Comments on: Totally underwater on the house http://brianleon.com/journal/2009/01/08/totally-underwater-on-the-house/ Commentary and Photos from Brian Leon Fri, 12 Mar 2010 13:42:06 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: Duane http://brianleon.com/journal/2009/01/08/totally-underwater-on-the-house/comment-page-1/#comment-30992 Duane Sat, 10 Jan 2009 14:50:20 +0000 http://brianleon.com/journal/?p=1374#comment-30992 Though the price of your home may have gone down by $30,000 at the moment, the market will rebound, it always does. Historically, after each major stock market down turn, there is a run up in real estate. The only problem this time is the mortgage mess that the U.S got itself into. Given the current situation, it is expected that the market will start to come back in Q4 2010. Also, look at it this way. You were paying $1000 rent before and nothing to show for it. So lets deduct $12000 from the $30,000 and now your net lost is only $18,000. As each year goes by you do get further down the positive equity road. Though my formula does not take into account interest costs even in the market stays flat, you would be at the break even make by mid 2010. Also, historically, real estate has always shown to be a solid investment with an average return on investment being 7-8% depending on where you live. Here are a few interesting facts about the sub-prime mortgage mess: 1. 65% of people that took a sub-prime mortgage qualified for a conventional mortgage 2. 46% of all sub-prime mortgages are held in four states ( California, Florida, Nevada,Arizona) 3. 33% of mortgages were equity mortgage that were for more than what the property was worth. Though things are in a mess at the moment, it will come back around and hopefully this time there will be more regulation to stop something like this from happening again. Maybe they should look to Canada for guidelines now how to structure the lending industry. Here is another tip bit, some of the wealthiest people today made more money in a down real estate market than in a up real estate market. Though the price of your home may have gone down by $30,000 at the moment, the market will rebound, it always does. Historically, after each major stock market down turn, there is a run up in real estate. The only problem this time is the mortgage mess that the U.S got itself into. Given the current situation, it is expected that the market will start to come back in Q4 2010.

Also, look at it this way. You were paying $1000 rent before and nothing to show for it. So lets deduct $12000 from the $30,000 and now your net lost is only $18,000. As each year goes by you do get further down the positive equity road. Though my formula does not take into account interest costs even in the market stays flat, you would be at the break even make by mid 2010. Also, historically, real estate has always shown to be a solid investment with an average return on investment being 7-8% depending on where you live.

Here are a few interesting facts about the sub-prime mortgage mess:

1. 65% of people that took a sub-prime mortgage qualified for a conventional mortgage

2. 46% of all sub-prime mortgages are held in four states ( California, Florida, Nevada,Arizona)

3. 33% of mortgages were equity mortgage that were for more than what the property was worth.

Though things are in a mess at the moment, it will come back around and hopefully this time there will be more regulation to stop something like this from happening again. Maybe they should look to Canada for guidelines now how to structure the lending industry.

Here is another tip bit, some of the wealthiest people today made more money in a down real estate market than in a up real estate market.

]]> By: Jon Lowder http://brianleon.com/journal/2009/01/08/totally-underwater-on-the-house/comment-page-1/#comment-30967 Jon Lowder Thu, 08 Jan 2009 22:06:20 +0000 http://brianleon.com/journal/?p=1374#comment-30967 I know exactly how you feel. My wife and I bought our first home in the early 90s in suburban DC and promptly watched it depreciate for a few years. We ended up moving out of it after a few years to move into a larger home and rather than sell we rented it for about four years. Eventually it appreciated to the point that we were able to sell it and actually "make" money on it, but it took about eight years AND it had the benefit of riding the first real estate wave of the late 90s. I don't think we'll have anything similar to that in the next 10 years since a certain part of that wave was due to relaxed mortgage standards. I like to think of it this way: homes were never really meant to be money makers the way we've thought of them over the last 10 years. If you like your house and plan on being there a while then really you're getting what you paid for. Hopefully it will eventually appreciate to at least what you paid for it, but even if it doesn't you'll eventually build up enough equity that you won't literally have to open up your wallet to fork out cash when you do sell. Also, I like to remind myself that none of the 08 losses (real estate, equities, etc.) are truly losses until I sell. Of course I'm not selling anything any time soon! I know exactly how you feel. My wife and I bought our first home in the early 90s in suburban DC and promptly watched it depreciate for a few years. We ended up moving out of it after a few years to move into a larger home and rather than sell we rented it for about four years. Eventually it appreciated to the point that we were able to sell it and actually “make” money on it, but it took about eight years AND it had the benefit of riding the first real estate wave of the late 90s. I don’t think we’ll have anything similar to that in the next 10 years since a certain part of that wave was due to relaxed mortgage standards.

I like to think of it this way: homes were never really meant to be money makers the way we’ve thought of them over the last 10 years. If you like your house and plan on being there a while then really you’re getting what you paid for. Hopefully it will eventually appreciate to at least what you paid for it, but even if it doesn’t you’ll eventually build up enough equity that you won’t literally have to open up your wallet to fork out cash when you do sell. Also, I like to remind myself that none of the 08 losses (real estate, equities, etc.) are truly losses until I sell. Of course I’m not selling anything any time soon!

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