Housing Market Shock Test

A piece appeared in the LA Times a few days ago that chronicles the plight of Will Hertzberg.  He’s in a negative amortization situation on his loan.  The loan allows him to pay as little as $1106 per month (resulting in negative equity)…when the principal and interest would be $2513 on a 30 year fixed plan.   1 in 3 loans so far in 2006 are in this negative situation.

This story really got my attention because Will lives in Corona, CA..my former home town.  He describes how his equity has vanished.

HERTZBERG bought his house 11 years ago for $129,995, immediately after
his second divorce. (He has no children.) Since then, Corona and the
Inland Empire have boomed.

Comparable homes in his neighborhood fetch more than $400,000. With
fresh paint and a few repairs, Hertzberg could probably sell his place
for $275,000 more than he paid.

He would see little of that, however, because he’s already seen so
much. Over the years he has taken out $190,000 in cash through
refinancings.

Hertzberg’s home equity paid off his credit cards, financed trips
around the world that allowed him to indulge his passion for
photography, bought a $32,000 Toyota Avalon and enabled some lousy
investments. He bought dot-com stocks and lost money. To recoup those
losses, he bought commodities — and lost money faster

.

The bottom line here is that there’s no one to blame but oneself.  Living in Corona always made me wonder how everyone in the neighborhood always had 2 white Suburban’s, a boat, 2 Seadoos, and 4 Quads.  Now you know too.    

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One thought on “Housing Market Shock Test”

  1. There was a time that I was jealous of these families who seem to have it all (pools, toys, fancy cars). I always thought they must be doing well and I must be a no money making loser. Thru refinancing my house (and your help at the time) I was able to see the light.
    I now feel I am in the shrinking minority here in California. I own a home that actually has equity!
    – Royster

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