Where readers ask, and we (the community) try to answer. This is a good one, and a great thought. Thanks for the email MM:
So I have a question that I’d love your take (and maybe your reader’s take) on: Why do people walk away from a house that’s underwater when no one walks away from anything else that’s worth less than they paid for it?
I mean, think about a car. People drop 50, 60, 70 thousand dollars on a car that’s instantly worth less than they paid the second they drove it off the lot. But no one would ever say “Well, I’ve still got 5 years on my car loan and it’s worth half of what I paid, so I’m just walking away.”
No one says “I’m paying 12% interest on this new $5000 big screen TV I bought on credit, and it’s now not worth what I paid, so I’m just going to walk away from my credit card bill.”
Is it because we’ve been conditioned over the years by the financial and real estate industries that homes are an “investment” that will only go up? Or that homes are only worth it if we’re going to make a ton of money on them down the road?
Call me crazy, but I think if you buy a house where you can afford the monthly payments, it shouldn’t matter at all how much your house is worth compared to what you paid.
Very interesting thought, and honestly something we do not have an answer for. We’d have to guess that every person is different and a house payment is likely much larger than a TV or car payment, so walking from something like that carries larger financial gains/losses.
Does walking from a credit card carry the same credit punishment as walking from a house and going into foreclosure?
We can say there are many people walking away from their credit card bills, but the odd thing is, they get to keep the TVs! As for the car, remember “REPO Man”?
We think your question may spawn more questions and doubt there is really one specific answer, but we (like you) would love to hear what some readers have to say.