A lot of people simply won't sell in that situation which is going to further constrain supply.
Even if they stay in their home, people over-levered on their fake housing equity through HELOCs are in trouble.
Wolf Richter shows some nice graphs in the article linked below. He states that mortgages in Q2 were $11.4T and HELOCs a mere $320B.
https://wolfstreet.com/2022/08/04/trip-back-to-reality-start...
Don’t forget there’s a small but still notable number of homeowners with ARM mortgages.
This also ignores the fact that the Fed's stated goal with raising interests rates is to increase unemployment to slow inflation. You are already seeing the results in quarterly financials. Once layoffs start happening people won't have an option but to sell when they can't make payments
(not legal advice, educational purposes only)
Apparently, there are only 10 non-recourse states as of 2009: Alaska, Arizona, California, Hawaii, Minnesota, Montana, North Dakota, Oklahoma, Oregon, Washington, and Nevada. The tricky thing is that only the initial mortgage is non-recourse. A refinanced mortgage becomes recourse, but interestingly, they don't seem to be required to disclose that in the disclosures.
Washington isn't really non-recourse, lenders have the option of recourse or non when pursuing foreclosure, non-recourse is significantly faster and is predominantly chosen; but if it was known you had assets, they might choose to go recourse.
Yes?
Why wouldn't you?
It seems pretty short-sighted to just put your arms in the air, give up, get foreclosed on, lose your home, and have your credit be absolutely wrecked for the next 7 years.
Just keep making your payments and ride it out. The market will eventually recover.
I think the only reason to give up is if you fell for the scam that is an adjustable-rate mortgage and your payments are skyrocketing and you can't afford it anymore.
Well, you could ask the very large number of people who defaulted on their underwater mortgages in previous housing crashes.
Does everyone do it? No.
Do a significant number of people do it? Absolutely.
As a relatively new first-time homeowner (a year), do you know whether a mortgage lender requires higher or additional insurance coverage for an underwater property?
If the loan goes underwater later, usually because of market conditions, maybe because of creative loan features, then the lender has no leverage to require anything.
You are required to have insurance when you have a loan on a property. The insurance rates could actually drop due to lower cost to replace your house.
Underwater property just means you owe more than it is worth. However, if your interest rate is low, you might be paying less than someone who is not underwater.
"Eventually" is doing a lot of work in your comment.
Buying a house is akin to putting your retirement into the stock of a single company. In that situation, it doesn't matter what the S&P500 tends to do on a long enough timeline.
1. People that buy a house will stay in it for 10+ years. This assumption being wrong means you're more likely to be affected by market swings.
2. Market swings won't be massively significant, for some definition of "massive", and I consider 275k -> 115k massive. Meanwhile, the Z-estimate of my house peaked at $618K this April, and is now at $561K. I would not consider that one massive.
3. That people stopping making payments because it's underwater, and not some extenuating circumstance, like losing your job and being unable to afford payments, or having a need to relocate that is unrelated to your home being underwater.
But it's #3 that really gets me. I fail to understand the "My mortgage is underwater" -> "I should stop making payments" logic jump.
I think it's because I do not see my house as investment or even an "asset". It's my HOME. I agreed to pay $338K in 2015 to have a HOME. If there was a real estate crash immediately afterwards and I was underwater, my only regret would be that I could have bought the house cheaper if I had waited a little longer. I would not in any way feel incentivized to stop making payments and walk away, because not only would that mean I would still owe the bank money, but I wouldn't have a home and my credit would be destroyed, making it hard to get another mortgage.
That being said, I don't expect 2022-23 to be like 2008-10 for housing.
Is that part repeating now too?
Your second question is interesting, I really don't know whether the securitization of mortgages is still happening today at the same level it was then. I would presume so? With a different risk model being employed to assess those mortgages, maybe?
Your comment misses what created the popping of the bubble. The sibling comment talking about sub-prime mortgages talks about them, and I think they're right.
I was always under the impression that the crisis began with people that couldn't pay their mortgages because banks were handing them out to people that couldn't afford them. This created downward pressure as foreclosed houses flooded the market, and irrational people decided to abandon their mortgages because they were underwater, exacerbating the problem.
> Perhaps you're too young to know this story, but this is what happened.
I'm 40, if that helps. Though in 2008, when I was 26, I was managing a Subway restaurant for $10/hr and living in a $650/month apartment (Which is now a ridiculous $1,300/month, literally double), whereas now I own a house and work in cybersecurity for an order of magnitude more.
Because it's upside down? You can buy another place and owe less on it?
Yes? Our home keeps the rain off our heads. I’m not going to risk that by not paying my mortgage just because I couldn’t sell my house right now for enough to cover the mortgage.
The payments might be comparable to if they got a current rate mortgage at the current value.
There's reasons it would be nicer to have a lower loan balance at a higher rate and the same stream of payments, but it's probably not worth the cost of moving and a foreclosure on your record.
This means that prices are more likely going to be determined by the supply-demand balance between first time buyers, investor activity, new home builders, life events (death, divorce, etc...) and immigration vs emigration. I personally think that if employment holds steady, we will see more of a sideways market with some regional variances, but if employment starts going down then do does housing.
And a lot of people end up having to sell.
As someone who was too young to climb aboard the price bubble of the last 5 years: here's hoping.
Now it we are facing truly cataclysmic long term situation down the road never ever seen before (or at least comparable to 1929) that's a different story, but few insiders believe that now.
Sounds like a supply issue.
But the same people that are usually against corporations buying properties, are usually against new home development and increased housing density. I saw many housing activists in the Bay Area who were against new housing at market rates and thought all new housing should be at below-market-rate prices--which simply isn't possible.
In other words, there aren’t enough homes and corporations sitting on some percentage of them is making the situation that much worse.
So those who have recently bought a property, even corporate buyers, are far far more likely to keep a property occupied than most landlords.
This caused management funds, BlackRock Berkshire etc, to start purchasing the homes as investment vehicles. These vehicles then will either sit on a house or simply rent the house out at a rate that makes fiscal sense, regardless of the economic realities.
This artificially restricts supply as they take these houses off the market, they don't care if the house sits empty for years as long as they can sell it at their target price, and then at the same time causes rents to be raised as the rental prices are set by an internal ROI formula and not what the local market can bear.
But I can not for one moment understand a cooperate buyer not renting it out; they have more than enough capacity to rent out homes, they can spread risk across lots of properties, and any time not spent renting is merely money left on the table, which would come back to bite any manager that is leaving a lot of money on the table.
SFH are a pretty insane choice of RE investment for institutions because they are so incredibly inefficient compared to apartment and office buildings.
Private owners would also sit it out if they can. Unless they can't. You think that's better? People having to sell at a big loss?
I think a far bigger concern is shortages of housing as individual homeowners and landlords act as a group to suppress local supply of housing. Local city councils tend to be controlled by such real estate interests. Corporate purchasers can piggy-back on that sort of regulatory capture without expending a single dime.