1 in 4 Borrowers Under Water

WSJ ^ | 11/24/09 | RUTH SIMON and JAMES R. HAGERTY

[Freedom_Is_Not_Free]

Sacramento area houses are down about 50% from peak, or down to around 2001/2002 property values. Believe it or not, I think we could go down to about 1998 values before the bottom. My home could go down to $125,000. It is not impossible. That would be almost a 50% drop from what I paid.

That said, I studied my neighborhood pricing trends intensely and tracked selling prices back to the early 1980s. I’m pretty confident my home won’t fall below $175,000, but who knows. I never would have bought if I thought there was more realistic downside than that.

I think we have a lot of upside as well due to the governments desire to inflate, but we won’t see that inflation for years, so those who are in their homes less than 10 years are not going to be helped by inflation holding their prices up.

It is going to be a wild ride.

FWIW, one of the biggest indicators I used to decide when to buy my home was when the montly mortgage for homes in my neighborhood dropped to below monthly rents in my neighborhood. I’m in a cruddy little valley town, but I am in the best neighborhood in that cruddy little town, so I did try to comply with “location, location, location.” You have to live somewhere and I made a calc that I was not going to save money be renting and that my home would appreciate in the 15 years I would be in it.

Of course, I could be wrong. We could have Japanese style lost 2 decades. I took a very educated risk and we will see what happens. If we get that full blown deflationary depression, then I screwed up. If we get an inflationary depression, then I’ll be OK. Eventually all asset values will rise. It is just a question of living long enough to see it! lol.

[Freedom_Is_Not_Free]

And that is the roadmap to house buying happiness. It is a shelter, not a get rich quick scheme. Too many people treated it as a get rich quick scheme during the bubble. “If I can’t afford it, I can always flip it”. Now they are screwed.

You have the plan right. Homes appreciate about with the rate of inflation, no matter what anybody says. To that end, they are a place to live in that tends to not collapse in value too badly because you put so much money into maintaining it.

I have long preached that for many single people or people with low income, renting is going to be a better investment over the long term than buying a house, paying 30 years of interest and home maintenance.

If everybody treated a house as a home in the way you did, we wouldn’t be on the edge of a depression today. I have no sympathy for the underwater home owners either. You are responsible for your own financial decisions. That said, the financiers and politicians that pushed them need to die quickly and burn in hell.