this article (by a very well respected, albeit conservative, business magazine), shows how the rate in drop in house values is way worse than at any time during the Depression. i didnt think we were anywhere close to that. we're at a 16% drop in just over a year, and foreclosures havent peaked The housing market | Dropping a brick | Economist.com "Unfortunately, new figures this week reveal that house prices have already fallen by more over the past 12 months than in any year during the Great Depression. The S&P/Case-Shiller national index fell by 14.1% in the year to the first quarter. Admittedly, other property indices show smaller drops, but most economists now favour this measure. This shows that the latest fall in nominal prices is already much bigger than the 10.5% drop in 1932, at the worst point of the Depression. In nominal terms, the average home is now worth 16% less than at the peak in 2006, and the large overhang of unsold houses suggests that prices have further to fall. If so, this housing bust could well see a bigger cumulative fall in prices than the 26% real drop over the five years to 1933."
I still feel that the lenders don't need to be bailed out for their own recklessness and neither their stockholders. I also don't feel that homeowners deserve a bailout either. Most of the people stuck with mortgages higher than their house's value bought far too big and expensive houses for far more than they were worth and are equally irresponsible. I bought my house in 1996 during a huge economic boom. I was doing well and my lenders were prepared to loan me a huge amount. But I bought a smallish house in an established neighborhood rather than build a mini-mansion near some country club. I wanted to be able to pay it off in 15 years without a huge risk and I am. Then I can upgrade without huge risk if I need more space. I bought property responsibly and I don't see why those that bought it irresponsibly deserve a bailout. I denied myself the extra rooms, blingy appliances, hot tub, and pool to keep from going into dangerous debt. They didn't, they did, and they should bear the consequences.
the ramifications of a possible 25% drop in house values has nothing to do with how large a mortgage you took out. 25% is 25%. it will suck for all the thousands of people that have to move (and sell) after a few years in a house. even in your situation, if the bottom had dropped out of the market in 98 and you had to move for a job, you could take a 25% hit (bye, bye equity).
To the contrary it has everything to do with it. The people who put 20 percent down on a house the could afford can better absorb the temporary reduction in the value of their home than can the people who took out a 0 down 300K mortgage on a 250K house when they could only afford 150K house to begin with.
Well, not really. It is the upscale houses in overbuilt subdivisions that have dropped 25%. Modest houses in established neighborhoods didn't experience the big run up and haven't suffered a big bust. Prices in my neighborhood have not dropped a bit and some of the old mansions in the neighborhood have gone up. Furthermore, since I put a large down payment on the $90,000 house and only borrowed $60,000, a 25% drop would never have broken me. The house is now taxed at $120,000 and I probably could sell it for $160,000. If I had bought the $350,000 house that my credit union thought I could afford, then a 25% drop might have hurt me badly. But I was more responsible than that. Buyers should pay keen attention to risk managment strategies.
im not considering whether people can absorb it or not. a 25% loss on a house (im talking if you have to sell) sucks, even if you can absorb it. obviously this is no big deal (and even a bonus with potentially decreasing property taxes) for those that are 15 yrs into a 30 yr mortgage and/or have no intention of ever selling. btw, i meant to ask you before. can i deduct losses on a home sale from my federal taxes? that would make me more likely to make a move.
To me those are folks who made bad investment decisions. Red bought Wal-Mart. The people who bought spec houses bought penny stocks and expected them to keep going up. I would consult with a CPA to confirm this, but to my knowledge and understanding the loss on the sale of a personal residence is a nondeductible personal loss. If you conducted some business from the home their may be some deductions that open up to you.
So it sucks, but I managed my risk such that this kind of loss doesn't hurt me badly. I calculated how much I was willing to risk in real estate and I didn't assume that prices would always go up. I hoped that they would and bought a house in a neighborhood with steady prices to help insure this. However if circumstances forced me to lose $15 or $20K, I can absorb it as a calculated risk of doing business in property. I have this much in savings without even touching my investments. However, if I had bought the $350K house and lost $90K, it would have bitten a chunk out of my ass that I was not willing to risk. Same percentage perhaps, but the scale of the percentage is an important consideration.
ok, gotcha not that im sure what a "spec house" is (something makes me think that it doesnt stand for "special"), but i dont see how you can say that when the article i posted above showed we are likely in the middle of the largest depression in the housing market ever. seems like a more rare occurrence than a penny stock not hitting it big.
