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Comment by jerf | Hacker News Reader

One thing I don't feel the article addressed is that there is a range of being underwater, it's not binary. I bought after most of the deflation of value had occurred, but not entirely. I'm about 3-5% underwater right now. But abandoning my house (even if I was not concerned about the ethics) would still be bad, because percentage fees on getting a new one would eat my "savings" entirely. To say nothing of the beating my credit rating would take.

To really make it worth walking away you really have to be underwater by a lot. I don't think that 100% of the people who are underwater are down by 30% or 40%. Real statistics on that would probably be more helpful.

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Well, it's obviously true that it's not a step function. But the slope is really steep. Someone with just a tiny bit of equity can sell their home and walk away without having to pay anything. Someone with just a tiny bit of unsecured debt who wants to move loses almost nothing (a beaten credit rating for someone with income isn't nearly as serious as you think) by walking away, and saves thousands of dollars in fees (typical real estate fees in the US are 5/6%, and paid by the seller!). That may not be "binary", but it's pretty close.

The real determining factor in your case, I suspect, isn't financial but one of convenience. Finding a new home is a hassle, and you don't want to bother with it. It makes more sense to stay where you are because moving doesn't get you anything but grief. But if you got a great job in a different city, would you really be seriously thinking about trying to sell your underwater house?

"The real determining factor... isn't financial but one of convenience"

But convenience is financial as it can be valued. (My statements based upon extensive research involving 7-11 and getting food delivered)

I think you have it exactly right. People with good incomes who are just a bit underwater on houses in San Francisco or New York should probably stay put. But people with low incomes who are hundreds of thousands of dollars underwater in the outskirts of Vegas... well, I actually think that for them, paying off the mortgage would be a financial disaster. It will take up every cent they own for decades, and they will retire broke. Seven years of bad credit pales in comparison to the severe damage they will do to their financial future by trying to pay off this house.

Personally, I think one of the reasons people hang on is that they're too optimistic about a recovery in prices. I'm sure prices on houses in the vegas desert will eventually start to rise again, but from $190k to 550K? Nope.

I agree with this assessment. It definitely isn't a binary decision. Just as it isn't a decision that should be taken lightly. Obviously there are ramifications to abandoning a mortgage and all the risks and benefits need to be weighed based on every situation.

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