Comment by deathanatos
5 days ago
Because if you're buying a house for a house, then it (mostly, generally¹) doesn't matter that the housing market has moved downwards and you'll be underwater until you pay down a bit on the house. You still have a house! So long as you can afford the mortgage — something you should have already planned for given you bought the house — you can still afford it. You might have remorse at having paid +$100k right before the market moved, but that's what the parent is saying: that's buyer's remorse, that is speculating on the price, when instead, you should be saying "am I willing (and financially able) to trade $400k for a home to live in?"
(¹I don't want to get too much into the sidetrack that is "but if you're underwater you could lose your home" — yes… that's possible. The example here is a 20% fall in prices — which would be astounding to those of us wanting a home, the thing of dreams — but you put 20% in the down payment, so a single mortgage payment & you're no longer underwater. In reality, the price drop (in rent, but let's work with what we got) was 3.7%. (Don't get me wrong, I'd take that too, as a renter.))
What if your company transfers you to another place, and you need to move, and you can't pay off the remainder of principal on the home with the (now lower) proceeds you get from the sale? Or even if you can, but you don't have enough for a down payment on a house in the new area?
Even regardless of that, I don't love the idea that a change in housing policy could make people feel trapped in their current home, unable to move. Granted, current housing policy (e.g. California Prop 13) has that effect on some people already. And I bet it sucks. Now, I'm not sure the government should be bailing out people who can continue to pay their (now underwater) mortgage but would just like the option to sell it and move. But I think this requires a bit more thought than just wielding that axe and letting things fall where the are. I mean, hopefully we're not advocating for more of the DOGE method.
> I don't love the idea that a change in housing policy could make people feel trapped in their current home, unable to move.
The needs of the many (would-be homebuyers locked out of the market, renters suffering higher rents) outweigh the needs of the few (homebuyers who did buy recently, and would be underwater, and would have an event to trigger that mattering at all, and whose finances are not orderly enough to survive that).
I think you're neglecting to account for a big risk. If the house retains or increases in value, the bank can just take the house to recoup what you owe them of you can no longer pay the mortgage due to ill health, accidents, etc. What do you think happens if the houses value drops a lot and you can no longer pay what you owe? You don't just lose the house, you're in a much, much deeper hole. How property values go substantially changes the risk calculus of owning a home with a mortgage.
> You don't just lose the house, you're in a much, much deeper hole.
Oof, I was about to question if this is correct or not, but it turns out that this is indeed true in most US states: if you default on your mortgage, and the bank can't resell your house for at least as much principal as you have left to pay, you still owe the difference, and they can get a court to garnish your wages, put a lien on any future home you may buy, get your accounts frozen.
Didn't realize this was a thing... I live in a non-recourse state (California) where the bank only gets the property on default and can't pursue you further.
> but you put 20% in the down payment
The median isn't even 20%, it is a bit less than that. Median first-time home buyers put only 9% down. Even the median repeat buyer, who just sold a house and had probably been paying mortgage payments for a while, only put 23% down.
https://www.nerdwallet.com/article/mortgages/average-down-pa...
But you are right though, a 3.7% drop probably wouldn't put even most first-time home buyers underwater.