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There are many pressures on home prices. The biggest being job losses. But on the other side of the coin, mortgage rates are very attractive, home prices in distressed areas are well under replacement costs. Government programs exist to assist a certain percentage of underwater homeowners, and there are still programs that can provide low or no down payment loans in certain areas to certain income levels.
I'm noting that pending sales in my area have been exceeding new listings for about 6 weeks.
Mortgage companies such as Wells Fargo are reporting "upside surprise" earnings over the first quarter. And mortgage applications are being reported with high double digit increases month over month.
So while the OP is stating the popular view, and what is in fact good advise for those that need to sell. The total "sky is falling" scenario, may be moderating some.
I actually agree with most of your post about home prices and declining values and people who can't afford the payments.
However, these days, people have gotten smart. Telling people you are in the process of foreclosure is no longer a "stigma" anymore.
In fact, those in "big trouble" like you stated on their unaffordable mortgages are likely laughing at YOU. Because so many people have figured out to game the system. Most put very little downpayment and did no interest loans and just deciding to walk away. They have nothing to lose. They are laughing at all the renters or even other homeowners out there who are paying their mortgage right now.
The reason is that you (either the renter or homeowner with a mortgage) are still paying every month.
Those smart enough, will just stop paying mortgage payments for up to 6, on the day of the foreclosure notice, will file for bankruptcy and this will give them another 6 months (rent/mortgage free).
So who's making fun of who now?
It's sad but this is how many people who have unaffordable mortgages are starting to treat their situation (a business decision) however morally wrong it is.
This is technically the "smart" thing to do. But this is exactly the selfish attitude that is dragging the economy down. Doesn't make me angry, just sad at how irresponsible people are. There's no accountability anymore.
I think these people who are barely hanging on are not acting smartly. There is no chance of real estate prices rising in the next 3-4 years. But a large probability that they will fall even farther downward. The banks have a huge inventory of foreclosed homes that they are just sitting on and not selling. And every month the inventory grows. Once they start to sell these homes, prices are gonna go way down...
you need to sell now before things get really bad. I wish it wasn't true, but i don't see any way this is not going to happen. Taking a loss now is a lot better then losing a huge sum of money, or possibly going into bankruptcy later. Put your home up for sale and price it aggressively if you are having trouble affording your mortgage.
Amen Brother. The market is going to continue downward for awhile.
You really ought to tell us where you are from so we can agree or disagree with you.
The DFW is fairly strong and overall TX home prices are up 2-4% with the top 5 selling markets in the US. So maybe a general statement like you made is appropriate for someone in Detroit.
THIS IS BS. I lived in DFW area and prices are NOT increasing there. They have weathered the storm WELL compared nationally but they too a hit since Aug 2006 which was their peak. Misinformation....
I don't think most foreclosure victims are laughing right now. I think they are pretty depressed about the whole situation. Maybe some didn't put a downpayment, but they paid every month a mortgage for a few years for a place to live and for their home.
There are videos of foreclosed homes, where they left personal pictures, an urn, and other personal items. It doesn't seem like these people are laughing.
Of the 6 people I know personally who have or are going through the foreclosure process, not one person put down more than 3% down payment. All of them did interest only.
It makes business sense to walk away. I myself am paying at least $700 a month into the principal each month. My mortgage with taxes/interest/insurance runs about $3200 for one of my homes. Rents go for at least $2500 in my old neighborhood. So if those people are only paying interest only and with the tax deduction they are getting, they are essentially "renters" anyway so they should walk.
I'd like to see if there are actual foreclosure statistics of people who put real down payments and pay into the principal each month. What's the foreclosure statistic on homeowners who put down at least 20% on their homes? I bet the foreclosure rate is extremely low (even in high foreclosure areas) for people who put real down payments.
So people who can't afford their homes can and will walk. This will drive down real estate values more. (lets take the last month and a half of stock market ralleys out of the equation). This may be a suckers ralley or it could be the market trying to find itself out.
But for those advocating the home prices need to decrease more, more and more banks will fail and if that's what you want than I'd be trying to hide my money under the mattress. Because the FDIC can barely cover when the nation's 11th largest bank (IndyMac) failed last summer. I think it cost the FDIC up to 9 Billion of it's 50 Billion reserves.
I think it depends on whether you are prepared - and able -to sit out a "paper" loss................possibly for YEARS.
I don't think the bottom has hit yet, given rising unemployment, end of the foreclosure moratorium, coming Alt A Opt Arm resets and the fact that houses in many areas are still priced well above traditional affordability levels based on median average earnings.
I think we may hit "bottom" between 2011-2012 - followed by a flatline. From there it may take years to get back to today's prices.
If you're prepared to commit to a property for long enough and ride out those losses then that's not a problem.
But if you're heavily leveraged, maybe sinking underwater already, are really struggling, have explored all assistance options and still can't see your long term situation getting any better then I think that selling now probably is the best option, even if it means taking a loss
I'd like to see if there are actual foreclosure statistics of people who put real down payments and pay into the principal each month. What's the foreclosure statistic on homeowners who put down at least 20% on their homes? I bet the foreclosure rate is extremely low (even in high foreclosure areas) for people who put real down payments.
It's a big problem -- and there was a fallacy that having a third party take care of the credit risk on the 20% reduced the credit risk to the same as if the buyer had put down 20% of their own money, yet it seems obvious in hindsight that the buyer who paid PMI didn't only pose a greater risk on the 20% but also on the 80%. I suppose the market was implicitly assuming that the value of the property less foreclosure costs could never fall below 80% of the initial price.
This strategy would only work if the buyer were forced to post more collateral (e.g. if the price drops 20%, you either put up a down payment, or buy PMI) when market conditions moved adversely. Otherwise, it leaves the senior creditor exposed to extra risk.
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But for those advocating the home prices need to decrease more, more and more banks will fail and if that's what you want than I'd be trying to hide my money under the mattress. Because the FDIC can barely cover when the nation's 11th largest bank (IndyMac) failed last summer.
FDIC has a direct line to the treasury. They are trying really hard not to use it (mostly by raising fees on the deposit taking institutions), but they can if they need to.
Most of the unsecured creditors are holding securitized loans, they are investment banks. A failure of an investment bank like Lehman will not put your insured deposit at risk.
btw, the market already knows that drops in home prices are coming. So currently traded prices of stock, debt issues, at major banks and mortgage backed securities owned by banks, are already pricing in a drop.
Asset bubbles are terrible for the real economy, because they divert otherwise productive capital. The bubble needs to deflate.
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Just imagine if BAC or C individually fail. The FDIC symbol will be essentially worthless and you will lose your supposedly insured money.
If they couldn't or wouldn't pay depositors for whatever reason, the treasury would have to bail them out.
I think they would have to screw their stock holders creditors before they do the same to depositors.
This would be terribly for the tax payer who, being a creditor, stock holder, and funding the treasury, is the loser in all scenarios. But individual depositors will not lose their money.
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