Comments on: Sunk Costs and Underwater Mortgages http://www.obliviousinvestor.com/sunk-costs-and-underwater-mortgages/ Investing Blog: The Oblivious Investor Tue, 07 Feb 2012 17:04:11 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Matt Jabs http://www.obliviousinvestor.com/sunk-costs-and-underwater-mortgages/comment-page-1/#comment-5060 Matt Jabs Tue, 23 Mar 2010 02:18:39 +0000 http://www.obliviousinvestor.com/?p=5478#comment-5060 To be honest, if I could sell the house and pay off my mortgages, even if I took a sizable loss, I would do it tomorrow. Even though it would be nice to break even on the purchase, more than anything else, I just want out of mortgaged home "ownership." To be honest, if I could sell the house and pay off my mortgages, even if I took a sizable loss, I would do it tomorrow. Even though it would be nice to break even on the purchase, more than anything else, I just want out of mortgaged home “ownership.”

]]> By: Ben http://www.obliviousinvestor.com/sunk-costs-and-underwater-mortgages/comment-page-1/#comment-4962 Ben Tue, 09 Mar 2010 16:00:36 +0000 http://www.obliviousinvestor.com/?p=5478#comment-4962 I realized after I had posted the comment that your point was that sunk cost doesn't matter, that the choice to sell should be independent of the original cost. But the answer didn't seem to jump out at me until I had read the article a few times. I know there is a physiological term for not being able to ignore the sunken costs. Maybe it's anchoring? I can't remember. I realized after I had posted the comment that your point was that sunk cost doesn’t matter, that the choice to sell should be independent of the original cost.
But the answer didn’t seem to jump out at me until I had read the article a few times.

I know there is a physiological term for not being able to ignore the sunken costs. Maybe it’s anchoring? I can’t remember.

]]> By: Monevator http://www.obliviousinvestor.com/sunk-costs-and-underwater-mortgages/comment-page-1/#comment-4959 Monevator Tue, 09 Mar 2010 09:54:03 +0000 http://www.obliviousinvestor.com/?p=5478#comment-4959 Another reason -- afraid it is a wooly one! -- is that for most people the reason buying a home makes sense is it provides an inflation-protected savings plan. For such people, it is a discipline to pay the mortgage, like the dollar cost averaging we both suggest is a good approach to the stock market. Continuing to hold and keep paying until better times makes sense as a 'coping mantra' to keep up this saving scheme. The reality is when the market recovers they won't sell. Or they will, but to buy a more expensive home! Just like with stocks, in other words. :) Another reason — afraid it is a wooly one! — is that for most people the reason buying a home makes sense is it provides an inflation-protected savings plan.

For such people, it is a discipline to pay the mortgage, like the dollar cost averaging we both suggest is a good approach to the stock market.

Continuing to hold and keep paying until better times makes sense as a ‘coping mantra’ to keep up this saving scheme.

The reality is when the market recovers they won’t sell. Or they will, but to buy a more expensive home!

Just like with stocks, in other words. :)

]]> By: Craig Ford http://www.obliviousinvestor.com/sunk-costs-and-underwater-mortgages/comment-page-1/#comment-4958 Craig Ford Tue, 09 Mar 2010 05:51:46 +0000 http://www.obliviousinvestor.com/?p=5478#comment-4958 Mike, Thanks for this article. Someone I know owes money on their house, but they don’t want to tell it until they can at least break even. I’ve tried to explain that they are in the exact same place financially if they sell it now or later, but I haven’t exactly been able to convince them. Perhaps giving them options #1 and #2 will help make things clear. Mike,
Thanks for this article.
Someone I know owes money on their house, but they don’t want to tell it until they can at least break even. I’ve tried to explain that they are in the exact same place financially if they sell it now or later, but I haven’t exactly been able to convince them. Perhaps giving them options #1 and #2 will help make things clear.

]]> By: Mike http://www.obliviousinvestor.com/sunk-costs-and-underwater-mortgages/comment-page-1/#comment-4955 Mike Mon, 08 Mar 2010 16:52:35 +0000 http://www.obliviousinvestor.com/?p=5478#comment-4955 <i>"I wonder if mortgage lenders would allow people to transfer the mortgage to an unsecured loan, and at what rate?"</i> Agreed. This is the primary reason why I wrote that it <i>may</i> make sense to sell the home, rather than <i>does</i> make sense to sell the home. Availability of cash and/or reasonable-interest-rate credit is certainly an important factor. “I wonder if mortgage lenders would allow people to transfer the mortgage to an unsecured loan, and at what rate?”

