Not Exactly a Dream — But No More Nightmares
Thanks to a rare confluence of factors — mortgages that far exceed home values and bargain-basement rents — a growing number of families are concluding that the new American dream home is a rental.
Some are leaving behind their homes and mortgages right away, while others are simply halting payments until the bank kicks them out. That’s freeing up cash to use in other ways.
“It’s just a better life. It really is,” says [one former homeowner who’s now renting].
–“American Dream 2: Default, Then Rent“; The Wall Street Journal (12/10/09)
Good read for anyone who wants real-life examples of homeowners wrestling with mortgage defaults — strategic and otherwise.
As I’ve been posting lately, a “strategic” default is when the homeowner can still pay the mortgage — at least for the time being — but walks to conserve their cash flow, and because their house is so underwater it’s not likely to rebound.
The article makes two other points:
One. As strategic defaults rise, the stigma is falling. Put it this way: when a housing market “Katrina” strikes, everyone gets hit — not just the financially irresponsible. And businesses hungry for otherwise-solid customers know that.
Two. Strategic default may be bad for the banks, but it’s (very) good for the broader economy.
That’s because — surprise! — homeowners who ditch $4,000 – $5,000 monthly PITI payments (principal, interest, taxes, and insurance) for $2,000 monthly rent suddenly have another couple grand a month to spend on everything else!
I knew there was a silver lining in there somewhere . . .