payments would remain constant, even though they were borrowing more and more. Once the rates stopped dropping, this game of financial 'musical chairs' had to stop, and some folks are on the verge of finding out that they can't afford to pay their bills.

I've talked to real estate agents that hated the falling rates, because they encouraged people to suck all of the equity out of their homes. If someone needed to sell because of a move, or some financial calamity, there would not be enough equity to pay off the old mortgage and the selling costs. The problem is going to be even greater now.

I'm hoping to pick up something from a lender stuck with being a reluctant homeowner, after there's a glut of foreclosed homes on the market in my small town.

[Hammerhead]

you're looking at 2x that amount here in the DC area.