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Many people put all of their money into paying the mortgage on a house. A reasonably sound investment. And then they found their mortgages to be underwater. Literally every dollar they had put in, was now worthless on paper. Those who did not buy into the sunk cost fallacy allowed their houses be reclaimed. Then they truly had nothing.

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Those who did not buy into the sunk cost fallacy allowed their houses be reclaimed.

Wait, are you saying it was actually financially rational to do so? Wouldn't they be better off by waiting it out until it the market rebounded?

I'm not blaming anyone, just asking what would have been the theoretically better decision.

I bought a house in 2007. Ten years later it still is not worth what I owe on it. Sometimes the market doesn’t recover.

I’ve wanted to move somewhere else for at least five of those years. I finally have, and my options with the old house are either to rent it out (rent would not cover mortgage payment) or try to deal with the bank to avoid foreclosure, via short sale or deed in lieu. In any of those cases, now I have two problems.

I truly don't know what the theoretically better decision is. That wording was intended to poke fun at arrogant HNers who think that everything in the markets follows some trivial buzzword based rule-set.

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