Remembering the housing crisis

Whatever happened to all the homeowners who were “underwater,” owing more than their house is worth? Many are still underwater, the Star Tribune reports.

One in 10 Twin Cities homeowners with a mortgage owe more than their house is worth, but that’s a significant improvement compared with earlier this year.

That’s according to the latest data from CoreLogic, which says that because of higher home prices, nearly 791,000 more residential properties nationwide returned to a state of positive equity during the third quarter of 2013, and the total number of mortgaged residential properties with equity currently stands at 42.6 million.

The housing crisis of 2007 invited us to think of our homes differently, as something other than a bank account to be tapped. But, with prices bouncing back, we’re back to evaluating what we pay for each month the way we did before the crisis.

Back in the day when renters were told they were “throwing money down a rat hole” because they got nothing back for their “investment,” then-popular financial radio host Bruce Williams would explode on the assertion. You’re not throwing your money away, he said. You’re getting a roof and warm shelter over your head in exchange for the money you pay. And you have the convenience of being able to walk away at the end of the month.

Being “underwater” is the new rat hole. The total amount of money you pay for a house is never going to equal its worth, unless you sell it at a profit. But even then you’re going to probably buy a new house at an increased cost and at some point the total amount you paid for housing is going to be more than the market value of the home.

The minute we drive a new car off a lot, it’s worth less than what we owe on it. But we’re OK with that because it’s the price of having a set of wheels.

Ten percent of all homes in the metro area are “underwater,” down 3 percent from just a year ago.

Assuming the payments keep getting made, that number will decline over time even if the market value of a home doesn’t go up. At some point, the homeowner will owe less than the house is worth. Does that make it a good deal at that point? It depends on whether you do the math or whether the amount you paid each month was a fair exchange for having a roof over your head.

Of course there are consequences to being underwater. If you lose a job or want to leave an area and can’t get a good price for your home, you’re going to write a big check at an an inconvenient time. Unemployment has always been a threat to home ownership. The mobile society is something we created.

Does it still make sense for you to own a home instead of renting? Just a few decades ago, people taking a 30-year mortgage stood a good chance of being employed for the duration if they so chose. That’s an increasingly unlikely scenario today.

Absent those consequences, the number of underwater mortgages isn’t so much the issue as the question is of how many people holding those mortgages can’t afford to make the payments on them?

There’s also the question of what people with emerging equity are going to do with it? Are they going to leave it in their home or — as we did just before the housing crisis — pull it out to buy things we don’t really need as much as a roof over our heads?

In other words: As the housing crisis eases, have we learned anything?

  • Jack

    I hope we have learned something but I fear that we probably haven’t. Your house is not a bank like we were told before the recession. Your house is a place to live and raise a family.

    Growing roots in the community makes the community stronger. Those roots may be in a rental or a owned home.

    And when you are fortunate to get the mortgage paid off, resist the temptation to spend what used to be the monthly payment and instead save it for the new roof, the remodeling that you have always wanted to do, or the emergency fund (for those medical expenses not covered by your high deductible plan).