patrick.net

I would walk out. Go with your hunches. If you think the market won't come back - it probably won't. You 2 make good money and have a good chance and time to re-establish your credit reputation. You may be better off renting anyway - more mobile and rent is generally going down. Save $'s to purchase a "steal" in cash in the future.

Stay if you plan to live in the house 10 yrs or more or if you think we are going to get hyperinflation - esp if you love the house and the community. If this is going to be a lost decade I would walk out.

To God be the glory,
TJS

It doens't matter who anyone calls wrong. The fact is the prices have to come down and it is pain that is going bring the prices down.

SF bubblebuyer is correct. The banks knew what the contract is and what is possible in all situations.

On top of state bankruptsy, California spends millions trying to get homosexuals to have marriage licenses. It ain't gonna happen in Texas. In fact the joke in Texas is that if homosexuals want to get married, just go to California.

On top of all this..... Isn't the San Andreas due to dance?

What's with all this self righteous crap? You sign the agreement to make payments on the house. You put your signiture there and you were made aware that if you dont make the payment, you will lose the house. You did not say that under no circumstance will I not make this payment. The agreement is that you make the payments and you get to keep "your" house. There's no moral dilemma in that. This aint the old west and buying a house is not like getting a line of credit at the corner market. It's much more like a pawn shop deal. You want the house? Fine, keep making those payments or we WILL take it back.

Having a foreclosure like divorce, isn't a social stigma any longer. Do I agree with either behaviors? No, definitely not. But I'm not the one who is in the situation itself. If you think the bad behavior of the bankers justify your own misdeeds, then go ahead, rent a nice apartment on the side, rent out your house for $2000/mo and stop your mortgage payments. This way you can salvage an extra $24,000 over 1 year.

Egoridge -- How did I know you were from Austin? Let me also guess -- are you involved in Real Estate? Or just have a vested interest in an overpriced home/condo?

200K for a house -- but where? Hill Country? That's Kool-aid straight from the RE propaganda teet. A modest 1100 sq ft blue-collar block house in Crestview is presently valued at 275K -- the same homes which were going for 135K to 170K tops back in 99. I have the numbers on hand to prove it, if need be. No housing bubble, though, right?

The rates of appreciation around central Austin are more in the neighborhood of 5 and 10% a year, which is plain zany. It seems that all you need do is put in an Ikea sink, a stainless steel fridge and some bamboo cabinets, and you can flip a granny shack that was 167K on a good day for 385K. And chances are, it's a refugee from SF or LA that will be buying it! If not that, then a giant prefab cubist duplex, where one side is half a million. No joke. Granted, as the Statesman recently reported, there is no correction expected for the next two years as more people relocate here from the West Coast (the mere mention of a correction presupposes something far afield of normal appreciation) but a bubble there is. The local salaries are not even remotely in tandem with uptick in house prices here, and there several layoffs slated over the following two quarters in our manufacturing sector. Don't take my word for it - a Google search will yield plenty more hum about this mess elsewhere on the web.

In short, Austin, and Texas in general is not the panacea people tout it as -- it's quickly become overpricedand the property tax is through the roof now, thanks to these new bubbly valuations perpetuated by phony equity tansplanted from some of the more heinous markets from the years past.

...and again, even a cursory glance at the valuation charts on Zillow for the zip code 78704 will help illustrate the staggering hike in prices.

No, not as bad as California or Florida -- but give it time. I think I estimated five years in my original post.

A mortgage isn't really a personal debt since the house is the asset not one's integrity. It would be incorrect to discuss walking away in any moral terms as a mortgage is simply a business transaction between two parties that entered into the contract open eyed.

Ending the mortgage contract by walking away can be thought of as a business decision since the impact of what would happen if one takes the action is clear. The bank gets the house. The fact that the house is worth less is really the bank's problem first. They are the ones who made the bad bet since the homeowner can walk away. They made money on fees and now they have the house. I can't see this as a theft at all as the homeowner never actually owned the home.

John will suffer in a pre-determined way and as was mentioned by another poster, the foreclosure on your record doesn't have the impact it might have in the past. However you have to be sure you don't need to change jobs since some employers do run a credit check on candidates.

If John strips the house bare of fixtures and removes the copper wiring from the walls then he is stealing from the bank. Handing the house back in proper condition is acceptable.

