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Wednesday, February 24. 2010

What's the big deal?

Nearly 25% of all mortgages are underwater. What's the big deal? Is a home an investment, or a home? What is truly remarkable in life is to buy something - and to have it appreciate in value. That rarely happens.


100% of auto loans are underwater, and so is the vacation you took last year and put on the credit card. That new leather sofa too, the TV and the boat. And probably your life savings, compared to a few years ago.


For those headed for trouble because of job or income loss, however, I have nothing but sympathy... while I blame Washington: We need tax cuts instead of ever-higher taxes.

Posted by The Barrister in Hot News & Misc. Short Subjects at 11:27 | Comments (10) | Trackbacks (0)

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Just think of it as rent and you're not underwater.
#1 rhhardin (Link) on 2010-02-24 11:34 (Reply)
It is rent, really, when the bank owns it.
#1.1 bd on 2010-02-24 11:57 (Reply)
It's rent, regardless, if you have property taxes - you're renting from the government.
#2 Jim G. on 2010-02-24 12:29 (Reply)
I think it's like health insurance in a way. Some people would be better off moving from their jobs, maybe becoming self employed, but will not risk it because employer-provided health insurance (and factors like pre-existing conditions) ties them to their employer.

People who are underwater on their residence mortgages may have to move for job reasons, family reasons, any number of things. Add to that stress the downsizing and realization of the loss in value that results because they have to move, it's a bitter pill.

Those who plan to stay put, and are able to, are not so much affected by market declines that take them underwater. It is those least able to take the hit who are often forced to experience it.
#3 Dan D on 2010-02-24 12:30 (Reply)
Every prospective buyer knows that their purchase might depreciate. It's a case for renting, but the mortgage deduction distorts the markets.
#3.1 the B on 2010-02-24 12:56 (Reply)
You and I understand that, the general public has only seen stable or rising home values over their lifetime, and are not financially sophisticated enough to realize big declines may happen. Or they realize it at the same level as a tornado may pass through their neighborhood someday, and think it equally unlikely.

Fact is, most people don't expect their 401k to drop 40% and stay there until retirement, and they don't expect to lose 40% of their house value, and are shocked/depressed when that actually occurs.

I have always thought there should be a cap on mortgage interest deduction. Taxpayer can deduct, say, $25k main residence mortgage interest, max. That would have dampened the big rise in prices on the coasts and the other bubble areas.
#3.1.1 Dan D on 2010-02-24 15:31 (Reply)
I bought my first home in 1981 for $67,500 and sold it in 1984 for 58,000. I don't recall ever thinking someone should compensate me.Itwas just bad timing.
#4 linda s on 2010-02-24 16:17 (Reply)
My wife and I bought our current home in 1974 for $89,000. We're not about to sell it, but if we were, it's market value is now 10 times higher. Sounds great until you realize that a lot of other homes we might want to trade up to have also appreciated by huge amounts. Staying caught up is hard to do. A rising tide lifts the water in every leaky boat the same, as it were.
#5 Agent Cooper on 2010-02-24 22:52 (Reply)
I am on my fourth house in 32 years, and the first one where I actually think I'll "make" money on it. Buying a house and moving in 3 years does not do much for value appreciation.

But if truth be told, very, very, very few, if any, ever 'make' money on the house. Oh, you may sell it more that the initial cost, but once taxes, maintenance, loan interest, improvements, repairs, and whatever other sundry outlay is added (minus the pittance in tax refund received ), I think you find you will never 'make' money on your house.

I think the only reason to 'own' a house, is for the ability to customize it the way you want (well, except for pesky ordinances, HOAs, deed restrictions, and the like). And others have said, even then you aren't 'owning' it, just renting it from the kings with the taxing authority.

When I lived in Houston some years back, I was paying some amount of property tax to 7 different taxing authorities. I can't even remember them all but it was School, Fire, Flood, Water, Hospital, and three others. Texas law allows for a tax fiction in fact called a "Municipal Utility District" (MUD), that allows a builder to recoup the cost (over time) of infrastructure installed in a development and maybe, at the end of the payoff, turn the mess over to an annexing city. So if you live in a new development you may STILL have many of the taxes associated with living in a political entity (county), PLUS 'MUD' fees which generally end up being higher that normal tax because the cost is spread over fewer residents, PLUS the HOA fees.

So, tell me again. Do I 'own' the house & property or not?
#6 JoeC on 2010-02-25 10:20 (Reply)
"Nearly 25% of all mortgages are underwater. What's the big deal?" - Aside from the aforementioned mobility issues, if any of those 25% need to re-finance, they're screwed. And then they become our problem. Also, one of the benefits of home ownership is that it drives investment in the properties. They go down hill nearly as fast as rentals when they are underwater.

"Every prospective buyer knows that their purchase might depreciate" - Yeah, NOW they do.
#7 smurfy on 2010-02-25 18:25 (Reply)

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