Arnold Kling  


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From Gregg Easterbrook (scroll down past all the NFL BS)

When you buy a home using a mortgage, you don't own the home: The lender is the owner until the loan is satisfied. You can't lose something that does not belong to you! Suppose you buy a $500,000 home, then can't make the payments and must leave. That would be a huge, awful setback for your family. But you have not "lost" $500,000, as commentary suggests -- that $500,000 in value would not have belonged to you until you paid off the loan.

...In most cases, a person who forfeits a recently purchased home will have paid only a tiny fraction of the appraised value of the property, and thus will suffer relatively small out-of-pocket losses.

When you finance 100 percent of your home, so that you have zero equity, there is a sense in which losing your home means losing nothing.

Thanks to Craig Newmark for the pointer.

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COMMENTS (5 to date)
Independent George writes:

This is my favorite section:

But what's the result of tighter credit? A "housing crisis," as sales slow and prices fall. You can't say it's bad when credit is loose, causing prices to soar, then also say it is bad when credit is tight, causing the housing industry to slow. Wait -- I guess you can, because Frank and many others in Washington are saying exactly this.

Personally, I just purchased my home a few months ago, and I want prices to drop, because it would mean a lower property tax assessment.

jb writes:

heh. It's bad when credit tightens and bad when credit loosens, because a Republican is president.

Once a Democrat is president, it will be a different set of people saying that tightening and loosening credit are both bad.

Dick King writes:

You own the house, not the bank.

You get the appreciation.

If you "sell" the house to the bank for less than the loan value by comprimise or forclosure without recourse, you must pay taxes on the forgiven debt as income.

In some states if the forclosure does not pay the whole mortgage you owe the lender the rest of the money. Only if you go bankrupt do you not pay taxes on this debt forgiveness.

In other states including California, the money the lender gets from selling the house is all tehre is. I suspect that this fact makes lenders forclose sooner in such "non-recourse" states, but that's another story. In non-recourse states the residue is taxable income.


Punditus Maximus writes:

Transactions costs associated with moving are highly nontrivial.

Chris Collins writes:

My parents just bought a house, but they got a real good deal on it. They took out a loan but they will have it paid off in I think 7-10 years. If the house is appraised after the loan is paid off and sold for more will they still have pay the property tax?

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