12 Days of Christmas Song Foreclosure Style

Hey Gran,t I found this letter on a web site discussing Strategic Foreclousure. The link is at the bottom of the letter and speaks to the ditty you have posted.I think it truly speaks to how some feel in these economic times.
Markus says:
December 29, 2009 at 6:22 am
I think people are bundling a lot of emotion into what should properly be nothing but a business decision. Mom, apple pie and Chevrolet, 4th of July, presents under the tree; that kind of baggage. What they seem to be doing is blurring the boundaries between personal commitment to one another with commercial commitments to a bank that is every bit if not more responsible for the plight we are in. They are seeing a strategic default as a failure when the REAL failure is to pay and pay and pay for a dwelling that will do nothing but depreciate over the years, because it is a fact that many houses will never ever be worth what was paid for them in real dollar terms.

These people either must become familiar with a basic rule of finance called the sunk cost, or they will truly fail where it matters, by being bled white and saddled with a house that was and will always be worth less than what was paid. In continuing to pay with hopes of recouping lost equity all you do is rob yourself and your family of the money that could otherwise go to buy a better life, that is, will your kids go to community college and a second rate state university rather than a first rate education because you had to sacrifice their future to keep paying for a house that is not ever going to be anything but an albatross around your neck? Good luck because you are now gambling that the worst is over when in fact the worst is yet to come, in my opinion, and those kids might not get to go to college at all.

Even if like me you do not have kids, what about the pure lowering of the stress level in your life? That is a real quality of life issue. Longevity depends upon it.

Sunk costs are unrecoverable past expenditures. These should not normally be taken into account when determining whether to continue a project or abandon it, because they cannot be recovered either way. It is a common instinct to count them, however.

Most people will say to themselves that with luck they will see price appreciate to the value they paid within ten or so years thus making their investment good, but for most who bought in the top of the bubble their houses will never appreciate to that level in their lifetime. And when you make a $2,300 a month payment or whatever it is, while your new neighbors pay 500, which is happening in my neighborhood today, you also have to count the opportunity cost of the difference and multiply by a time and interest factor which is what we call compounding. Time value of money is so poorly understood in America today it is no wonder some people simply dispose of all income the moment they get it.

I am paying $1,000 per month to live in a house that is identical to the one next door, the lady that bought that place got it for $40,000 less and 2 points lower in interest, she bought only 7 months after I did. Her payments are half mine, and I know people who bought here in 2006 paying well over two grand a month. That particular family has two little girls and their college fund has now been spent and the family is still going to lose the house in foreclosure, if you ask me that is the immoral position to take, to rob those kids of their future in order to grease the palms of some greedy bankers who depend on your gullibility.

My decision as of June is to walk away, I have a degree in finance (retired now) and so it is hard for me to admit that I made a mistake, I thought I was buying at the right time, that prices once halved could go little or no lower, I was wrong. At least my decision making process is based in thought and knowledge, not emotion and fear, if I can be wrong then anyone can be and so you should let it go and not be so hard on yourself, regrets are counter productive in this discussion, they prevent you from facing the real decisions. But this is way too important to leave to financially illiterate guesswork and plain old luck because housing is a huge expense.

For the foreseeable future housing is not a way to “make money,” or even a way to save, but more like a gigantic tax, you pay it voluntarily or you walk away and try again later when the markets stabilize at a much lower price level.

How much lower? Nobody knows for sure, but I had waited many years to buy in part because given an average household income in the USA of about $43,000 per year, even if you almost double that for a couple with two such incomes, this means the average house payment should be around $1,200. At 5% for 30 years we are talking about at most a $140,000 house, yet America in most major metro areas had gotten to the point where people with that kind of income were spending between half a million and a million bucks for their houses, and that all has to be unwound, it will take a long time. I waited because either incomes had to radically go up to justify such prices, or prices had to radically drop. There was no in between. Still is not.
LINK:http://housingstorm.com/2009/10/strategic-foreclosure-and-the-last-man-on-the-boat/