This isn't an over time thing. This is an all at once thing.
You obviously don't know people going through this so let me paint you a vivid picture.
My grandfather died in March 2008. His home wasn't an investment, it was the house had had lived in for 40 years. He paid $340,000 for it. We have been trying to sell the house for over a year, we finally sold it this month for $150,000.
That is the housing market right now in a nutshell. It doesn't really matter to us because the estate is a gift to us, not our own money really.
But now flip the coin to the people who "normal" home buyers. Say I moved into that house 10 years ago and now my job is gone. I want to sell that house and move somewhere else. What am I going to do if I bought the home for 340k and have to sell it for 150k. I owe the bank almost 200k. I'm not an "investor", I have a wife and two kids and all we want to do is get out of our house. We didn't buy it as an investment and we played by the rules, but now we are completely and utterly screwed.
It has nothing to with investing. It has to do with putting a roof over your kids, and the expectation that if society won't burn to the ground around you. For people underwater in their homes - society has basically crashed and burned around them. They are basically trapped in their current situation whether they want to be there or not with only one way out - default.
People love to blame sub-prime borrowers who shouldn't be in homes, or speculators who shouldn't have bought homes. Sure those guys lifted the prices that everyone had to pay, but the VAST MAJORITY of homes bought during the bubble were still primary residences for people, and all of those regular families are now the victim in this situation.
Ignoring those problems is to be either incredibly out of touch, incredibly stupid, or incredibly callous.
Sorry. I didn't mean to seem harsh. Quick jumps can be very hard on some people. 340k to 150k is very big. But I do think these are more end cases then it seems. The point to note is this:
I" want to sell that house and move somewhere else."
In the majority of cases, people want to buy at a higher price. Even if they want to buy a cheaper house, you lose the difference between the house prices at the time you buy, the price at the time you sell (buy again), times the rate at which house prices fell. Say you go from a 300k house to a 200k house after a 25% fall (big numbers), you "lose" $25k. If you move to a more expensive house, you "win."
If your house is under water, you are in no worse a situation really then if prices hadn't crashed. You still have the same mortgage.
When you buy a house you lock in your housing costs.
You obviously don't know people going through this so let me paint you a vivid picture.
My grandfather died in March 2008. His home wasn't an investment, it was the house had had lived in for 40 years. He paid $340,000 for it. We have been trying to sell the house for over a year, we finally sold it this month for $150,000.
That is the housing market right now in a nutshell. It doesn't really matter to us because the estate is a gift to us, not our own money really.
But now flip the coin to the people who "normal" home buyers. Say I moved into that house 10 years ago and now my job is gone. I want to sell that house and move somewhere else. What am I going to do if I bought the home for 340k and have to sell it for 150k. I owe the bank almost 200k. I'm not an "investor", I have a wife and two kids and all we want to do is get out of our house. We didn't buy it as an investment and we played by the rules, but now we are completely and utterly screwed.
It has nothing to with investing. It has to do with putting a roof over your kids, and the expectation that if society won't burn to the ground around you. For people underwater in their homes - society has basically crashed and burned around them. They are basically trapped in their current situation whether they want to be there or not with only one way out - default.
People love to blame sub-prime borrowers who shouldn't be in homes, or speculators who shouldn't have bought homes. Sure those guys lifted the prices that everyone had to pay, but the VAST MAJORITY of homes bought during the bubble were still primary residences for people, and all of those regular families are now the victim in this situation.
Ignoring those problems is to be either incredibly out of touch, incredibly stupid, or incredibly callous.