The credit score will let other lenders know the risk of lending to John.

I am sure he is hiding a few details because an interest only mortgage doesn't match with his view that renting is giving some else his money. I guess he feels better giving money to a bank rather than a landlord.

People confuse investment with utility. The hypnotic forces that forced people into buying a home when they probably shouldn't have, simply tricked them into thinking that this was a wonderful investment. When they would have been better off just renting.

BTW I did sell my house in June last year and have enjoyed renting since. The home I am living in has dropped 40% in value but the owner bought it 20 years ago so no foreclosure worries here.

Austinhousingbubble,

I sold out of CA in 2006-2008. The last in the east bay hills of SF just in time before the economy collapsed. I would say I missed selling the tip top by within 3%-7% on both properties which is phenomenal. I purchased just north of Austin in 78664 last year. A new home can be bought for $80-$90 per square foot. So run your numbers with that zip code. I'm done with cities with overcrowded down towns, Austin included. My life is worth more than spending an hour in traffic just to go 5 miles.

If the USA goes through a depression the downside here is minimal. A 20% decline is the basically the value of a new car. On the flip side, I don't see prices shooting up here into oblivion because land is plentiful. The bottom line is that life is better.

Wrong. Taxes are way cheaper here. While property taxes per dollar of the house are higher the over all tax bill is way cheaper and the services from those tax dollars is excellent. Add to that, there is NO state income tax and the state of Texas is NOT bankrupt. Nor is the state of Texas morally bankrupt. Religion is alive and well and the positive culture from it still exists.

Now you may be able to find pockets in Austin which are bad buys but if that's your goal you are loser. Look for the good buys. There's lot's out there. Soon I will be buying a rental with a positive cash flow but I have to do my homework to find a good one.

To reiterate. There is no housing bubble in Austin. It's just a normal real estate cycle.

The bubbles are on the coasts and where coastal investor's speculate.

Sadly, tb has only reinforced my point, and makes a spurious argument about "assets" and "(personal) integrity." It is this type of thinking that has produced the Gordon Gecko generation on Wall St.

Tell me tb, where would you stop with your "it is just business" philosophy? Perhaps it is "just business" when a predatory lender goes after at-risk groups? Perhaps it is "just business" when a company produces a product harmful to children/animals/adults? What about businesses we do not condone? There are more holes in this moral side-stepping argument than there are realtors in Southern California.

Just Wondering, is John going to post any decisions he has come to after reading these Blog Comments.

The way I see it, you are always going to have Opposite Opinions on pretty much Any Subject.

I believe John is going to walk, but wants Everyone to make his Conscience feel better.

The whole disturbing read, is that the Corrupt People of Power (Bankers, Politicians, etc...) have Created this Absurd way of Thought.

It truly has become a World of Dog eat Dog in which these Family Values are being Passed on to the Next Generations.

Has the Obsession with Outdoing ones Neighbor or Workmate become the Soul of Society?

When GREED Stops becoming an Obsession with So Many, maybe we can Regain Real Values, instead of these Artificial Materialistic Obsessions.

Egotonic.

It appears that a few people on this blog need to mark thier calendars to celebrate a new holiday, Francine Hardaway's Birthday.

For those who may not remember her:

http://www.huffingtonpost.com/francine-hardaway/open-letter-to-my-mortgat_b_164693.html

California is non-recourse. That means that the legal agreement John made was to A) Pay off the loan. B) Given them the house.

Wrong. The agreement in a mortgage contract is that the bank will supply the money, and the borrower will pay back the loan. The bank taking the house in forclosure is a remedy for non-performance by the borrower. Creating schemes to live in the house for an extended period without paying the mortgage is merely opportunistic welshing that takes advantage of the forclosure remedy's time span.

HeadSet, actually, I'm right. A) Pay the loan or B) Bank gets house. That's exactly what you said above.

However, I wasn't advocating living in the house without paying the mortgage. I was advocating moving out and mailing them the keys. No foreclosure, no eviction, they get the property back. Deed in lieu of foreclosure is what it's called.

Here's a link : http://www.mcfarlinlaw.com/foreclosure_deedinlieu.htm

Of course, the bank doesn't have to agree to it, and then foreclosure becomes the standard course. Given that John can afford the house, the bank might not be willing to do the Deed-in-Lieu and hope that he's not willing to have a Foreclosure on his record.

