Real Estate Price Plunge Turns American Homeownership Into Perilous Path

[marmar]

Real Estate Price Plunge Makes U.S. Homeownership Perilous Path
By Kathleen M. Howley


Nov. 3 (Bloomberg) -- Kajal and Vishal Dharod paid $559,000 in 2006 for a new four-bedroom house built in Rancho Cucamonga, California. Today, it’s worth about $360,000.

“We don’t know how we can come back from a loss like that,” said Kajal Dharod, 29, a first-time homeowner with a $4,200-a-month mortgage. “Buying the house was a mistake.”

American homeownership, once considered a path to wealth, is now leading to disillusionment. Home prices in the last four years have been the most volatile on record, swinging from a gain of 12 percent in 2005 to an estimated 13 percent loss this year, according to the National Association of Realtors. Those gyrations have embittered many property owners and potential buyers, said Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies in Cambridge, Massachusetts.

“We always talk about homeownership as being the American dream, but during the last decade people forgot it’s shelter and started thinking of it as a fast way to make or lose money,” said Retsinas. “The quicker we move back to seeing real estate as a place to live, a place to put down roots, the quicker the housing recovery will strengthen.”

Home-price growth in the next decade probably will average about 3.5 percent a year, based on Retsinas’s estimate of increases of about 1.5 percent above inflation and the Federal Reserve’s long-term inflation forecast of about 1.7 percent to 2 percent. On that basis, it could take a decade or more for the Dharods to recover from the 36 percent loss on their home. ..........(more)

The complete piece is at: http://www.bloomberg.com/apps/news?pid=20603037&sid=a5M...

[LakeSamish706]

1. I see allot of people walking away from these homes/mortgage's... It makes no sense...

for them to stay with a difference like that. These home prices will never recover to that price.

[Warpy]

2. Not paying attention to their market was the mistake

because they could have rented a comparable property for less than they're paying in monthly PITI.

In some areas even if there is a paper loss of house value, people will still be ahead of the game if rents are inflating.

Buying at the top of the market in most parts of California wasn't smart, though.

[grilled onions]

3. We will Revert To The Old Way Of Thinking About Housing

It was considered a blessing,a safe harbor to which to live in and rest thy weary head, a place to raise your family and shelter you from the rain and the cold. It was never thought of as primarily an investment, a cold financial asset to which you bought and sold willy nilly to advance to the upper crust of soceity. It was security and for some something to eventually pass down to their heirs. But people loved their homes for what it was and not what financial gain you could get from it.

[marmar]

4. That actually sounds kind of nice.

nt

[SoCalDem]

5. and it was a home that you worked hard to PAY OFF, so you could retire someday

and have NO house payment.. Even in high tax areas, a paid off home is the most valuable asset you can have, since taxes are usually less than rent/mortgage payments.

[Tansy_Gold]

9. +20!!!!

[Tansy_Gold]

7. That's how I've always thought of my home

I've been criticized in the past couple of years because I sold a house and moved to a different location and bought "less" house than what I sold. But that "less" is actually "more" to me and since I'm the one who has to live here -- with the four dogs -- it's more important to me to be happy and comfortable and secure than to have a good "investment."



TG

[QC]

8. +1

[Lance_Boyle]

6. Quick! Let's bail those unfortunate souls out!

They MUST have been scammed SOMEHOW into signing a mortgage contract that has them paying $4200 a month. Oh, wait. They went into this willingly? Because they liked the house/neighborhood/etc? Well then, if it was worth $4200/mo to you 3 years ago, it should still be worth $4200/mo to you now, provided you're not trying to sell. And if you're trying to sell after having purchased three years ago, you might just be a flipper. And if you're a flipper, HA-HA! You got boned.

[leftofcool]

12. Exactly!

[forum slut]

14. fair enough. But while we're letting ships sink, let's let the banks go down too.

nobody forced them to make those loans after all.

[Lance_Boyle]

15. The banks built a remedy into the mortgage contract -

it's called foreclosure. Nobody forced the flippers to take out loans, either.

[forum slut]

17. Well then, if that is the case, there should be no need for us to bail their sorry asses out. right?

foreclosure isn't really a remedy, it's more like a poison.

[Lance_Boyle]

20. Way to understand different meanings of the word 'remedy.'

Foreclosure is the remedy for a borrower's breach of a mortgage contract.

Neither should have been bailed out.

[blueamy66]

21. $4200 a month?

Are you kidding me?

Yep, they must have gotten scammed.

[Greyhound]

10. It's only "worth" $360,000 because we have poured trillions into propping up the

artificial inflation that made spending $559,000 on a 4bdrm house in Rancho Cucamonga in the first place.

