Nearly half of US mortgages seen underwater by '11: DeutscheBank

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Shadax_IHB

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I guess it's not surprising how across the board the predictions are. Someone is bound to be close?



<a href="http://www.reuters.com/article/marketsNews/idUSN0526419820090805">Link</a>
 
How long will people keep paying on a home that is underwater? Especially when prices will continue to drop. All it takes is a job loss or medical issues and people will just give up and quit paying into a home that will not go up in value anytime soon.
 
[quote author="OCCOBRA" date=1249842253]How long will people keep paying on a home that is underwater? Especially when prices will continue to drop. All it takes is a job loss or medical issues and people will just give up and quit paying into a home that will not go up in value anytime soon.</blockquote>


I don't think people dump their home just because its underwater. While its easy to go off and say they will... think about it.



You are underwater... to "dump your home" means that you will get foreclosed on and cannot buy another home for a while. So is it worth 7 years of bad credit and living in a rental which is probably subpar to your current home to make up to walk away from a home that is underwater... or more importantly... how far underwater does your home have to be before its worth it to walk away.



I think the answer is that either you have to be forced to move (can't make payments, job, divorce, etc...) or you have to be without hope to the point that it makes more sense to walk away, because in 7 years you will not recover and will have been better off enough to the point that its worth the embarssment, risk, and inconvenience.



That's a pretty high standard. How high? Well look at neighborhoods were basically everyone is underwater... the homes getting foreclosed on are typically homes where they couldn't afford the payment... not where they made a calculated financial investment which said its better to walk away.



Delroy
 
I've often wondered that. At what point do people walk. You hear of people $200,000, $250,000, $300,000 underwater. Average that over 7 years and those people have to be tempted.
 
I have a customer who owns a home in Lake Elsinore. His payment is $2900 a month. Rent would be about $1100. He owes $325K on a house that is maybe worth $130K. He hasn't defaulted. Why?



He doesn't want to move. His youngest kid is a senior in high school. But the math is catching up with him. He said he's gonna toss in the towel when he graduates.
 
[quote author="no_vaseline" date=1249869519]I have a customer who owns a home in Lake Elsinore. His payment is $2900 a month. Rent would be about $1100. He owes $325K on a house that is maybe worth $130K. He hasn't defaulted. Why?



He doesn't want to move. His youngest kid is a senior in high school. But the math is catching up with him. He said he's gonna toss in the towel when he graduates.</blockquote>


Another comparison... how many of us have bought stock, and when its down 10% do we sell it? How about 20%... how many people bought internet stocks in the 100's and watched them go down to $0.10...



There is always an inertia, especially when a difficult decision has to be made. The default decision is always "stay where I am". IMHO that's what we are in for... alot of people for a long time here won't be able to move... because they can't afford a lateral move or a step down even, since they have little, no, or negative equity... coming up with that downpayment is gonna be rough.



It will be interesting to see if/when this happens what this does to the stereotypical realtor. With volume dropping, its going to scare alot away, and with MLS being public and more info coming on the internet where a person can do alot of the searching themselves (especially if someone like Google ever gets their act together and comes up with a kick ass product here)... I wonder if 5 years from now the "stereotypical realtor" disappears (aka the one selling based on their looks on an ad) and you see a more transaction based professional.



Delroy
 
[quote author="C Delroy Spuckler" date=1249870607][quote author="no_vaseline" date=1249869519]I have a customer who owns a home in Lake Elsinore. His payment is $2900 a month. Rent would be about $1100. He owes $325K on a house that is maybe worth $130K. He hasn't defaulted. Why?



He doesn't want to move. His youngest kid is a senior in high school. But the math is catching up with him. He said he's gonna toss in the towel when he graduates.</blockquote>


Another comparison... how many of us have bought stock, and when its down 10% do we sell it? How about 20%... how many people bought internet stocks in the 100's and watched them go down to $0.10...



There is always an inertia, especially when a difficult decision has to be made. The default decision is always "stay where I am". IMHO that's what we are in for... alot of people for a long time here won't be able to move... because they can't afford a lateral move or a step down even, since they have little, no, or negative equity... coming up with that downpayment is gonna be rough.



It will be interesting to see if/when this happens what this does to the stereotypical realtor. With volume dropping, its going to scare alot away, and with MLS being public and more info coming on the internet where a person can do alot of the searching themselves (especially if someone like Google ever gets their act together and comes up with a kick ass product here)... I wonder if 5 years from now the "stereotypical realtor" disappears (aka the one selling based on their looks on an ad) and <strong>you see a more transaction based professional.

</strong>

Delroy</blockquote>
Redfin comes to mind. I might my real estate license revoked for saying this, but the whole realtor compensation structure is messed up and severely outdated. I think it's just nuts that realtors can make $50k+ on a single transaction that takes as much time to complete as a transaction that would pay them $5k (all because one home is 10x more expensive than another). It's those huge commission paydays that can turn a good agent into a pushy aggressive annoying bastard. haha With information becoming more and more readily available to the general public via the internet, realtors will have to realize that their client base is that much more knowledgable and savy and they will need to adjust their commission structure. I wouldn't be surprised if you see more Redfins and Help-U-Sell businesses pop up in the near future to take advantage of the every increasing savy customer pool.
 
[quote author="C Delroy Spuckler" date=1249870607] The default decision is always "stay where I am".</blockquote>


That's a very good point. It's easy to do nothing.



I've also heard people say they are hoping the market will recover soon and can get back to an equity position. How long and how low is it before that hope fades?
 
[quote author="dcoffield" date=1249896992][quote author="C Delroy Spuckler" date=1249870607] The default decision is always "stay where I am".</blockquote>


That's a very good point. It's easy to do nothing.



I've also heard people say they are hoping the market will recover soon and can get back to an equity position. How long and how low is it before that hope fades?</blockquote>


To me that attitude shows we're not close to the bottom (as if we needed more hints). Some people are just uninformed. I have had a few people tell me they want to make sure they get into a home while the $8,000 tax credit is still available. I mean, they look at it like the Cash for Clunkers program. The only problem is: When I helped my mom do her C4C trade, the rebate amounted to approximately 39% of the negotiated price of the new car. $8,000 on a house, however, is a few percentage points at best! Not exactly something that should make anyone alter their plans. If the gub-mint would give me 39% of the negotiated price of a new home, I'd bite.
 
[quote author="Shadax" date=1249947583][quote author="dcoffield" date=1249896992][quote author="C Delroy Spuckler" date=1249870607] The default decision is always "stay where I am".</blockquote>


That's a very good point. It's easy to do nothing.



I've also heard people say they are hoping the market will recover soon and can get back to an equity position. How long and how low is it before that hope fades?</blockquote>


To me that attitude shows we're not close to the bottom (as if we needed more hints). Some people are just uninformed. I have had a few people tell me they want to make sure they get into a home while the $8,000 tax credit is still available. I mean, they look at it like the Cash for Clunkers program. The only problem is: When I helped my mom do her C4C trade, the rebate amounted to approximately 39% of the negotiated price of the new car. $8,000 on a house, however, is a few percentage points at best! Not exactly something that should make anyone alter their plans. If the gub-mint would give me 39% of the negotiated price of a new home, I'd bite.</blockquote>


Depends on where you are purchasing. In an area where a house might cost $100-150k, eight grand is quite a large amount of money, especially considering you get the eight grand basically immediately (you can even file an amended return-you don't have to wait until April 15th of next year) and have to pay the $100-150k over a period of thirty years.



But in Irvine or other high-priced areas, it's meaningless, especially considering to afford such a high-priced house, you have to make so much money that you aren't even allowed to get the credit anyways.
 
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