Long march of the debtors

[kent302]

Hello Everyone,
This is a great site for underwater folks. I have spent the last few days reviewing relevent threads so I can evaluate my options. Thanks especially for Prof Shay for his tireless work.
You know I was a gnat's hair away from using my HELOC checks in 12/07 and am I relieved to learn here that if I had used them, my 2nd loan would have lost the non-recourse status in CA.

My situation:
State: CA
City: Sacramento
Year bought: mid 2007
Purchase price: 480K
Current Zillow: 325K
Down: 24K
Loans: 1st = 375K
2nd = 70K
Type: purchase money, no re-fi
Monthly PITIA = 4000

As you can see. I am underwater by over 100K not counting down payment. There is no end to the pain in sight in Natomas, a suburb of Sac. If anything, my checking of foreclosures and pre-FC just in 95835 is alarming. This baby is ready to blow!

The next wave to hit is going to be Alt-A and OptnARM.
This could be huge, may last a couple of years minimum.
House prices in these parts of crash-centers of CA cannot stabilize until the excess inventory is worked off.

My view is as follows. Minimum of 2 years to stabilize. Stay flat for 2-3 years. Then housing may slowly rise due to market forces and inflation kicking-in.

So that would make it about 5+ years before there is any first stage of recovery. Maybe 8-10 years before my house resurface at the purchase price. But wait, even if it did, it is worth a lot less than today as inflation would have ravaged the net-present-value. Thats a lot of years of being a debt-slave.

My question to you folks, what do you think of my analysis?

Do you think I am an optimist, realist or pessimist?

Lets hear your view through the looking glass.

Kent

[Enough Already]

Hi Kent,

I believe it will take 10-15 years for purchase prices to go back up to 2005-2007 levels. We're in for a long haul with the real estate bust.

From my perspective staying in an underwater home and hoping the value will rise someday is just too risky financially. I'd like to be able to retire one day!
That's one of the reason we've decided to cut our losses now, move out and move on.

EA

[ProfessorShays]

Next week when I drive down the hill and past Natomas on my way to the airport, I'll wave. A great analysis of your situation. Look at it this way, you could have bought in Elk Grove. No, make that Lincoln. Then again, Natomas could be characterized as being underwater for two reasons. One because of valuation, and two because of a potential levy break.

Daniel

P.S. With State budget concerns and a lot of our neighbors receiving a recent 10% cut in pay, I'd characterize you as a realist. The phrase "it takes one to know one" probably fits.

[kent302]

EA, I am coming to the same conclusion. The housing mess is so huge that I feel like the blind man touching the elephant and get only a partial understanding. It seems like we are close to the support level of cost-to-build. No one will build homes if they lose money. But there is so much inventory zombies.

Professor, good point about government employment base of Sacramento.
Can't see any option but shrinkage. Hope it doesn't turn into death spiral for the local economy. No wonder I am losing sleep.

It is really tough. If it is just financials, it'd be easy. We have never missed paying any bills and we did not play outside the rules. But the world around us is in the process of collapsing under the weight of years of excess. First one of the neighbors vacated and then another left quietly.

We ask ourselves everyday, what should we do?

Kent

[Enough Already]

Kent,
I understand completely. Many of us here are in the same boat, never missed a payment on anything, high credit scores etc, but the time has come for us to face the music. We have been asking ourselves what to do for about 2.5 years now, knowing selling would be nearly impossible, hoping the RE market would improve, and seeing no way out. We finally realized after analyzing all the possible angles and options that walking is the best route for us. I still get cold feet, but in the long run this decision is best for our family, and our finances.

We'll have to say good bye to our high credit scores, but when we compared that to all the gains of getting out from under this mortgage it's worth it.

Good luck to you, and please keep us posted.