So back to the math. In my case my house has gone from $375,000 to $175,000 in the past 24 months since I bought it. Every economist I’ve ever heard speak on the matter thinks this area will drop another 30% from current prices meaning the house will be worth around $120,000 in another 18 months. After that point they expect housing to go back to normal appreciation of 4% a year. At $120,000 it will take around 25 years of that kind of appreciation for my house to be worth what I paid.

If I walk away I will be saving about 30k during the process of foreclosure which thanks to non-recourse laws the bank won’t ever be able to touch. I will be able to rent a place for $1500 a month less than I am currently paying. $1500×12 = $18,000 a year. I figure I can put in another 2k to make an even 20k a year. In 5 years I’ll save up $130k potentially more if I invest it intelligently and the market does recover at some point. In Year 5 I’ll see if I can get a loan to buy a house, but if not I’ll pay cash and have no house payment other than property tax and insurance.

Now look at the math if I stay. If I stay in 5 years I won’t be able to save any money because it will all continue going to my mortgage. In 5 years I’ll still owe $355,000 because I’m on a 40 year loan(fixed). Even at that I wouldn’t be able to sell the house for at least 15 years without owing a ton of money. I say lets get the pain over with now and do what makes financial sense. I realize this is an unpopular sentiment, but I don’t see how you can argue with how beneficial it is given my math. I also was one of lucky ones who put $0 money down and realistically anyone who put nothing down between 04-06 should walk if you live in CA.

It’s the kind of important life decision I prefer not to think about.

We have friends walking away from mortgages. In some cases, they bought too much, had a crappy loan, and now find themselves in tough financial straits. In some, they are just bothered that they could get a house exactly like the one they have for less now, and why bother keeping the one they have … even though they can afford it, like it, and it’s a good house to live in and exactly what they wanted (and thought it was worth what they were paying when they bought it). I remember all too clearly the reaction these friends had when we bought the house we bought. They laughed at us for buying a crappy house in a crappy neighborhood, instead of buying a half million dollar home out on the lake. They thought we were crazy and foolish, and that we’d regret the decision. We even lost friends over it, because who wants to visit us in the urban slums. “Eeeeeew. You live there?!?!”

I said it back then, quietly to my husband, that we would have the last laugh. Well, who still has a home and can still afford to live in it? Whose property values are going up and not down? We did a lot of research before buying, and so far, all our predictions have been coming true. Though we never thought of the house as an investment, which I think is most of these people’s problems. We thought of it as a home, a place we could live as long as we liked without the rent going up every six months, where we could put nails in the walls and paint anything we like any way we liked … our place to be. If it happens to pay off in the end, great. If not, we will have still had a good life in a home of our own. That’s worth something.

And both real estate agents and loan officers tried to oversell us as well. I laughed out loud when they suggested we could afford an $850k home (ten times more home than we were looking for). We then told them we would let them know which houses we wanted to look at and they could stop showing places that were, in more ways than one, too much house for us. We had to fight them tooth and nail every step of the way to get the house and the loan we wanted, but I’m glad we did. We have a house, and barring a major life catastrophe, we will continue to have it for a very long time.

Also, most mortgages in the last six years were non-conventional, gimmick loans with no principal for so many years, or adjustable rates with ridiculously low initial payments. People thought they were rich (and smart) and bought a lot of big ticket consumer crap with second mortgages which were peddled as ‘home equity loans.’ When the balloon payment came due or mommy got sick or daddy got let go, it all went to hell inside a week or two.

The average first grader has a one in two likelihood of finishing high school, and along the way most kids tune out and snooze through all that middle school math about compound interest and fractions and percentages. It’s not that Americans are different from other people, but that the people who own this country very much prefer that as little thinking as possible take place. They’ve concluded that ‘the dumber, the better,’ when it comes to managing the herd. Since they’ve seen this train wreck coming a hundred miles off, they’ve positioned themselves to avoid the downside, and many to even profit.

It’ll never change; gullibility is in our DNA. We’d rather be robbed repeatedly than be excluded from the fellowship of our NASCAR nation.