Foreclosure Affects New Buyers, Old Buyers and You

The current state of the housing market is big news all over the country. Here in Florida, consistently in the top (or bottom, depending on how you look at it) five for foreclosure frequency, the situation is dire. I heard the other day that one in three Florida mortgages in foreclosure. How scary is that?

Many of us saw this coming, but could do nothing to stop the train wreck.

First, home prices were overinflated. I love my house, but it’s just not worth what I could have sold it for 18 months ago. No one wants to admit it, but it’s true.

Second, mortgages were cheap, and offered attractive up-front terms. Interest rates were low, especially with ARMs (Adjustable Rate Mortgages). Greedy, badly trained and/or just plain stupid mortgage brokers sat down with eager, badly informed and/or just plain stupid buyers and made deals on loans that they didn’t quite understand, that should never have been made. The buyers’ dreams of home ownership blinded them to the very real probability of future rate increases. Many bought more house than they could afford, regardless of the type of loan.

And here they are.

And they’re not the only ones. Many people who haven’t bought a new house in the recent housing boom are filing for foreclosure, too. Why? Because when people who had been in their homes for five, ten, twenty years saw their home’s value double, they took out their equity by refinancing, or by taking out a HELOC (Home Equity Line of Credit). They used the money to renovate their kitchens, pay off debt, buy other properties to flip or any one of a million other uses.

It seemed like a good idea at the time.

Now that housing prices have plummeted (my own home’s value has decreased by 1/3 in 18 months), they are in trouble. Some refinanced to an adjustable rate loan and find themselves in the same boat as those recent home buyers who simply cannot pay the adjusted rates. They can’t sell their houses – they have mortgages for far more than their house is worth.

So, many are just walking away. Some from houses they’ve had for a year, some from houses that they’ve had for twenty. It’s sending home prices into a tailspin. It’s sending our economy into a tailspin. All while prices for everything else are going up (thank you $100 a barrel oil!).

But the cycle of greed continues.

I’ve heard that some people are taking out every last bit of equity they still have (through a HELOC), then walking away from those debts and buying another place for cash. One of the foreclosed properties. You can get them really cheap now, you know.

They call it cutting their losses. I call it fraud. I call it disgusting.

But I still have a roof over my head, as my financial paranoia has us living below our means, with our fixed mortgage payment at a very comfortable 10% of our income. How do I know what I would really do in their position?

Still, how do they sleep at night?

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How Hard is it to get a Damn House?

Apparently, very.

We have been wanting to move for four years.   From a townhouse to a house.  In another state.

When we’re finally ready to make the big move, the market here takes a big, old, smelly, stinky dump.

If a seller were to be found, I’d have to take $60k less than I could have a year ago.  A day late and 60,000 dollars  short.

Two years ago I wouldn’t have had to make any improvements at all. I could have put a sign on the window and it would have sold in a week.  Since the market started tanking we’ve made a ton of improvements, and we’re sitting here afraid to put it on the market.

Because nothing is selling.

Nothing.

Thank goodness we didn’t go buy a house, hoping this one would sell.

Thank goodness this home is affordable for us.

Thank goodness.