For most of my life, I believed in the American Dream. You go to college, buy a house, start a family. And that house will appreciate at a rate that makes the interest rate ok. And that house will, in turn, be a way to build wealth. A way to make things better for your family. You pay the house off, and you're better off than when you started. You can sell the house at a profit, downsize and have a nest egg, that hopefully you can pass down to the next generation. So that your children don't have to work as hard, and their children won't have to work as hard.
But then things changed.
We purchased our home in 2007. Right before the bubble burst. We thought we were making a good investment in our future.
Today, our home is worth approximately 54% of what we paid for it. There's a home in our subdivision that is currently under contract for a third of what it was sold for in 2007. I know someone that also purchased in 2007 that holds a mortgage on a home that is worth 23% of its purchase price. If the market appreciates at 3% from now on, it will take 24 years for us to get back to what we paid for it. Let me say that a different way. It will take 24 years for us to break even, for us to get back to zero. That doesn't take into account the money we've put into the house, or the amount we've paid in interest. That isn't building wealth. Sure, 24 years from now the house will be virtually paid off. But when you look at how much we will have paid in mortgage payments the numbers don't make sense.
When the housing crisis started, the pundits would talk about the foreclosure rate, and how people were just walking away from their homes. Here's the thing pundits. You don't fight to save a bill. You don't stress yourself out, work two jobs, eat only beans and rice to save something that is worth less than nothing. Sure there are exceptions. There are people who are in their dream home, in their dream neighborhood and they are willing to fight. There are people who strongly equate home-ownership with their sense of self, and those people are willing to fight.
But it's hard when you can literally give up on your house and go live in the house across the street that looks just like yours, for much much much less.
What is the prudent thing to do financially? Ride it out and protect your credit? Cut your loses and try again in a few years? Try to rent it and downsize? I don't think there's one right answer, but it certainly a question hundreds of thousands are struggling with.
What would you do?