For many Americans their Home is their single biggest investment. Buying a Home is one of the ways that the US middle class has created enormous wealth. The market fundamentals on home investment show a strong return over the period from 1950 through 2005. During this fifty plus year period money invested in US Homes was safe and grew into significant cash reserves.
Everything changed when the Housing Bubble popped in 2008. Home value dropped by over 30% and many families lost all or nearly all of the equity they had in their single biggest investment. These events were not created or the result of action on the part of Home owners. The entire situation was created by the Banking & Mortgage industry.
Bankers have long known that there is a link between average home prices and average income. Housing cost can not raise beyond the income to repay the mortgage. In spite of this knowledge, Banking lent money to people with little or no chance of paying the mortgage. Many others speculated on the Housing run up by buying multiple homes on extended credit in the hope of "flipping" them and reselling at a profit.
All of this would be normal and OK in a fair market where the persons taking the risk also took the loss or gain. But that is not what has happened.
Families with good credit and good jobs made decisions along with the speculators during this same period. Those families played by the rules. They put 20% down on a new Home and paid their mortgage on time every month. Their decisions were based on the long standing market fundamentals of Home Ownership. Housing was a safe investment and always had been. Until it wasn't.
Government made the decision to "bail out" Bankers who were directly responsible for the creation or the Housing Bubble and the financial crash. Homeowners who followed all the rules and paid their mortgages found themselves paying for Homes that were worth less than they owed. Their down payment and all of the equity they had accumulated was gone.
The normal rules of investing had been altered. The risk takers in Banking were covered by Government bailouts and the Homeowners, who followed the rules, were left holding mortgages for property that would not recover it's value in ten or fifteen years, if ever. So even though the Bankers and the Homeowners had a mortgage, that defined the shared risk of ownership, the Bankers losses were covered by Tax money and the Homeowners lost everything. How could this be fair?
It is not fair, but it is the current situation.
Homeowners have been upset about this outcome. They face two difficult choices. They can continue to pay for their homes knowing that they will never recover the money they have invested. Or, they can refuse to pay and let the home go into foreclosure. Many are choosing STRATEGIC DEFAULT. In this case, they stop paying the mortgage to the Bank and live for free in their home until they are evicted. In some cases this is taking 18 months or longer. Then they can Rent another home for much less than they were paying on their mortgage and in a small way begin to rebuild the money they have lost.
Why should Homeowners play by the old rules when Bankers and Government protect each other at the expense of good people who did everything right? The old rules have changed and if Government won't hold Bankers accountable....then Homeowners are under no obligation to repay mortgages that were created in a climate of deception and greed.
Let me know what you think.
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