Reporting from Washington -- Would you, under any circumstances, default on your home mortgage, even if you could afford to make the monthly payments?
That's a trickier question than you might assume, according to new research from the University of Chicago's Booth School of Business and Northwestern University's Kellogg School of Management.
The study found that 26% of the record numbers of home mortgage defaults across the country are "strategic" -- that is, calculated economic decisions to bail out of loans by owners who actually have the money to make the payments but can't handle the negative equity they're carrying caused by local property value declines.
Nationwide, according to data from Zillow.com, 22% of all homeowners were underwater, with mortgage debts that exceeded their home values, in the first quarter of 2009.
In some parts of California and Nevada, more than half of all households have negative equity. In a few localities, the size of the equity deficit is staggering: In the Salinas, Calif., metropolitan area, for example, the median equity for people who bought their homes in 2006, near the peak of the boom, is now a negative $214,305, according to the study.
When researchers questioned two nationally representative statistical samples of households about strategic defaults, they found that moral and social beliefs play a constraining role, but negative equity and the frequency of defaults in local ZIP Codes have significant contrary effects.
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This sounds like a lot of more McMansion Boo-hoo. They were willing to stretch for the payments even at the expense of food and clothing when the Mc's were going up at stupid rates on a daily basis. But the cash cows died on the vine! Now the mortgage "agreement"---not as beautiful as once was, gets trashed. I have NO sympathy for anyone who bought a "home" out of pure greed.
ReplyDeleteI feel the same exact way, but please try to not sound like a jackass - the median prices in California for anything bigger than a one room shack were, at the time, wildly above anything comparable in nearly all other parts of the country. If you wanted to own your home in the state of California for most of the past decade, you had to pay market rate, as inflated as it was.
ReplyDeleteJust wait until the Fed stops holding home pricing up via ridiculous rates. When inflation hits you will see the real housing collapse. Probably back to mid-late 90s levels.
ReplyDeletePffffft.
ReplyDeleteIf Zillow says that 22% of mortgages are upside down, you know the real figure is something more like 50%. Consider that Zillow was still pricing a home near me at $255k when the market ask was $180k.