Walking Away From Your Mortgage May Be One Of The Biggest Mistakes You'll Ever Make

While out-and-about, I'm hearing more and more conversations about real estate than I've ever heard before. Whether at the gym or standing in line at the grocery store, real estate appears to be the topic of choice. The recurring themes are centered around property values, neighborhood foreclosures, and who's going through a Short Sale. Those kinds of conversations are innocent enough, but there is a far more insidious kind of conversation that takes place that gets me a little hot under the collar every time it comes up. Many people talk about walking away from their mortgages even though they can afford them and even though they had not planned on selling their homes anytime soon. They somehow feel they have been financially screwed, and the resolve will come in the form of abandonment of their responsibilities.

Ignorance, defined as the lack of knowledge or education, as it pertains to real estate is running rampant through all classes of people. There is a huge difference between buying a home to live and raise your family in and buying an investment property to flip and make a buck off of. Unfortunately, many homeowners have blurred these reasons to buy a home which has contributed to their pretense of losing money. If everyone who could afford their mortgage would spend as much time researching real estate cycles and trends as they do coming up with all the reasons they should shun their financial commitments, they might find that their time line to live in their home is long enough to see the next appreciation cycle which will reward them handsomely with increased equity.

On July 5, 2008, I authored a Blog post (on this site) titled, "Real Estate Cycle Trends Can Be Your Friend". In my post, I detailed the increase of the median home price from 1960 through 2006. The median price of a home based on year was as follows: In 1960 $15,000; 1979- $50,000; 1987- $75,000; 1997- $100,000; 2000- $125,000; 2002- $150,000; 2004- $175,000; 2005- $200,000, and in 2006- $230,000. In between many of these median price increases were corrections that gave back a percentage of the appreciation gain, but that correction has always leveled off and made way for higher highs in the following appreciation cycle. The only irregularity to today's real estate cycle is that the correction cycle and plateau of property values will be approximately 4 years in length instead of 2. The reason for the extended correction cycle is because we're coming off of one of the longest appreciation cycles in history. Because we benefited from 45 year lows in interest rates, the normal 5 year appreciation cycle was replaced with an unprecedented 10 year appreciation cycle. Anyone buying into the 6th - 10th year of this past appreciation cycle was playing with fire because the chance of buying at the top (which you never want to do) grew with each and every year beyond the 5th year. If you were buying in late 2005 thinking you were going to see a huge profit in a few months to a year, you my friend didn't do your due diligence when it came to researching real estate trends and cycles. On the other hand, if you bought a home to live in and raise your family in and bought a home you could comfortably afford (meaning you didn't lie on your mortgage application), and you plan on living in your home for 7 to 10 years which is the national average, you my friend will do OK and will probably make a profit on the sale of your home after weathering the storm.

Another appreciation cycle will come, and when it does, it will exceed the price values of the former cycle. The question you need to ask yourself is, "will I be a homeowner getting to enjoy the ride to the next value peak or will I be renting an apartment while the home I walked away from makes someone else a sizable profit?". You see, if you ruin your credit, you probably won't get the opportunity to participate in the next housing boom. Don't make ignorant decisions that can affect the rest of your life, especially when it's preventable. If you like your home and can afford it, don't worry about it's current "on paper value" because it's value can change on a dime as soon as home value perception turns optimistic. The population is growing exponentially and thousands of young, new homeowners are entering the home buying market everyday. The current inventory of homes will diminish over time and when it does, hold on, because the market will be poised to take off like a rocket. Don't believe me?...take another look at those median home prices again and ask yourself how that happened decade after decade with the same economic and unemployment stress' we have today.