Walking away from homes research
CR has a post on recent research on walk away.
The researchers found that homeowners start to default once their negative equity passes 10% of the home’s value. After that, they “walk away massively” after decreases of 15%. About 17% of households would default — even if they could pay the mortgage — when the equity shortfall hits 50% of the house’s value, they found.
I am surprised that only 17% would default if they owe double what their home is worth. Lenders need be counting their blessing the rate is that low.
I did hours upon hours upon hours of analysis of low rates in Low interest rates - as destructive as ursury and Six Degrees of Leverage.
The burden of paying the `top` is far more expensive then paying the second half of a debt. I don`t have an amortization calculator on this computer, but the first half takes so much longer to pay off then the second half.
We bought into the market originally when it was high and 5-7 years after being home owners our home was selling for 10-12% less then what we paid. It worked out how much more expensive it was because of also paying all the extra interest on what we over paid and it the extra interest was about the same as what our home had declined. This was an enormous set back. We had about 30% equity when we bought so it was like every cent we paid for mortgage the whole time just paid for the equity loss and interest, and we were making accelerated payments.
I wonder if these people have worked out the numbers.