Study Finds 20 Percent of Mortgage Underwater – I say so what?

by Steve Crossland, REALTOR in Austin TX on March 4, 2009 · 39 comments

From my Realtor email newsletter today:

Nearly 20 percent of home owners owe more on their homes than their properties are worth, finds a new study by First American CoreLogic. About 8.31 million properties were underwater at the end of 2008, up 9 percent from 7.63 million at the end of September. Corelogic predicts about 2.16 million properties will be underwater if home prices fall another 5 percent. The problem is the worst in Arizona, California, Florida, Georgia, Michigan, Nevada, and Ohio.

Nationwide, 68 percent of U.S. adults own their own homes, and about two-thirds have mortgages.
Source: Reuters News (03/04/2009)

So what? Being underwater is not the same as not being able to make the payment. You know, we keep hearing politicians and talking heads and consumer advocates using the term “under water”, as if this is something new and to be avoided.

The truth is, most people are under water on just about everything in life, and there has never been the sort of outcry about it that we now hear. Under water on their new car 2 minutes after they drive it off the lot. Under water on just about everything they purchase, including new furniture, clothing, boats, vehicles, computers, TVs, video games, etc. – all loaded up on the credit card.

Where is the bailout plan to cram down those 7 year auto loans so people are not “under water” on the car? Hmm?

Where is the bailout plan to help people cram down the balances on credit cards so they are not “under water” on their furniture and clothing. At least the mortgage interest rate is probably less than 7% compared to 12% to 26% on the average credit card payment. And the mortgage interest is tax deductible. And whether it seems like it now or not, the value of all that real estate will go up again, unlike the consumables that most people borrow money to purchase, and don’t seem to mind being “under water” on.

So when I hear a politician say that some average American is “under water” by 20% on their home loan, I’m sorry, but I still have to say “who cares?” Just stay there and keep making the payment, and be greatful you have a job and can still afford your payment. And in 5 years, when you’re still in year 6 of that 7 year auto loan, and the car is worth 15% of it’s original value, you’ll have equity in your home again.

On Nightline one night the reporter never even asked the Arizona woman who was griping about her decreased home value whether or not she still had her job and why, if she’s still making her payments on time, she thinks the government should pay off part of her mortage just so she can feel better about it. Lousy reporting. Not asking the right questions. Instead, just focusing on the depreciated value of the home and ignoring the fact that Americans have been living “under water” on just about everything other than real estate for the past 20 or 30 years.

The only thing that makes a mortgage payment different is that it’s actually a better form of debt to have than the consumer debt that most people don’t think twice about accumulating.

I tell my kids the only thing they will need to know about money when they are out on their own someday is:
1) Spend less than you make and invest or save remainder. In other words, live beneath your means, always, forever.
2) Never borrow money to buy things that depreciate in value over time, ever. Save and pay cash, or don’t buy it.
3) Guard your credit rating. Always pay back what you agreed.

Most Americans don’t follow these 3 simple rules and now want the rest of us who do to subsidize getting them above water on their mortgage. As one of my southern cousins from Georgia might say, that ain’t right.

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