Agreed. This is the primary reason why I wrote that it may make sense to sell the home, rather than does make sense to sell the home. Availability of cash and/or reasonable-interest-rate credit is certainly an important factor.

]]> By: Mike http://www.obliviousinvestor.com/sunk-costs-and-underwater-mortgages/comment-page-1/#comment-4954 Mike Mon, 08 Mar 2010 16:50:43 +0000 http://www.obliviousinvestor.com/?p=5478#comment-4954 Hi Ben. I'm not advocating selling <i>because</i> the homeowner is underwater. All I'm trying to point out is that the original purchase price of the home doesn't have much to do with whether you should keep it or not. And you're right that a home has a value other than a financial one. Sometimes a decision may make financial sense, but still not be the right decision. Hi Ben.

I’m not advocating selling because the homeowner is underwater. All I’m trying to point out is that the original purchase price of the home doesn’t have much to do with whether you should keep it or not.

And you’re right that a home has a value other than a financial one. Sometimes a decision may make financial sense, but still not be the right decision.

]]> By: Rick Francis http://www.obliviousinvestor.com/sunk-costs-and-underwater-mortgages/comment-page-1/#comment-4953 Rick Francis Mon, 08 Mar 2010 16:48:43 +0000 http://www.obliviousinvestor.com/?p=5478#comment-4953 Mike, I agree that you can't consider your original cost when deciding to sell a home, but having to come up with $50K in cash to sell is a pretty big barrier to overcome! I wonder if mortgage lenders would allow people to transfer the mortgage to an unsecured loan, and at what rate? >But unless you have some reason to expect real estate prices in the >market in question to come roaring back, there’s no particular >(financial) reason to continue carrying debt to own the home. I can think of one financial reason to keep the home- inflation. Say that you can just barely afford to continue paying the mortgage possibly only paying the interest and that the only effect on the price is inflation. If inflation is 3.5%/year (the long term average) after 6.5 years you should be able to sell the house for the $250,000. It isn't that the house really appreciated- it's that the money you owe depreciated! -Rick Francis Mike,

I agree that you can’t consider your original cost when deciding to sell a home, but having to come up with $50K in cash to sell is a pretty big barrier to overcome! I wonder if mortgage lenders would allow people to transfer the mortgage to an unsecured loan, and at what rate?

>But unless you have some reason to expect real estate prices in the >market in question to come roaring back, there’s no particular
>(financial) reason to continue carrying debt to own the home.

I can think of one financial reason to keep the home- inflation. Say that you can just barely afford to continue paying the mortgage possibly only paying the interest and that the only effect on the price is inflation. If inflation is 3.5%/year (the long term average) after 6.5 years you should be able to sell the house for the $250,000. It isn’t that the house really appreciated- it’s that the money you owe depreciated!

-Rick Francis

]]> By: Ben http://www.obliviousinvestor.com/sunk-costs-and-underwater-mortgages/comment-page-1/#comment-4952 Ben Mon, 08 Mar 2010 16:40:51 +0000 http://www.obliviousinvestor.com/?p=5478#comment-4952 I often disagree with the decision to sell a house because a person is underwater. In this new age people incorrectly assument that a House=Investment. This is true for a few select groups who make a living by investing in the housing market. However, for the rest of us the House=Home. It is a place to live, to build memories. It provides warmth from the cold and should give a family a sense of security. The reason to sell is because the family wants to relocate, upgrade, or downgrade. But the reason should not be because I don't like the market value of my house? Can a family really afford to rent of buy another house with $50,000 in debt to another mortgage company? This post also does not mention any potential backlash on the credit report. I often disagree with the decision to sell a house because a person is underwater. In this new age people incorrectly assument that a House=Investment. This is true for a few select groups who make a living by investing in the housing market. However, for the rest of us the House=Home. It is a place to live, to build memories. It provides warmth from the cold and should give a family a sense of security.

The reason to sell is because the family wants to relocate, upgrade, or downgrade. But the reason should not be because I don’t like the market value of my house?

Can a family really afford to rent of buy another house with $50,000 in debt to another mortgage company? This post also does not mention any potential backlash on the credit report.

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