August 2006 Weddings
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Our tech team has launched updates to The Nest today. As a result of these updates, members of the Nest Community will need to change their password in order to continue participating in the community. In addition, The Nest community member's avatars will be replaced with generic default avatars. If you wish to revert to your original avatar, you will need to re-upload it via The Nest.
If you have questions about this, please email help@theknot.com.
Thank you.
Note: This only affects The Nest's community members and will not affect members on The Bump or The Knot.
Let's hypothesize what would happen w/o bailout
We let everything run its course the banks fail, homes foreclose, the credit market essentially freezes. Then what? For the other homeowners that did the right thing, what happens to them?
I understand that equity in your home is not guaranteed, but no one with any sense bought a house they thought would tank. Even if you purchased thinking that you would not get much equity, you definitely didn't purchase thinking that you could be $50K underwater if you needed to sell in the event of a life change.
Re: Let's hypothesize what would happen w/o bailout
Well that's the thing. Life happens. People move for their jobs, people get divorced, people lose their jobs and need to downsize, people have medical bills, etc. No longer having any flexibility in your home, supposedly your biggest asset, is a scary thought.
Well, see, that's the issue. People fell under the notion that homes are supposed to be investment vehicles. Prior to the 90s, people treated their homes as one of basic necessities and you only buy what you can afford. No one relied on homes for a quick buck and only during very hard times did banks actually have to foreclose.
In light of a life changing event, you do what you have to do in the aftermath of this meltdown. Prices will go up eventually, but the market has its own timing and it will not accomodate everyone. That is the lesson of this whole fiasco and trust me, it sucks.
DH and I discuss it all day long. We are one of the "good" borrowers yet we can't purchase a single family home since we own a co-op that most likely will not sell close to our purchase price. We have a decent amount of equity, but we will be lucky if we come out owing 0 to the bank if we sold today. So, we have discussed alternatives (i.e. renting it out) to see if we can still pursue our dream of owning a house with a real yard and a real closet. From the looks of things, it will be many more years away than we originally anticipated since we have to save up for a downpayment.
Without the bank bailout or some homeowner bailout? Is congress actually doing a homeowner bailout? If the financial industry went under this is what I believe would happen:
Our economy would cease to function without credit and investment. This isn't about homes specifically so much as it is about massive unemployment that would result from the economy freezing up. Pensions, retirement accounts would be wiped out. The gov't would be entirely flarked b/c tax revenues would dry up like Bob Jones University. Borrowing from other countries would be super expensive b/c we'd be a risky investment and thus charged high interest rates. There's probably other bad stuff but that's all I can think of for the moment.
ETA: One more dire prediction: The dollar might make better toilet paper than currency.
We will have higher borrowing costs with this bailout too. It is a matter of what seems less risky. Overnight lending and Treasury rates have already been rising since Lehman announced BK. Rates will continue to rise as the implementation for this bailout draws near, which in turn will eventually increase payment amounts for those with floating rate mortgages. I know it's not an immediate/direct correlation b/w thse and mortgage rates, but they do have an influence.
The problem I have with the first paragraph is still the implication that people who are worried are ones that bought more than what they could afford or were trying to make a quick buck. I am not talking about those people. I am not one of those people and I am still extremely worried. I am not concerned about not being able to make my mortgage payment, I am worried that the cushion that I tried to create when making my real estate choices is now gone. When you buy less than you can afford you do so making certain sacrifices. Those are not necessarily the sacrifices I intended to live with for 25 years while the market recovers. I can only hope against hope that my life circumstances don't force me to do something sooner that would be a huge financial burden.
And Caden your answer was just too depressing to contemplate.
Yup that's true. It will hurt more people, but resetting interest rates is the cheapest/easiest way to stop foreclosures. I don't think the Fed would raise interest rates too much while the economy is stalled. Do you?
But wouldn't delaying the inevitable help? Foreclosed homes are worth more in a competitive real estate market. If the foreclosures are more spread out, isn't that going to end up costing us all less money in the long run? (I don't know, I'm actually asking the question!)
"As of page 2 this might be the most boring argument ever. It's making me long for Rape Day." - Mouse
No it wouldn't help. It would prolong the bubble burst. We need to hit the bottom as fast as possible so it can come back up as soon as possible, and we can't do that while the excess housing supply is spread out. Basically it would push the solution farther into the future.
You are correct, the Fed cannot raise interest rates too much. However, they will also have to deal with that pesky old problem of the falling dollar.
Yeah that really sucks. What's going on overseas? Are they feeling the effects of this crisis too? If so will that offset the loss of value to our dollar with a reciprocal loss in foreign currencies?
Sorry marriednow, I wasn't trying to imply that all of the ones worried are the ones who bought more than they could afford. I believe I am in the same boat as you. However, my answer stands the same in that a home is an investment and timing is everything. It hurts me the same as it hurts you. We both have to deal with the consequences of playing in this housing market, no matter if we have been responsible or not. It is completely unfair, but I don't see how we all can get out of this mess without suffering the consequences after experiencing record high home prices. KWIM?
I've been trying to get my bearings in regards to overseas opinions. I thought I saw an article come across my Bloomberg this morning about foreign central banks calling for much harsher/stricter plans in the bailout proposal.
::running off to find article::
ECB and other central banks have already been chided by investors for not reacting as quickly as the Fed to stave this mortgage meltdown. However, all rates are rising (here and overseas) and our dollar is falling at a faster rate than everyone else's.
I was referring to what would happen if the financial industry collapsed. I don't that will actually happen.
I am old fashioned in my thinking in that you should not look at your home as an investment, nor a money machie. It is a place to live. You take your chances when you buy a home that if you need to sell it, you will come away with a profit.
I know that you are right. I guess it is hard to accept that when you try to do things the right way stuff still doesn't always work out. It is nothing that the drink Caden offered me can't cure, lol.