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Someone facing calamity from the purchase of a $500,000 home would probably not be facing such a dire situation if they'd purchased a $200,000 home.
There are more workaround strategies, that can help cover a modest payment. Rent a room. Rent the garage. Cut expenses. If you have to, sell the place for a loss. The loss on a $200,000 house won't be anywhere as bad as the loss on a half million dollar one.
Charlotte has plenty of homes under $200,000 in decent neighborhoods, and at least that was an option, unlike crazy markets like California ... where every home in every neighborhood rose to nosebleed prices.
This is an implicit part of "living within ones means". The question is not can you afford it now, but can you afford it in leaner times too?
Very interested in hearing thoughts on this article.... I mean really...a $500,000.00 home for 4 people....I think their priorities were in the wrong place. Does it really take that much house for 4 people?
When I read this article I thought "Why did they use such a bad example? There are plenty of folks who bought $150,000 homes who are laid off who are going through the same thing, and are more easily identified with."
There was an interesting piece recently (don't remember where, maybe Planet Money blog, which would have gotten it from a newspaper?) that discussed the overall economic impact of folks in this position just letting go of the house. No longer trying to pay a mortgage, spending much less on rent, they tend to have more discretionary dollars (that is, if they have any cash inflow at all.) So they can pay down other debt, and spend money instead of pinch pennies. The article suggested it was indeed better for the economy for foreclosure to occur.
Those of you with the good fortune of jobs, savings, who maybe have been able to refinance ... have some compassion for those who are trying to hang on and not become homeless.
It is my nightmare that the temporary job I have found runs out, the economic recovery slows to cold molasses, my unemployment benefits run out, my savings go, despite my best and ongoing efforts (back in school, and doing everything I can to be more competitive in the workforce), I do not find more work, and even though I have received a mortgage modification, I lose my $130,000 home.
I provide my example, not so you will feel sorry for me (I would rather you not!), but so you can multiply my example by thousands, none of whom owns $500,000 homes, boats, fancy cars, jewelry, or even much furniture!
Nightmares, being overly dramatic (or they wouldn't be nightmares), seem far-fetched, but they can and do happen.
I do feel compassion for people in your situation. There is actually a family in my neighborhood with a father who was laid off a year or so ago, has struggled through the year only to have the mother laid off last week. The families in our neighborhood all got together to provide for their Christmas and beyond with toys, clothes, gas cards, gift cards, and money. The difference is that none of us has a 500K house or boat. It's hard to feel sorry for people in that situation.
I do feel compassion for people in your situation. There is actually a family in my neighborhood with a father who was laid off a year or so ago, has struggled through the year only to have the mother laid off last week. The families in our neighborhood all got together to provide for their Christmas and beyond with toys, clothes, gas cards, gift cards, and money. The difference is that none of us has a 500K house or boat. It's hard to feel sorry for people in that situation.
I hope it continues to work out for you!
Thank you, I appreciate your good wishes. I know, when I saw they had bought a half-million dollar house I had to read the article twice. I didn't believe it. Goodness, what must it cost to heat the place?
Just read a positive article on jobs and the economy ... and am happy we have our health ... and Saturday's mail brought a box of homemade chocolates from DH brother in California. Mmmm mmm.
I took a quick scan of the article, 400k mortgage at 200k/yr seems fine.
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That is NOT necessarily true. Many people cannot manage their money these days and cannot save a dime. They spend, spend, spend (for today) and don't worry about the future. That's part of the reason why we collectively are in this mess.
That's why I don't put 100% faith in "ratios" because like I said, take 2 people and you could have 2 totally different results on how far their income goes....
Thank you, I appreciate your good wishes. I know, when I saw they had bought a half-million dollar house I had to read the article twice. I didn't believe it. Goodness, what must it cost to heat the place?
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abcornwell, whether the home is 500K or 200K is not the point. The point is are you prepared (not YOU personally) in case disaster happens? Do you have 1-2 yrs worth of savings (even if you collect unemployment benefits?). Do you have a plan B for a part time job to make extra income? Do you have a budget to cut unnecessary expenses? All these things unfortunately should've been thought about before hand.....sadly, many people though they were invincible....
abcornwell, whether the home is 500K or 200K is not the point. The point is are you prepared (not YOU personally) in case disaster happens? Do you have 1-2 yrs worth of savings (even if you collect unemployment benefits?). Do you have a plan B for a part time job to make extra income? Do you have a budget to cut unnecessary expenses? All these things unfortunately should've been thought about before hand.....sadly, many people though they were invincible....
Well said Jack. Just because someone owns a $500k house, all other variables aside, does not automatically mean that they are living beyond their means.
Well said Jack. Just because someone owns a $500k house, all other variables aside, does not automatically mean that they are living beyond their means.
Nothing is automatic. I'm not sure what that even means. However the issue is what happens when the $500K house turns into a $200K house. It means that if something unexpected happens you are stuck with it because:
Mortgage is a lot more than the house appraises for. This currently describes 1 in 4 mortgages in the USA and the number is rising.
No hope of selling it because so many are in this predicament the pool of buyers has dried up.
Left with a short sale or Loan modification
Just walking away which a lot of people are doing now, and it's making the devaluation even worse.
In this particular case, I take it the individuals couldn't sell the place and move because there was nobody to buy it. The $500K house has become a boat anchor wrapped around their necks and is slowing pulling them under.
The price of real estate is simply resetting to what the economy can really afford.
However the issue is what happens when the $500K house turns into a $200K house.
lumbollo. You are assuming a 60% price drop from when someone purchased it. Even in the inland empire of california, you would be stretching on that one. Its not impossible, but definitely not probable.
Quote:
Originally Posted by lumbollo
[*]Mortgage is a lot more than the house appraises for. This currently describes 1 in 4 mortgages in the USA and the number is rising.
Only a problem if the homeowner is forced to sell or has a mortgage that is way above a safe debt ratio. Not everyone is in trouble. The overwhelming majority of people are paying their mortgages on time.
Quote:
Originally Posted by lumbollo
No hope of selling it because so many are in this predicament the pool of buyers has dried up.
Again, this only applies to people who are looking to move in the short term. I have no intentions of moving for at least 15+ years and I don't use my home as an ATM so your example doesn't apply to me.
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Quote:
Originally Posted by lumbollo
The price of real estate is simply resetting to what the economy can really afford.
Yes, its what I've been calling on here for 2 1/2 yrs going back to historical levels...i would think we here in Charlotte are around 2000-2002 levels, but th eproblem is the lack of qualified buyers.
Lumbollo, I've been fighting sunshiners and realtors on this board to open their eyes which many didn't do, but not everyone is in dire straits. Just need to put it in perspective...
Well said Jack. Just because someone owns a $500k house, all other variables aside, does not automatically mean that they are living beyond their means.
Right, home price has very little to do with it. Main factor is are the income earners savers or does money burn a hole in their pocket?
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Crummy example
