Simulated Drowning

I heard a piece on NPR the other day about the foreclosure disaster.  A couple in hard hit California, underwater in their home, decided to stop paying their mortgage and allow foreclosure to happen.  They made this decision because they thought they were drowning financially.  Being underwater (owing more than the home is currently worth) isn’t cause for financial suicide folks.  The market for these homes will come back and committing credit hari kari doesn’t make sense.

Buying a home is looked upon as the centerpiece of personal financial success.  It is usually one of the best long term assets into which one can invest.  Being underwater now doesn’t mean you’ll be in this situation forever.  The market ALWAYS comes back.  Once this severe recession ends homes and property will again appreciate.

Why throw a good home away for nothing?  These people may never again be able to buy a home after going through what is, basically, a voluntary foreclosure.  This doesn’t make sense.  We all need a roof over our heads and the people on the NPR story have a nice house for which they paid $440,000.  Neighborhood homes already in foreclosure have brought that down to $200,000.  Some homes in their development sold for $690,000 at the peak of the market.

While it may not be realistic to think their home will reach that level within ten to twenty years it is realistic that once the foreclosure crisis is solved (and no one has yet addressed this underlying issue) and the market stabilizes home values will again begin climbing.  They always do.  Throwing your home on the trash heap because of a short term fluctuation is madness.  These people are past just simulating their financial drowning they are using being underwater to drown themselves financially for the rest of their lives. Stupid.

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