Once they disconnected home prices from wages the collapse was inevitable and many, many people said so.

[TxRider]

18. And forunately it is limited to places like CA, FL etc.

My home value has increased since '05

[forum slut]

11. It used to be that you could sell your home and move to wherever your new job was

You can't really do that today without losing thousands of dollars (tens of thousands and hundreds of thousands even). The housing market has become a roadblock on the path to employment now by inhibiting the mobility of potential workers. It tends to put folks between the proverbial "rock and a hard place".

[Phoebe Loosinhouse]

16. Very true. My neice was buying a home recently and asked my advice

They have tended to move every five years or so for job advancement/opportunities. People who KNOW they need mobility should just rent in the first place. But anyway, my neice and her husband liked the area and thought they would try to put down some more permanent roots and they really wanted their own home after years of living in rentals.

My advice to her was:

Don't buy any house if your mortgage payment is significantly more than what that house would bring as a rental. That way, if they HAVE to move for some reason, they can try to sell, and if that doesn't work, then they still have the option of keeping the house and renting it out. I think that is sound advice and they used that as their yardstick to judge house prices and mortgage payments.

They got an amazing, well- maintained Craftsman type bungalow in an arty sort of area close to the city and where young people love to live. If they moved tomorrow, they could rent it for a little more than the mortgage.

[forum slut]

19. yes, we're renting one of our houses now because we have no choice.

We're not exactly sure what to do with the other two at this point. In the words of the late great Jerry Garcia, "I don't know but I been told, it's hard to run with the weight of gold". Bottom line, the housing market is a major drag on mobility at a time when Americans need to be highly mobile. I think it's a big problem.

[ChiciB1]

13. Hearing These Stories Make Me Wonder WHEN I'm Actually Going To "Crack & Bend!"

I'm so conflicted about all this because I truly don't know WHERE I come down on this issue! Was it the real estate market that did this, or was it people wanting "more" and thinking the ride would never end? Is it about keeping up with the Joneses or a "need" because they had to move because of their job?

Was this the going price and all they could get? I just don't know and on the one hand I feel so sorry for them, then I feel angry that too many Corporations/Companies took advantage of people! But in the end I'm so afraid and scared about what it's doing to this country! Or what "we the people" have let them do to us!

Seriously, I'm becoming more and more depressed and angry so much of the time. My stomach stays in knots wondering how really bad this is going to get!

And here's the REAL KICKER! I consider my family one of the LUCKY ones!! We bought our home 25 years ago for $68,000! I live in a GREAT neighborhood and have good neighbors too! We can walk to the Gulf of Mexico to the beach, or ride a bike and we have a very large lot! I KNOW my house is worth more than what I paid for it. We've improved it ourselves, adding a huge 28'x48' double story garage/workshop behind our house (my husband actually built it)! The house isn't too big 1600 sq. ft., 3 bdr, 2 bath but it's not too small either. It's just about right! Because of "when" we bought it they can't raise my taxes anymore than 3% a year, but my insurance does keep getting higher and higher! And since we live so close to the Gulf we have Flood Insurance too! We COULD have done the "moving on up thing" but never wanted to, and now I'm so thankful we didn't! If my husband and I died tomorrow my kids would benefit financially from the bare land alone because of our location! We even bought another 5 acres of land as an investment back in '89, but won't sell right now because we can actually wait to see if prices get better. We don't need them to get much better, but we can wait a while.

My husband retired early and was a "blue-collar" worker with the phone company. His mother who had Alzheimer's came to live with us and that's why he retired. I always worked, but am now on disability due to two car accidents, but I do well enough now. We have health insurance through our Union Company and it's better than most. We had a 401K and saved some money... so you see we aren't rich, but we're making it! We budget our money and I have been known to go to many many garage sales getting some great deals.

I've complained about America becoming a "throw away society" for many many years, just because that's how I feel. But I also can't help but feel DEEP DEEP sorrow about what is happening to so many other Americans! I actually cry about it and work myself up into real anxiety!

Is there any real answer one way or the other... my question I started with just doesn't seem to have an answer!

I also know that many, many people have lost their jobs and through no FAULT OF THEIR OWN just can't make it! My sorrow grows daily and it seem very dark to me!

Some made things happen to them, some HAD THINGS HAPPEN TO THEM! And some days it's just too much to take in for me! My heart goes out to all those who have become part of a throw away society!!

It seems to me that America MUST get it together some time soon, or we won't BE what we once were!

Sorry for the rant, I'm just in one of those moods!