Last week REALTOR.com® featured a blog post I wrote called “Strategic Mortgage Defaults: Is It a Financial Issue? Is It a Moral Issue? Or Is It Both?”
I’ve written before about the long-term value of home ownership, which still stands. But short-terms economics have made paying a mortgage feel like a real drag (for some homeowners, in some cases). The graphs from last week’s By the Numbers Phoenix Home Prices blog say it all. In the Phoenix real estate market, home prices are down 50.8% from their June 2006 peak.
Of course, that does not mean that the average Phoenix homeowner owes twice what his home is now worth. Many people bought homes with substantial down payments that have absorbed some of the fluctuation in Phoenix real estate prices. Many purchased their homes well before Phoenix home prices rose so substantially (beginning in 2004). Others purchased after home prices began falling.
Still, more than half of Phoenix home owners owe something more than their home is worth – putting them “underwater.” Some, fearing drowning, make the decision to stop making mortgage payments and try to short sell the home or simply let the lender foreclose.
In my latest REALTOR.com blog I argue that while that decision – a strategic mortgage default – can make economic and financial sense for some homeowners in some cases, there is a moral component to the issue as well. Phoenix homeowners who really can afford to pay their mortgages (and are not forced by circumstances to move) are bound by an ethical obligation to pay their mortgage.
And homeowners’ abiding by their contractual obligations is good for the economy. If every underwater homeowner suddenly decided to walk away from his mortgage, the real estate market in Phoenix and elsewhere would really be in dire straits – an outcome no one wants to see.
For the answer to the question: Are strategic mortgage defaults a financial issue or moral issue, if you haven’t guessed it already, check out my blog on strategic mortgage defaults – in the Phoenix real estate market and elsewhere, featured on REALTOR.com®.
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