Learned to Swim Yet?
If you bought your Contra Costa County house in 2005 or later, the chances are better than 50-50 that you’re underwater. What does that mean? It means the house is worth less than the mortgage, which effectively means you can’t move until prices come back up without losing money…usually a lot of money.
About two out of three East Bay homes that were bought since 2005 are now worth less than the mortgages on the houses, according to a Zillow.com study. In Contra Costa County, an average of 76 percent of the homes bought during those years now suffer from negative equity, the study said.
The good news is that if you can afford your mortgage payments, and you don’t have to move, you can just hang on until prices come back up. And though the landscape is rife with gloom and doom these days, there’s no doubt that in the long run, that will happen in the Bay Area, this best of all possible worlds.
So for some people, the best possible approach is not to worry their pretty little heads about it. Two homeowners interviewed by the Contra Costa Times is taking that approach:
“We’re probably a little upside down now,” said Jeffrey Vandevoir, who owns a Brentwood home that he and his wife, Sara, bought in 2005. Despite the travails, he is determined to pay the mortgage. “We’re going to meet our obligations,” Vandevoir said. “We plan to stick it out.”
Russell LaClair and his wife, Janet, bought their Livermore home for about $600,000 in 2005, according to Alameda County records. An estimate from Zillow.com suggests homes in the vicinity of the LaClair residence are now worth $522,000.
“I know that our house is not worth what we paid when we bought it,” LaClair said about his home. He added, “It is what it is. We made a choice that has left us with a high payment.”
Of course, where the real pain comes in is if you got an adjustable mortgage and soon will be facing payments (or are already confronted with them) that you can’t afford, or if, God forbid, for some reason you should have to move. If it’s for a new job with higher pay, sucking up the loss hurts a lot less. In other cases, not so much.
Readers, are any of you underwater, hanging tight and waiting for the storm to pass? Anyone finding themselves in a position of having to sell and hating it? How long before these homes at least catch up to their mortgages? (Underwater photo: wili_hybrid)
mrbogue said:
its good to hear people are sticking to their mortgages. i also know of several friends in bubble-territory who are thinking about buying new houses and “walking away” from their existing mortgages. While these are friends and not strangers, I still can’t help but question the decision they’re making (as well as feeling stupid saving for a downpayment that might never be put to use).
July 3, 2008 11:54 AM
Colin said:
I made a bet in ‘05 that Contra Costa prices in ‘15 would be the same or lower. I expect to win that bet.
July 3, 2008 11:58 AM
David said:
Why is it good to stick to 30 years of debt slavery?
July 3, 2008 12:43 PM
mrbogue said:
Call me old fashioned, but I am still a firm believer in ethics and paying off one’s debts,
even if the payee is an evil financial corporation. This is probably why I always choose to put down larger downpayments or pay in cash any assets that I own, as I never want to be in
a financially-stressful situation. Anyhow yes, when these people struggle to pay an underwater mortgage, more power to them for taking responsibility for their actions, I respect these people alot more than those who just walk away from their homes, unless of course its for reasons other than underwater equity (like death /illness, etc.)
July 3, 2008 1:12 PM
San Mateo Home Sellers in Trouble said:
Unfortunately, these responsible people who pay their debts won’t be helped out by the oncoming bailouts for those who didn’t measure their ability to pay. I guess the honest people are the suckers, yes?
July 3, 2008 5:46 PM
mrbogue said:
Yes, it doesn’t seem to pay to be honest in this society anymore. Maybe thats why Jim Rogers packed up his bags and moved to Singapore.
July 3, 2008 7:30 PM
Janis Mara said:
I believe in paying off debts too. I just can’t believe you could walk away from a house scot-free. At the very least your credit would be destroyed for, what, seven years? Aiee!
July 3, 2008 11:49 PM
David said:
Again, it’ll be “destroyed” for 7 years, except when Fannie/Freddie change the rules again, and start lending to those who’ve been foreclosed on in the past 4, or 5, or 6 years depending on how bad it gets in the future.
And you’re not walking away scot free–you lose the house and your credit rating, at least for a time.
Then of course there’s those who defrauded investors out of millions, billions of dollars. how many of them are getting off scot free? nearly all.
So ya, it does seem honest people are suckers. Jim Rogers though moved to Singapore to expose his daughter (and himself) to China/Asian economic growth as he’s convinced himself that they’ll be taking the USA over in his lifetime. For many reasons, he’s wrong, but we’ll see.
July 4, 2008 9:31 AM
david.g said:
If I was underwater right now, I would either (a) walk away, or (b) do as MrBogue’s friends are doing and buy the same house for 100-200k cheaper across the street first and then walk away from my current house.
And I would have no second thoughts about it. You gotta look out for yourself in this society, because you know damn well no one else is looking out for you!
July 4, 2008 3:09 PM
mrbogue said:
I guess option (a) would be better, because lets say you buy the house across the street and walk away from your old, your old house just might become a crack house, which doesn’t bode well for comps in the neighborhood!
July 5, 2008 1:01 PM
Janis Mara said:
Hahahaha, good point, mrbogue!
July 5, 2008 5:16 PM
David said:
Option C: Use that home equity you pulled out and hopefully saved to buy a house with cash somewhere else (e.g. Texas) and walk away from your California millstone.
July 5, 2008 10:33 PM
david g said:
I’ll take D for 500, Alex.
And that is not letting yourself get into an upside down mess in the first place!
July 6, 2008 10:36 PM
Janis Mara said:
(Dingdingdingding) Let’s hear it for David g, folks!
Meanwhile: if someone walks away, their credit is ruined for seven years. Doesn’t that mean they can’t rent a car; have to pay in cash for a hotel room; have to go to the airport or a travel agency to buy an airplane ticket; have to carry a whole lotta cash with them at all times so they can afford to buy gas/groceries? But they are poor so they can’t even afford to drive to the bank?
July 7, 2008 1:53 PM