The Corner

Underwater Homes

I understand that from the 30,000 feet level most policymakers view these things from, having homes worth less than their mortgages is a real problem. People can abandon their mortgages, which breeds contagion etc, etc. But I really don’t understand why it’s such an unbearable crisis for responsible homeowners themselves. Maybe it is in some cases, but it seems to me that having your home worth, say, $500K when your mortgage is for $600K is certainly undersirable but not necessarily disastrous. If you bought during a housing boom, you shouldn’t be stunned and crestfallen if the value of your home temporarily sinks for a while –  that is unless you’re a house-flipper, in which case my sympathies are significantly reduced anyway. Most people buy their homes and expect to hold on to them for a while. I don’t sell my stocks every time they go down. A dip in the value of your home now, isn’t a dip for all time. So, long as you can pay your mortgage, I don’t really see why you would walk away.  And, even if you are the kind of person who abandons his obligations, I have to presume that walking away from your mortgage has real costs to your credit rating (and, hopefully, your self-esteem). Indeed, if abandoning your mortgage doesn’t nuke your credit score, what good are credit scores in the first place?

Anyway, I’m certainly no expert on this, but it just bothers me when I hear financial folks on TV and the radio simply asserting that being underwater is the worst imaginable fate without explaining why. Nearly every car ever bought is worth less than what the car loan is for. People aren’t suckers for owning cars and most don’t abandon their loans at the first sign of depreciation.

By the way, I just have that feeling, that instinctual sense hone from a decade of blogging, that I will hear from many experts telling me why I am an ignorant fool because of this post. I await the tsunami of edification!


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