Reply to Federal Reserve: signs abound that housing market is entering bubble territory

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]Ok this is from a FB video I watched this morning, but I’d it true?

For those who bought at the peak of the market, if the house loses value they’ll have negative equity. If the economy then winds up in a recession, that could work out very badly for the housing market. Is that super off-base?[/quote]

It depends entirely on a number of factors.

If they bought all-cash they've already got 100% equity and value is basically irrelevant. If they put 20% down there's very little chance they will see a 20% drop in values.  If they put less down it depends entirely on if they or a working spouse lose their jobs. An underwater house isn't a big deal unless you're forced to move.

DC has such a huge percentage of all cash buyers (25%) that alone will insulate the market a great deal. Our job market is also probably the most stable in the country. Fed jobs aren't going anywhere, fed contractor jobs aren't going anywhere.  I imagine ultimately the number of people in this area who don't have significant equity, who also see their home value go underwater, who also lose their jobs, who also don't have savings to ride a brief period of unemployment out, who also don't have a working partner who can at least cover the mortgage while they cut costs elsewhere will be low.[/quote]

Omg regardless of what you think about the housing market, please do not listen to this poster. Do you have any idea what equity means? It’s just the amount that you would get when you sell. Value always matters. Even if you paid all cash, you don’t want to sell for a loss. [/quote]

You're completely missing the point. if you're not selling, value doesn't matter. Your payments don't change, the house still serves as shelter. Value is just a number on a page. Having negative equity may prevent you from voluntarily selling, but from an economic standpoint someone who wants to sell but can't, but is still able to make their payments is no different from someone just living in their home like normal.  The only time negative equity changes anything is if the owner is unable to make payments and is forced to sell or get foreclosed on, and as I already pointed out, in this area you'd have to fall through so many cracks to reach that situation that the overall number of people who will end up there is very low.

Also, do YOU know what equity means? Tell me exactly where you believe I misused the term. If you pay for a house all in cash and have 100% equity at the time of purchase it is mathematically impossible to be underwater regardless of future changes in value unless your property somehow achieves negative value.   If you put 20% down you will have positive equity unless your house value drops 20% or more from purchase price which is very unlikely in this area. [/quote]

Ok so much wrong in this post, but what you are talking about is not equity. It’s how much money you owe a bank when you sell. Yes, if you pay cash you won’t owe a bank anything. [/quote]

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