Home Equity Was Overrated Anyway!

I can’t begin to tell you how lucky I feel to have avoided buying a home at the peak of the real estate market. I was fortunate that my age and place in life had me purchase a home almost 6.5 years ago. Since that time, I’ve watched the value of my house go from $280K to $460K and back to $350K. Obviously it can still go further but I don’t expect it to fall far enough that I’ll owe more on it than it’s worth. The ugliest scenario that I can figure is that the value will fall all the way back to my original purchase price. If that’s the case, it means that smaller, older houses will be much cheaper than that and may create an opportunity for me to buy a rental. So, I’m not really sweating a further decrease in the value.

There are a number of people around me that haven’t fared so well and I truly feel badly for them. They didn’t make bad decisions to buy their houses but their life circumstances had them buying homes right near the peak of the market. It could have just as easily been me.

In some cases I have friends that have lost $150,000 or more on the value of their houses and they now find themselves stuck in a house that is worth much less than they owe on it with no relief in sight. Entire neighborhoods that were built and sold right near the peak are drowning in negative equity. So far we’ve only seen a few desperate “quick” sales in our neighborhood. I think this is mostly due to the fact that there haven’t been a ton of sales in our neighborhood over the last few years. Unfortunately, one of the sales that did happen was right across the street from me. My neighbor lost his job a few months ago but luckily has a large stash of cash in the bank from his previous home sale. When he bought his house across the street he hadn’t sold his old one and instead decided to rent it out for awhile. I don’t know the exact details but I believe he financed a large part of the new house. The only good news is that he has $150K+ in the bank from the proceeds of his old house that he finally sold last year. He was originally planning on putting a new roof on his new house (his needs one just like ours did), but now he has decided he’d rather not throw another $15,000 towards a house that he owes far more on than it’s worth. He hasn’t come right out and said it but I think he’s considering walking away from it at some point if the market doesn’t turn around. I can’t say I really blame him.

I’ve often wondered what kind of conversations people are having in homes in the neighborhoods where all of the houses are easily worth 30% less than the people paid for them when they were new. Are many of the people sitting at their dinner tables wringing their hands or are most people just trying to ignore the decrease in equity and resigning themselves to the fact that they just won’t move for a very long time……..