Some months ago, I wrote of two homes that had come onto the market due to the owner's need to re-locate (Phoenix Real Estate, No More Mr. Nice Guy) I will briefly re-cap the stories.
Couple "A" bought a phoenix home in March 2006 for $335,000, with a substantial down payment of $185,000; or more than 50% of sales price. Couple "B" bought a more grand home, also in Phoenix, in December 2005 for the sum of $530,000, with a 10% down-payment of $53,000.
This summer, both couples were in the position of having to sell, due to the fact that their employer was re-locating them. Here is how they fared.
Couple "A" sold their home for $230,000, which basically represented a loss of one third (33%) of the initial sales price. Because of their relatively low mortgage, as a result of their large down payment, they were able to actually walk away with some cash, even though their loss was substantial. If you estimate closing costs, including commission, at around 8%, they probably walked away with around $61,000.
Couple "B" sold their home for $363,000, again representing approximately a one third loss on the initial sales price. (Incidentally, that sales price of $363,000, is almost identical to the $365,000 this home had previously sold for in April, 2004. Demonstrating quite neatly, both the dramatic rise and precipitous fall of home prices in the Phoenix Metropolitan area in the last four years.) Unfortunately, in order to close this deal, by paying off the loan plus the closing costs, they also had to write a check of approximately $156,000 to cover the shortfall. Remember, this is over and above their initial $53,000 down payment.
As you can see, home ownership in Phoenix was a very expensive and unpleasant experience for both these families. In fairness, I think it is very unreasonable to expect to live in a home for 3 years, in a normal market, and do anything more than break-even. However, these losses were spectacular.
Now contrast these stories with those of the many people who bought homes, with no money down, using adjustable loans that they knew full well they would not be able to afford. Many of those folks have just walked away from their homes. I would argue that they were never really "owners" in the first place, as they really had no financial stake in their "homes". The very people who fueled the fires of greed that were instrumental in the rise and collapse of the real estate market get to walk away scot-free. Those who had invested their own money get burned. This is what happens when government interferes with the free market. They are also the people who are going to "fix" this problem. Don't you feel safe? One of their proposals, again completely contrary to free-market principles, is to delay foreclosures in order to keep prices up. Since when were high home prices a good idea? What happens when this temporary support measure expires? Do you think prices will then go up, or down?
As the late lamented Ronald Reagan said "The nine most scary words in the English language- I'm from the government, and I'm here to help."
May God help us all!
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