Survey: Homeownership Not as Solid an Investment as You Once Thought

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Also, who is responsible for the all-too-common scenario in which homeowners can’t keep up with their mortgage payments? Most people blame homeowners for taking out loans they couldn’t repay, rather than the banks that facilitated those loans.

The Washington Post sums up more of the survey, conducted by Fannie Mae and released today:

Among the major shifts the survey found is that the public is less likely to view a home as a safe investment. In 2003, 83 percent of those interviewed in a similar study by Fannie Mae said real estate was a safe investment, compared with about 70 percent in the most recent survey…

About 48 percent of those surveyed said that banks should foreclose on people who are unable to pay their mortgages. A softer attitude was reflected if the homeowners in trouble owed more than their home was worth, a situation known as being underwater. But most of those surveyed, 53 percent, blamed homeowners, not mortgage lenders, for taking out loans they could not afford, the survey shows…

More than a third of homeowners surveyed said they were concerned about their ability to pay all of their debts, and most thought they had not saved enough money. A quarter of homeowners surveyed listed other debts, including utility bills and car loans, as priorities over paying mortgages. That challenges the conventional wisdom that says homeowners will skip a credit card or car payment before becoming delinquent on a mortgage.

And what do folks think about the five million or so homeowners with underwater mortgages, who owe more than their homes are worth and who may consider walking away from their debt as the most logical strategy?

From the Washington Post:

Most people do not think it is acceptable for borrowers to walk away from a home simply because they are underwater.

But respondents’ views softened if the homeowner was facing a financial hardship, the survey shows. About 15 percent of respondents said it is acceptable for underwater owners to walk away from their home if they are in financial distress, compared with 8 percent in general. Borrowers delinquent on their mortgage are the most likely to be sympathetic to underwater borrowers walking away from their home.

“Why so little sympathy for their struggling neighbor, who may have lost a job and be faced with the gut-wrenching reality that they can no longer afford their mortgage?” said Brent T. White, a University of Arizona law school professor who has studied underwater borrowers. “The double standard could not be clearer: When corporations walk away from a bad investment, it is called a good business decision. But when homeowners do the same thing, they are seen as immoral.”

Certainly seems like something of a double standard to me. But the thing is: White isn’t talking solely about people who can’t pay their mortgages. We all have sympathy for them. He’s talking about strategic default, in which people have the money but don’t want to pay for their mortgages because it’s in their best financial interest to walk away.

The average person has less sympathy in that latter situation. We want our neighbors to do a better job of living up to their obligations than the typical corporation. I think the people surveyed are reacting to the unfairness here. We all know that investing comes with a certain amount of risk, and that some people can and do lose out. Why should one owner be sucking it up, keeping up with the payments, and living with a property that lost significant value, while a person down the block skips out?

Either everyone should get some sort of a pass or no one should. And how could you give everybody a pass? You can’t. It’s not possible. Not everyone can simply walk away from a mortgage and go to Disneyland.

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