Sunday, August 30, 2009

What would you do?

I talk to a lot of people about real estate, either in person or via emails. I seem to run across 3 types of homeowners.

1) Long time homeowners that are in good shape (although most are unhappy they didn't sell in 2006).

2) Those that have let the house go or have stopped making payments and are awaiting the inevitable.

3) Those that are still making the payments and really do think the values will shoot back up again in a few years. The crazy thing I find about this group is that many of them are going into serious debt just keeping up with their payments. I think this is the group that will be making headlines next year. Many of them are burning through credit cards, savings accounts and in some cases even their 401Ks trying to keep up on the mortgage. So what will happen to these folks if the values don't come back. This groups is trying "to do the right thing" but they will come out far worse than group two in the end. Group two is saving and will be rebuilding their credit once the foreclosure or short sale happens. In a few years they will be able to buy again.

Fortunately I'm in group 1, but I know I'd be in group two had I purchased that house in 2005.

In other news (from Calculated Risk)
15.2% of California mortgages are now delinquent or in foreclosure......






11 comments:

Carl said...

well, on the bright side, Los Serranos is NOT charging holiday rates on Monday. Sept. 7. Standard Monday rates apply.

golfer_X said...

That's great, I still have a coupon for a free weekday green fee!

FairEconomist said...

Group 1 and yep, wishing.

I only know one person who seems to be killing himself for payments. He even gave up his car, and no, he doesn't live in one of the half-dozen areas in Socal where that might be reasonable.

cincyjacket said...

Group 4 (my category): Those who have recently bought and are glad they did not overstretch by buying during the run-up.

Jag said...

Well, I bought a house in 2003 sold it in 2005 for $100,000 profit. Bought bigger house in 2005, that is now appraised for about $200,000 less than I paid for it. So that's a net 100,000 loss for me ( at present value). As long as I have a job, making a payment is not a problem for me. I bought two rentals this year that are generating positive income for me. I have thought about letting my primary house go but if bank is going to give me a 1099 for $200,000 that will not make any sense. I will have to pay tax on 200,000 which can be 80,000 and I am only 100,000 in red, and prices can come up in few years. If I loose my job, I do not plan to go into debt for making payments on primary house. Any suggestions ?

FairEconomist said...

How are the payments on your house compared to renting? If it's affordable I agree it's probably better to wait and see what happens. The tradeoff is:

Ruthless default: pay less each month for housing

Pay to Play: Avoid a move, keep your credit rating, have a hyperinflation hedge, and have the possibility of applying for a mortgage mod if circumstances changes.

I'd need a pretty substantial payment advantage to overcome the advantages of continuing to pay.

Mark said...

I was in Group 1, but I did sell in 2005 and have rented since. Is Group 3 that big? I can't imagine many people paying when so many are not.

golfer_X said...

There are far more people paying than not paying. Who knows what percentage of them are underwater though. I personally know quite a few people that are WAY underwater and are still doing everything they can to stay current. One of them is working 60+ hours a week to make payments on a house worth about 1/3 what they paid for it.

Jag do what you feel is best for you and your family. However, thinking prices will come back to bubble levels anytime soon is a bit delusional. I'd be real surprised if I see those prices again before I go belly up. The only way I see them returning is through hyperinflation. BTW, you don't currently get a 1099 on mortgage debt forgiven. Congress passed the debt forgiveness act in 2007. That law goes through 2011 and it eliminates the 1099 on mortgage debt. Of course check with an expert for all the details as you still might get dinged by California.

OSA said...

i spoke with my tax guy and you will definitely get dinged in CA. The CA law has not been amended for 2009 forward. So you are ok from a federal perspective but not CA. What I find interesting is how many of the folks that did foreclose this year are going to be getting a nasty surprise come tax time

Adrian Smith said...

Group 5) Still renting, waiting for house prices to come down a bit more. Just because they are cheaper doesn't mean they are cheap. Getting close though!

What pisses me off are the number of foreclosures in our neighbourhood (a drive around the block makes it obvious) that aren't listed anywhere. I'd love to buy one, but oh no, banks have to [insert latest conspiracy here].

golfer_X said...

Oh there's pleny of theories and plenty of underhanded monkey biz going on. A house across the street from me got foreclosed on about 2 months ago Orange sign in window and all.... Never hit the market as far as I can tell, no for sale sign, no nothing. Now it's sold! How the hell does that happen? The public doesn't ever get a chance. Lot's of this going on too.