Note that both options used to carry a tangible penalty beyond the credit it as if the house was sold for less than was owed, you had to pay taxes on the forgiven debt. Bush got rid of that temporarily, so effectively the only stick the bank has is a record blemish. No carrot exists given that the house is worth far less than what is owed on it.

TB is correct. When the banks set up the contracts they know all possibilities.

The moral problem we are facing is that not one of the thieves who set up corrupt financial instruments are going to prison.

Bottom line. The sooner you leave the sooner prices will fall to real values and the economy will then move forward.

Dear John,
You are true patriot and I commend you for the $190k you put in the first loss position. There is no need to continue suffering; you have done your duty. I recommend you exercise your implied put option.
Sincerely,
EBGuy

From the SF Fed letter:
Going forward, it seems probable that many U.S. households will reduce their debt. If accomplished through increased saving, the deleveraging process could result in a substantial and prolonged slowdown in consumer spending relative to pre-recession growth rates. Alternatively, if accomplished through some form of default on existing debt, such as real estate short sales, foreclosures, or bankruptcy, deleveraging could involve significant costs for consumers, including tax liabilities on forgiven debt, legal fees, and lower credit scores. Moreover, this form of deleveraging would simply shift the problem onto banks that hold these loans as assets on their balance sheets. Either way, the process of household deleveraging will not be painless.

@sfbb - good to have you back!

EBGuy,

Wow, somebody remembers I used to post here? I have an excuse as to why I haven't been around. And it's not buying a house. It's a 7 month old daughter! My first!

A whole lot of things got ignored for awhile. :D

sfbb,
If I remember correctly, you were negotiating with a wife whose nesting instincts were kicking in (which is reasonable, considering the circumstances!) Did you find a reasonable rental or take the plunge?

We're renting still. I offered a deal. I would quit freaking out, and we would stop looking until Jan 2009. Sweet deal, right, as by then it should be obvious that real estate is tanking?

Fortunately she agrees RE is tanking. Unfortunately, she thinks that means it's a good time to buy.

I need to get fired so I can argue we can't buy a house with one income.

(Doing nothing put posting on blogs all day oughta cover it!)

EDIT : Wow, we can edit comments. I couldn't delete the following, however : Err, can't buy a house on one income, I should say. :D

John,

Get a family member to buy at appraised value. Take contract and appraisal to the bank. Negotiate from there.

Buy it back in a year meanwhile you "pay rent" the buyers mortgage payment.

Curtis

Yes, I did manage to wrestle Wordpress into allowing editing of your own comments, but strangely, it still won't allow deletes. I'll get that to work eventually, but for now at least you can edit the comment down to almost nothing if you don't like it.

Please let me know what other features would be helpful. Write p@patrick.net

sfbb,
Here's what I'd do. Monitor the foreclosures on a weekly basis in a targeted area. They are slowly increasing in every part of the SF Bay Area that I know of. I recommend Yahoo Real Estate for neighborhood foreclosure searches (their data is fairly up to date), or going to RealtyTrac to look at zip codes. As long as the foreclosures are increasing, I don't think you should have any trouble convincing someone that prices have only one way to go.
You also might want to invest in a subscription to one of the foreclosure websites. As Randy H says, "I view a ForeclosureRadar subscription as the cost of a real option. "

Nobody actually from here considers Round Rock to be part of Austin proper -- it's a soulless bedroom community where most transplants wind up. Maybe there's a couple nice places stashed in there somewhere, but the majority of construction is all new garbage -- Plywood Palaces that won't last the the duration of even a 15 year mortgage. Round Rock wouldn't even really exist if Dell hadn't chosen to move its corporate office there, and it is no secret that Dell is flagging, not to mention their penchant for lay-offs -- more of which are rumored to be on the way.

Also, the tax burden is not less in Texas than in other parts of the country which have state tax. There are plenty of charts found online that illustrate this, so I won't belabor the point. Suffice to say, cheapskates move here thinking they're getting a bargain -- just like they move to Florida and the Carolinas -- but there is no rebate. In fact, depending on your tax bracket, it can be more of a burden than in states with state tax. Just for starters, property tax is sky high and climbing, sales tax is at 8.25% and revenues are down both in retail and the service sector, including dismal returns from SXSW.

