patrick.net

Neighbours who where underwater in 1990 decided to hold on to their SFH because they bought to live and raise a family.

Most people buy a home to live in it. If the potential selling price rises they still will need a place to live. If the potential selling price declines they will still need a place to live. Either way, most will just continue doing what they expected to do... which is to live in the house, and go on with their lives.

Until you actually sell the exact price is not important. And becuase almost all sellers are also buyers (trading up) price movements affect their intended purchase as much or more than their sale.

I have been in the situation of declining prices during several market cycle declines. And I expect declines in the near future. What was on my mind during those declines, and now? The same thing as during the rises... I was (and am) thinking about making home improvements that we would enjoy.

Until you actually sell the exact price is not important. And becuase almost all sellers are also buyers (trading up) price movements affect their intended purchase as much or more than their sale.

Not exactly. Many rely on serial refinancing to stay in their homes. The "mark-to-market" price is very important important indeed.

Also, if the mortgage is upside down, the homedebtor will not be able to trade-up. If he foreclosures, he will not be able to get another loan any time soon (assuming normal credit standard).

Considering the number of late vintage high CLTV (combined loan to value) loans, this must be taken into account.

"...what is going through your mind right now?"

Hmm...I'd be envious of the Venus de Milo...she has no ARM.

Most people buy a home to live in it.

Ok, you lost me right there. I don't recall exactly where you live, but in my neck of the woods (SCAL), you "buy" a home to flip it. Or, at the very least, you might hold it a year then refinance to "liberate" all of that guaranteed equity. Which you will then spend on something important --like a new H2, a Caribbean cruise or some cool bling.

C'mon, Zephyr --you're enough of a Patrick.net "old-timer" to know better. Are you just pulling our leg here?

Side anecdote: a new contractor started in a cube nearby. We've had lunch a few times and one day the conversation turned to housing. Well, turns out he bought in '02 at a not too-bad price, but just recently refi'd into a neg-am/option-ARM with a hefty cash-out ($100K) of "liberated" equity. And what was all that liberated equity spent on? New plasma TVs, digital cameras, plus an $80K cinematography degree for his wife (now working PT in a non-film capacity).

"Most people buy a home to live in it."

Oh, if only....

just recently refi’d into a neg-am/option-ARM with a hefty cash-out ($100K) of “liberated” equity

Newly liberated equity can readily disappear.

As said on the links section, if the 50 year mortagage comes out it will be popular and there may be lot of refinances and price might keep going up as the affordability goes up.