The Bottom Line: Homeowners be warned

I appreciate the information, though it doesn't sound good.

My sis & her hubby have been trying to sell their house since spring with no luck. They dropped the price several times along the way. Looks like they're going to stay put now.

Thank you for boiling a seemingly complex concept down into an easily understandable situation.

The whole domino effect of the this mortgage/homebuyer travesty is reminiscent of the saving and loan debacle in the latter part of the 1980's. That similar situation ,resulting in home buyers losing their homes, was also based upon trumped up financial hyperbole and pie-in -the -sky availabilty of mortgage loan money beyond what the applying consumer could realistically afford.

The difference between then and now is that this global economy is being negatively impacted (as evidenced by all those European banks screaming that got stuck with those loans once the loan-originating companies sold them overseas )versus just the domestic economy taking it on the chin . But the effects will be long reaching and long lasting as it was 20 years ago. In the '80's the resultant end effect was the closure and bankruptcy of thousands of domestic saving and loans that could not collect on defaulted mortgages(even though homes were turned over to the S&L they still lost profit )and the loss of jobs associated with those institutions in addition to people losing their homes, savings and dreams. Additionally the nation suffered an economic recession lasting several years .
Frankly, I believe this was great money making scheme ,re-created by those that ended up benefiting the most, recycled into a much bigger package . You know: "Those who do not heed the lessons of History are doomed to repeat them"( or something like that) and the more fittingly" A sucker is born every minute".
And we'll probably witness a similar incarnation of this ruse in another generation.....
Thank you!

I think that is more of settling dynamic caused by the fairly recent culling of the sub-prime lenders. These jackals created a false bubble in the lending market, by offering deals that the average homeowner might never pay off in their lifetime. Now that they are gone the housing market has to work on its own merits. It will eventually become stronger, but healing of any kind takes time.

This is one of the reasons I tried to play it conservatively when I purchased my house 5 years ago. I know too many people that may be in over their heads if this trend continues. Good article!

Slump ... this is the market correction that has been long over-due!
Many factors have contributed over the past decade to create an artificially high real estate market - questionable lending practices, overly aggressive realtors, the proliferation of guru get-rich-qwik books, infomercials, and cable flip-this shows - and it is now time to pay the piper.

The equity position of many homeowners is what they call in automobile sales - UP-SIDE-DOWN - they owe more than the home is worth ... and it's quite likely it may continue to depreciate. Add to it, that many loans are experiencing rising interest rates because the buyer opted for an ARM (Ascending Rate Mortgage) instead of a tradtional fixed rate mortgage.

For those that missed it, I covered one aspect of the real estate slump last week in the article You've Been Evicted! about unforeseen consequences for renters as the housing and lending markets crash around them.

It might be in a slump right now, but my husband and I still can't afford to buy a house. I guess we'll be stuck renting until we can get his credit cleared up.

To me house prices rose way beyond what they were supposed to, greed became a factor. I bought my house in 1988 when the prices were starting to drop from that first over inflated time. Then the houses dropped alot more. People lost money from being overcharged if they went to sell. Prices are too high, average people cannot afford this.
ALSO:

People should not have borrowed against the inflated equity so they could have those vacations or pay for inflated college courses. weddings etc. My friend did this and now is finding out her house isn't truly worth what she owes on it.

Nor should they believe it can be a cash cow for retirement years. It should be your property that you live on and when you sell it -get what you paid or a little more...not 4 times the amount.

This is just my opinion.....

Thank you so much for the link to your post MrBill. That's a great follow up read.

FYI: I do agree with you that the stabilization or decline in home prices -- which were rising in my area as much as 10 percent per year -- is an expected "market correction." I referred to it here as a slump, since even if you're standing up quickly once you're at the top the fastest way down is to slump. That slump may indeed be our normal posture, but it's nonetheless a slump. That's my rationale at least.

Meanwhile, thank you all for your insightful and personal comments. I think this discussion adds a lot to the housing issues in the news.

"As homes are devalued, homeowners who have home loan amounts near their home's value could face lenders calling for additional collatoral or immediate payment of the whole home loan."

This is the scariest quote I have read in days. I wonder if many people have thought about this. I know I hadn't. Thank for the info.

We are very concerned that when we are ready to move we won't be able to sell our home. That is our biggest concern.

Jennifer I read that this housing slump will continue and get worse....things MAY improve by 2009.

As the daughter of a builder (now deceased, lived a long life) , I was always told NEVER to risk my home and to own it "free and clear" (aside from those yearly real estate taxes) . I took that advice. I also bought the home recommended by my father who told me it was undervalued and could see through the clutter to the gem it was. It has appreciated better than my best stocks. If I sold it today, even at a huge discount from purchase price, it'd be fine. I'm not paying interest on it, that is for sure.

I always thought of a house as an asset ----- but NEVER as the bedrock of a retirement plan. I've seen too much temporary fluctuation in the housing markets over the years. When we bought our current home, over 20 years ago, the sellers were DESPERATE to sell. Guess 20 years seems like a long time to some people but I still remember those days.

Sure, there are people like an old lady in Chicago who had ONLY her home and then prices skyrocketed and she sold at the top of the market and was set for the rest of her life (mainly because she was pretty old when she sold) but that was luck - and timing. Her heirs got a windfall because she couldn't outspend her money, not even close.

On the other end of the spectrum.. I know a home investor and renovator who needs to sell after real estate taxes skyrocketed and can't find a buyer for a lovely home, not at the price she needs to get just to break close to even. She is trying to pay the mortgage by selling off antique furniture, piece by piece. Sad.

We have never borrowed more money than we had saved already. I guess we could have tapped our savings but they were in retirement funds and other vehicles we wanted to grow- and had a company match. So we'd take out a small home loan, pay it back quickly and eat the interest. But we knew that we had the funds to pay it back, in a pinch. I hated borrowing, both times.

P.S. I sure wish you'd do an article on when it makes sense to rent vs buy because - being of a "certain age" - living in our home and paying for maintenance, real estate taxes and doing a lot of cleaning....I wonder when and if it makes more sense to rent. Not in today's housing market, maybe, with home prices being what they are for sellers but at some point?

I don't see owning a home as necessary for EVERYONE. I know it is touted as "the American Dream' but I was happy as a renter just as I am happy as a homeowner - but less so than last year ;)

crap.....

I mean about the message not your article Ms. Meacham ;-)

lol Mandi. Thanks for clarifying. ; )

Thank you for the article suggestion Jane. There are certainly many times when renting, or at least not full ownership, makes sense.

Thank you all again for your feedback!

Thank you for the information. I realized there was a housing slump, but I just didn't realize how bad it is.

Ms. Meacham,
That is not good news at all. I am very concerned about the economy but even more concerned because we were wanting to sell when we retired and build a new smaller home on our farm to live in. Not good news at all.

Thanks for telling us about it.

I second this posting!!!
"As homes are devalued, homeowners who have home loan amounts near their home's value could face lenders calling for additional collatoral or immediate payment of the whole home loan."

This is the scariest quote I have read in days. I wonder if many people have thought about this. I know I hadn't. Thank for the info.


I'm getting concerned that the money we have put in to renovations may not have been well spent...I'm hoping we'll be able to sell and move in the next year???

My wife is a real estate agent and while she has done okay, it's been a pretty frustrating time. Things will turn around...they always do in real estate. Just a game of patience.