Tuesday, May 26, 2009

Housing Stuff I Don't Get

So, the market is still crap, duh, but the new trend in articles about the situation is to compare the it's-getting-better! predictions with the oh-wait-no-it's-not indicators that more bad is still to come. On thing consistently confuses me, however - check this out, listed under the header "Walk-away underwater homeowners:"

The number of people who owe more than their home is worth continues to rise. Almost 22 percent of all mortgage holders were underwater by March, according to real estate site Zillow.com. That's spurring a phenomenon of "walk-away" homeowners - people who choose foreclosure because they don't want to pay off an upside-down asset.

Matt Bording and Mangala Abeysinghe are an example. They have poured love and energy into their three-bedroom Richmond home; the garden alone is a work of art. Bording has a steady job as an ICU nurse, Abeysinghe, a nurse in her native Sri Lanka, should readily find work once she passes the U.S. licensing exam. They made a down payment and can afford their monthly payments.

On paper, they sound like ideal borrowers. But as their home value plummeted, leaving them underwater by more than $200,000, they decided to walk away. They stopped paying their mortgage in October, and are still living in the home, although the lender sold it at a foreclosure auction last week.

Bording described the decision as "a bit of brinkmanship and bravado, along with fear of being financially trapped. I'm wondering about the possibility of many more prime borrowers doing the same thing, causing some kind of ripple in the economy."
So, RIGHT NOW, the home is $200k underwater. In 5 years, will it still be? (Many would say yes, but.) Let's say in 5 years it's only underwater $10k, but in the meantime, you keep making payments and you still have a tax deduction and, oh yeah, you still have a place to live.

The two words more commonly missing from all of this discussion are "right now." Don't get me wrong, what my house is worth right now makes me sad because it is already less than what I paid for it (I welcome myself to the club in that regard). And I neither think nor hope that the market will rebound to the stupid levels of previous years. A good number of walk-away owners, however, seem to be just plain crazy.

Then again, our public policy recognizes efficient breaches, no? We never stop screwing ourselves.

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