Again, don't take my word for it - the Austin Business Journal has plenty of information. See also, a whole blog dedicated to the subject here:

http:/.thehousingbubbleblog.com/index.php?action=printpage;topic=53.0

We can bat this back & forth for days, but you seem to have your mind made up, based upon your own bias and what suits you. I think the mention of religion is most telling: you are clearly not skeptical or objective by nature, but choose faith or belief over statistics and logic. Just stay on the funny, sunny side.

Welcome to Austin.

Austinhousingbubble,

A friend of mine, who went to UT Austin in the 80s, told me that it was not unusual back then to see a topless girl jogging on campus. Is it still like that?

58% drop? Is this house in SF Bay Area or Florida somewhere??

Austinhousingbubble is in need of some serious psychoanalysis.

First off the facts are all wrong. Just check listed urls above that he uses. They go to a nonsense blog. No real statistics. Very similar to Al Gore's global warming scare without a single valid statistic other than coincidental inference.

The major concept in play is housing prices to income ratio. These are balanced. As for his criticisms of Round Rock he has to ignore the many accolades by several articles rating Round Rock as one of the top ten cities to raise a family in.

Now onto his psychoanalysis. This character sounds like like a guy who has multiple uses for his waste gate because he was molested as a child. Inside Austin is a liberal cult within Texas. The majority of Texas has not lost its common sense. Notice I mentioned positive aspects of religion and this character assumes all religion must be bad.

Bottom line. Just read from one of Patrick's listed articles which shows depreciation from the peak.

http://www.newgeography.com/content/00810-housing-downturn-update-we-may-have-reached-bottom-but-not-everywhere?ref=patrick.net

This article shows Austin down 6.1% vs 52.5% in San Franfago.

My point. 6.1% is not a bubble and these prices are now at a floor of around 150K to 200K.

Some this poster has found a way to lose large amounts of money in Austin and cry about it.

Oh well, it just goes to show that a loser can find a way to lose anywhere.

I do agree that Round Rock is not considered Austin proper for whatever that's worth. As the facts go Austin residents try to get their children into Round Rock schools. No one in Round Rock wants to send their Child to Austin schools.

Austin is sort of like the sewage plant of Texas. We corral all the mindless liberals into Austin so they can imagine they are in a housing bubble. This saves tax payers having to house these vagrants in mental hospitals and prisons.

If you don't honor your contract, remember one thing. Karma is a B****. There will be spiritual forces down the line that will force you into "paying back your debt" It is interesting to see how many people these days think they can get away with self centered behavior with rationalizations and excuses. Absolving yourself from a conscience, does not absolve you from consequences.

I wish you well and hope you don't have to learn these lessons the hard way.

Danville women, you need to read the details of these posts. The market is coming down and it has nothing to do with karma or putting guilt into contracts. It's all part of the mess.

Look out for yourself because no one else is going to.

The difficult part is getting out knowing that you missed the top by a huge amount.

As for Austinhousingbubble. It is clear what his case is. He bought into the Austin Condo market which is a bust. These are high rise buildings made of steel and cement which explains why he thinks houses in the suburbs are made of cheap plywood. All homes are made of particle board whether they are in Round Rock or West Lake Hills.

Do what is best for yourself. You actually being helping others, too.

moral-shmoral. How dare this Patrick proposition be imposed with shame!! Bloody stupid to insist upon personal integrity when it is quite likely that every link of the transaction involved numerous "professsssional" lies. Maybe escrow was the only honest part of the entire home purchase (this is not uncommon).

Walk away or stay but let the sanctimonious cast unsavory judgements like all is fair in these crap industries (banking and real estate). Do upsidedown folks need lots of shame on top of expensive lessons?!...to Hell with the self-proclaimed smartie whose house is no doubt glass and may I submit, whose wisdom had more to do with dumb luck and timing than knowledge and goodnessss - grain of salt.

Just a quick comment...I'd ignore all the finger-pointers who pretend that these are ordinary circumstances. Homes have not lost value like this since the Great Depression - if even then. To be a responsible homeowner and lumped into the same category as all the flippers and speculators is an insult to decent hardworking people.