Hello dear DREB readers. I have racked my brains deciding what to say about all of the mess we are currently hearing about on the news and the interwebs. And oh do I have much to say about this nasty economic business and plenty of blame to pass around to boot. So I have decided to share my thoughts one-at-a-time. And here we go.
Reason #1: People don't know how to stay in their damn houses
Over the past 4 years people took out "creative mortgages" and may or may not have been educated as to the fact that they took out 103% of their home's value. Assuming your home is worth $100,000 ($103,000 loan) you now have negative $3,000 equity. Awesome! So you live in your home for 2 years and realize around 5% appreciation over those 2 years, overall. Now your home is worth ~$105,000. Great! But you want to move up in the world so you call me, a Realtor, to help you sell your home. It costs roughly 8% to sell a home which means that if you sold your home for $105,000 - you owe $100,000 to the mortgage company - you would have to bring around $8,000 to closing. But you don't have that because you don't know what savings are and you put NOTHING down at closing. So you're screwed and have to either engage in a short sale with your bank or go into foreclosure.
While many people are blaming the lenders for lending these people money in the first place without putting any money down, no one told these people they should move and sell their home after 2 years. And the homeowners certainly don't want to take responsibility for their actions so they blame the lenders and let their homes go back to the bank and hurt their neighborhood sales statistics.
I've said it before, irresponsible homeowners are just as guilty as irresponsible lenders for getting us into this economic mess. And I don't feel sorry for either of them.