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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: fatty who wrote (4810)	8/29/2002 10:25:51 AM
From: GraceZ	Read Replies (2) \| Respond to of 306849

They can't just walk out when the housing value drops, else no bank will lend to them again. I think you'll find, if you investigate, that the people who walked away from their houses in Texas have mortgages on houses today. I know a few and I don't even know that many people from Texas. I don't think it even enters the public record as to why they walked away from their houses. Most lost their jobs but Americans don't show any propensity to continue to pay off a loan that greatly exceeds the value of the securing asset. This is what leverage does, it works in both directions. If the price appreciates you make far more than you would have without the leverage and if it drops you can lose all your investment in multiples. Image you buy a house for 500k, you put down 100k with 20k in closing costs. You've invested 120k, with 100k equity. Now the house drops by 40% a few years later. You have a 500k mortgage on a house you can sell for 300k minus the cost of selling it. You lose your job and you need to sell your house, but you have to come up with the difference between the sale proceeds (around 270k) and the pay off figure (around 490k-495k) just to get out. You've lost your original investment of 120k and now you need to come up with another 220k.....chances are you don't have it. So the bank gets the house. I know a lot of people who had to bring their check books to a closing when they sold a house after the 1990 shake out. For most the loss was limited, under 20k and while it was painful it wasn't worth losing their good credit by not paying it. Imagine its an amount that is multiples of what you can get your hands on.