Despite conditions that should have been apparent to most of us for years, the collapse of the housing industry took most of us by surprise. Even when there were obvious signs that the housing ship was sinking, entities like the NAR and the President remained in denial, insisting that the industry was strong. Even as the downward spiral continued, the talk was that a soft landing was imminent. The three most striking elements of the observations of government, professional organizations, and a fair number of "experts" were, Blah, Blah, Blah. They denied the issue until it buried us.
Now we have the threat of strategic default, often thought of as a way rich folks dispose of property that has lost value. Actually, it is more often considered out of necessity. Many of us have negative equity in our homes and just keep moving forward, making our monthly payments with no particular worry about the home's loss of value. It's still a nice, comfortable place to live, and we're happy to be here indefinitely.
What happens though, is that indefinitely sometimes evolves out of necessity. We lose our source of income, either through job loss or disability. We are faced with a compelling reason to relocate across country. Family situations change, such as a birth, death, divorce, etc. Real estate professionals all know the primary purpose people decide to change homes, and it's seldom a whim.
When you can't afford to sell your house, and you have enough funds to continue making payments, there are decisions to make. Sometimes that decision is to walk away. In the old days when I was a bill collector for a department store, I knew that nobody I contacted me was going to send me money they needed for food or rent. They had priorities that I could not reasonable fault. Same goes for people who have financial responsibilities and a home that is under water. They are going to make decisions, and many of those decisions will be in the direction of voluntary default that's really not all voluntary.
Home prices in many areas, probably most areas, are dropping faster than the thirty year amortization table is lowering mortgagors' debt. If the present trend continues, and it seems that it will, more and more people will cross tha line into the world of negative equity. Banks and government have a compelling reason to recognize the problem and take action now.
As of today, the crickets are still chirping, and voluntary default is absent when banks and government write out a list of their concerns. The current strategy is to pretend like there is no problem. As prices continue to drop, and the numbers of potential defaults grow, there is no plan to address the problem, and it will eventually become the Next Big Surprise.
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