Between a Rock and Hard Place

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By Don Dunning | August 17, 2009

Yesterday, I held an open house in Oakland. A woman walked in and said she was “just checking prices in the neighborhood.” After a quick spin around the home, she came over and started chatting me up.

Seems she bought a home in the same area, closing escrow in December 2009. I told her that was just the beginning of a serious downturn in the housing market, only no one knew it at the time. Unfortunately, she “won” a multiple bidding war for her property. Bottom line – she now owns a property she suspects is worth $50,000 to $100,000 less than she paid.

Her questions all revolved around the best path to take now. She said she had read my article, “Is Waiting to Sell the Best Idea?,”  but still had unanswered questions. How is the market today? Have prices risen? I suggested she take a look at my latest article, “Learn from Recent History or Pay the Price.”   to see the most current, local statistics. In a nutshell, the median sold price for Oakland real estate in five popular zip codes was down two per cent when comparing July 2008 to July 2009.

Given that she and her husband may leave the area, should they rent it out and hope the market rebounds to the point where they are no longer underwater? If they do rent it, she believes they will be negative $500 a month. After five years, that would be a $30,000 loss, less tax benefits. Does that make sense?

When will the market improve? By how much? What if interest rates increase (a likely, future prospect)? Could prices fall even further? In my opinion, only a clairvoyant can answer these questions.

They have not stopped making payments yet, but they are one of millions who might, at some point, do so “voluntarily.” Meanwhile, her bank, like most, won’t even talk to them just because they are not in default — a terrible position to be in and a Catch-22.