[quote=briansd1][quote=sdrealtor]I just dont think people are as quick to walk away. From what I have seen I just think Dave’s post was far closer to reality in the way people look at and react in these situations.[/quote]
I think that it depends on the situation.
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Yes, I think there are a LOT of factors at work in this decision. Among them:
(1) How far underwater is the mortgage in both dollar and percentage terms?
(2) What does this “hole” represent as a percentage of total net worth?
(3) What is the cost of comparable alternatives (that is, comparable rental options)?
(4) How much financial stress is related to continuing to pay the mortgage?
(5) What are the total non-monetary negative externalities with respect to family, image, credit score, job, etc. etc.?
I believe that the current research suggests that the 12%-15% underwater range is where default rates start to hockey stick upwards. Which kind of makes sense.
If you bought a $500K house at the peak and put 10% down and the value’s fallen by 25%, then you’re about $75K underwater. That’s a lot of money if you (a) don’t save much, (b) don’t have good job stability, (c) don’t have strong community ties (kids in school, etc.) and (d) the rental alternatives are much cheaper. A lot of those folks will walk. And with good reason.
However, it’s a totally different situation if you (a) have a decent net worth and savings, (b) have good job stability and the mortgage isn’t overly taxing, (c) have strong community ties, and (d) moving under duress would be an issue for family and reputation issues. Most of these folks will gut it out. And there’s a lot of them.
