Sacramento Real Estate Views

Sacramento Foreclosures

The Next Wave

With the “shadow inventory” still out there, lurking, there is a new threat to housing in the Sacramento region as values have declined to pre-2000 levels.  In some areas, even lower.

CNN Money came out with a special report that cited evidence that by 2011 when they see the housing market stabilizing that roughly 25 million borrowers nationwide will be underwater on their mortgages.

That number represents nearly half of all homeowners in the United States.

Half of all homeowners will be “underwater” by 2011!

Housing for the middle class for years has been a source of wealth.  The prevailing thought was that the first step to wealth was owning your own home.  That isn’t the case now.

What this realization is creating nationwide is “strategic default” or in simpler terms, people are walking away from there homes feeling as if it’s impossible for the value to come back to provide them with any possibility of financial recovery.

The article says that 26% of all defaults currently are “strategic” defaults.  And the hardest hit areas?  It’s not hard to find them.  All we have to do is look to our not so distant south.

Modesto and Stockton lead the list here locally and I’m betting Sacramento isn’t that far behind them.

The Question of the Moment

You purchased your home from 2005 through 2007, at the peak of the market.  If you put a down payment on your home, that is gone, evaporated into the housing collapse you didn’t see coming.

You are now officially “underwater”.  You owe more than your house is worth.

Your home is worth $200,000 and you paid $325,000.  You put $65,000 down and you owe $260,000.  You are roughly between 20% & 25% underwater.  You’ve lost $65,000 cash and $60,000 in equity.  IF the market after 2011 appreciates at 10% per year, your home will be worth what you paid for it in 2017 ish.

From an investment standpoint, this is dismal at best.  So the question is, faced with the fact that your home will likely not produce a return for the next 10+ years,

Do you walk and start over or do you hang in there and take the loss?

What would you do?  I’d love to hear your perspective on this.  You know that the above scenario is conservative in our region.  It’s worse than this right now much less what will happen to values over the next 2 years.

So You Decide To “Strategically Default” and Walk

What’s the worse that can happen?  You send the keys back to your lender and rent until the government invents a program to help the 25 million people who have suffered from this housing downturn.  Worst case, you’re renting for 4 years.

After that, you’ll be able to get a mortgage and buy your own house back for substantially less than you paid for it with less risk, not as much needed for your down payment, in a market that’s appreciating and you’re making money on your home right away.  In 5 years, you’re ahead of the game.  In 2014, you’re up  and not waiting three more years or more to just break even.

By 2017, you could be in a 20% or 30% equity position rather than potentially behind or just even.  What’s the better financial decision here?  Take your pride out of the equation and think about this, what is the better financial decision?

This is the situation that many people in our country are faced with.  What’s the better solution for you?  What would you do?  What will you do?

Food for thought…

Thanks for visiting!

No related posts.

Tags: sacramento foreclosures

This entry was posted on Monday, August 10th, 2009 at 10:40 pm and is filed under Foreclosure Statistics, Real Estate Market Commentary. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

1. Gene said at August 18th, 2009 at 2:44 pm

   That is a tough question whether you strategically walk or hang in there. I guess it would depend on the individual,how their finances are what type of home loan they have as well as the mortgage rate. Hopefully its very low and its affordable for them to stay in their home regardless whether they are upside down or not.

   Gene
   Voyage Home Loans

Leave a Reply