[game_the0ry]

It also why leveraged losses can be so devastating - the same works in reverse.

When your home depreciates, you lose the down payment and you are still on the hook for the debt.

That's what happened during 2008 GFC when home prices went down.

[supportengineer]

>> you lose the down payment

This loss isn't recognized unless you sell. If your house loses value but nothing else in your life has changed then "Just keep swimming" and historically you will win in the long term.

[JeremyNT]

Maybe on aggregate but the devil here is in the details.

Plenty of people buy houses in "on the rise" areas and reap the benefits as desirability increases, it's true. Even market crashes like in the mid/late 00s don't impact their long term prospects. But there are also dilapidated cities and small towns in this country that have fallen from their heights never to recover.

It's easy to look back after owning your home for a decade and conclude it was all inevitable, but the "home ownership" bet is one that the house you're buying in will be in a desirable area in the future. This isn't always going to be true, and it's a real risk.

And yes there are protections from being on the hook for the full levaraged amount. You can walk away from an underwater mortgage, but if you put in a large down payment you're kissing that goodbye, and it's still a pretty big disruption in your life even if it's one you can recover from.

[swexbe]

The history of financial markets is about 3-4 lifetimes long. That’s not a lot of history to go on.

[bombcar]

It can be quite a long time 10-15 years.

I was in that situation and probably on paper we should have walked from an underwater house. But we could afford the payment, so we stayed.

The only really annoying thing was waiting ten years until the value went back up enough that we could refinance from the relatively high rates we had been paying. Annoying to be paying 8% when you could get 3% but you can’t refinance because you don’t have the cash to become not underwater.

[game_the0ry]

> This loss isn't recognized unless you sell.

True, up until the point you lose your job due to recession and then you have to sell.

[kjkjadksj]

All you have to do is wait instead of panic sell and you will have weathered any recession in history just fine.

[game_the0ry]

True, up until the point you lose your job due to the recession and have to sell.

[elpakal]

Are you still on the hook for the debt, though? I though that's what bankruptcy was for

[travem]

The following page provides a good overview for the US https://www.uscourts.gov/services-forms/bankruptcy/bankruptc...

[iamthirsty]

Just because you go legally bankrupt doesn't mean the debt magically disappears.

[compiler-guy]

In many states a home loan is “non recourse”, which means that in a default the bank gets the house and nothing else. The debt is completely discharged.

[game_the0ry]

But your credit score will still take a hit.

[toomuchtodo]

You’re eligible for a new mortgage within ~3 years after foreclosure with an FHA mortgage, 7 for conventional. This is known as waiting periods wrt mortgage underwriting guidelines. Credit score might impact the rate, but on the property ladder might be than not, have to model both ways (appreciation, cost of debt service, reserves, rent, etc).

(Strategically defaulted on property after buying at the peak before 2008 GFC)

[LanceH]

They don't like it when you play by the rules.