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| Re: I bought my house for 100k in 2007 and it is currently worth 80k... by Commander Tansin A. Darcos 11/18/2015, 5:47pm PST | ||||
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Fullofkittens wrote: People forget that houses are sold in a free market, where seller and buyer have the ability to negotiate and prices are set by what comparable properties near them also have sold for. This can mean prices go down as well as up. That's one of the reasons the HARP program was set up, for people in trouble who were now "underwater" on a property where they owed more than it was worth on the market and might have trouble making payments. I wrote about this October 5, 2008 in my blog. There are two parts to this, some of which I didn't cover there because I didn't think of it at the time. First, a lot of people bought more house than they could afford, either with "teaser rates" of 1 or 2% that are interest only and are for a short term, while the actual rate of 8% becomes front loaded and increases the principal they owe. Second, because housing prices tend to go up over the long term, many people bought a house and used it as a piggy bank or an ATM, in which, as the value of their house rose, they borrowed against the additional equity, using the money as, in effect, "free money," because money you borrow is not taxable, and until you sell the house you don't have to worry about it. Further, if you then buy another house worth as much or more as your original house (this is called a "Starker exchange" for the name of the taxpayer who did it and won when challenged by the IRS), any profit you made on the sale is deferred until that house sells. So you might not have to account for it for another 30 years, if you live that long. But, as I wrote in the above blog more than seven years ago, I said, "But again, it's not a problem as long as you can refinance. Real estate prices always go up, right? It's been that way for over a hundred years. Yes, over time real estate prices have gone up, but at times they do go down, and sometimes they stay down, sometimes for years." |
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