The Next Big Bailout?

[duane1969]

Why the possible move to VA Beach? I thought you and the Mrs. were pretty secure in your WV jobs.

You are correct, we are quite secure. We spent some time in Va Beach last year and fell in love with it. My wife's work experience and resumé gives her a near open-ticket to get a job in most any education system that she wants and salaries in Va Beach for our jobs would be about 20%-30% higher than they are at our current jobs (WV ranks 48th in the US in educator salaries). Our kids are all for it so it has become one of those situations where if the right opportunity presents itself then we are going to jump on it.

An example of the salary gap: A high school principal with zero experience in the Va Beach area has a starting salary that is comparable to my wife's salary with 10 years of experience working at the WV State Department of Education. So a principal with 10 years of experience in Va Beach would actually make about $15-18K more per year than she is earning as a state department employee.

[pghin08]

You are correct, we are quite secure. We spent some time in Va Beach last year and fell in love with it. My wife's work experience and resumé gives her a near open-ticket to get a job in most any education system that she wants and salaries in Va Beach for our jobs would be about 20%-30% higher than they are at our current jobs (WV ranks 48th in the US in educator salaries). Our kids are all for it so it has become one of those situations where if the right opportunity presents itself then we are going to jump on it.

An example of the salary gap: A high school principal with zero experience in the Va Beach area has a starting salary that is comparable to my wife's salary with 10 years of experience working at the WV State Department of Education. So a principal with 10 years of experience in Va Beach would actually make about $15-18K more per year than she is earning as a state department employee.

That's a tremendous difference, geez. But truly, be thankful for the position you're in. Hopefully down the road, you'll have the financial freedom to move wherever, but with both you and your wife having good consistent jobs (not to mention the DB plans--or what's left of them!--that you'll have when you retire), you're in better shape than most.

To bring this back to the issue of strategic default, were a client of our firm to come to us with this idea (no one has), we'd probably advise against this. The act of voluntarily crushing your credit score would make it difficult, and subsequently, more expensive to buy another home/car/college, etc.

Interesting tidbit I picked up from a portfolio manager at JP Morgan yesterday about just how affordable the market for homes is right now. The average mortgage payment on a new home (as a percentage of average household income) is 10.3%, which is as low as it's been since the 50s and 60s. Couple that with the fact that consumers have rebalanced well (4th quarter of 2011 saw debt payments as a percentage of income drop to 11%, which is the lowest since the 1970s), and it bodes well for the housing market.

Heck, I'm struggling as to what I want to do. I'm unmarried (yet in a LT relationship) and I don't think I'm quite in the position to buy a house yet, but I really want to. It's so much more expensive to rent in this market.

[Star_Cards]

The way we look at our homes may never be the same. It's far more of a liability than an asset anymore. It's like I've said before, people would buy $500K homes and think they were half-millionaires. And of course, they weren't. I will always put the majority of the housing crisis blame squarely on the shoulders of mortgage lenders/greedy bankers. However, we could have done a lot as citizens if we would have just used our brains a bit. You make $30K a year and you think you can buy a $400K house and everything will be fine? Come on. Of course, these mortgage lenders didn't care, they just wanted as many people in homes as possible, because they were just passing the risk of to investors anyways. It wasn't coming back on them.

I know I don't need to tell you how tough it is to sell in this market right now. From what you've said on here before, unemployment is a pretty big problem in your area, and as long as that's an issue, selling a house will of course be an issue.

Why the possible move to VA Beach? I thought you and the Mrs. were pretty secure in your WV jobs.

I don't view a house as more of a liability than an asset, at least not mine. Definitely not the guarantee that many people had assumed a house would be to go up in value like clock work. If you think about it that was kind of a uneducated view. At some point a 1500 square foot house is only going to be worth so much in a specific area. Either way if you look at it like you will stay in that house at some point you will pay it off and not having a living expense of rent is a huge benefit in my opinion.

I agree that a huge problem was the mortgage companies. Very irresponsible business practice to loan someone cash that they should know the person doesn't make enough to afford an item, but overall the person should know that as well. Although people living outside of their means is not atypical these days.

[AUTaxMan]

Corporations are sitting on cash because of the uncertainty of the future of the tax code, and that will not change until a decision is made by congress and the administration in terms of long term tax policy.

[pghin08]

I don't view a house as more of a liability than an asset, at least not mine. Definitely not the guarantee that many people had assumed a house would be to go up in value like clock work. If you think about it that was kind of a uneducated view. At some point a 1500 square foot house is only going to be worth so much in a specific area. Either way if you look at it like you will stay in that house at some point you will pay it off and not having a living expense of rent is a huge benefit in my opinion.

I agree that a huge problem was the mortgage companies. Very irresponsible business practice to loan someone cash that they should know the person doesn't make enough to afford an item, but overall the person should know that as well. Although people living outside of their means is not atypical these days.

In a practical sense, you're right, a house is definitely an asset. But from a financial planning standpoint, until you've paid it off (or are close to doing so), we have to treat it as a liability. You can borrow against your house if you absolutely need to (I'm not talking about refinancing, which a lot of people have done due to the drastic interest rate drop), but otherwise it's tough to recommend.

In case you couldn't tell, I'm a very debt-averse person. I overpay on my student loans every month (usually not by a whole lot, but still), and I plan to put at least a 20-25% down on my house, when I buy it.

[AUTaxMan]

I agree that a huge problem was the mortgage companies. Very irresponsible business practice to loan someone cash that they should know the person doesn't make enough to afford an item, but overall the person should know that as well. Although people living outside of their means is not atypical these days.

A lot of that lending behavior was predatory, but a lot of it was also the result of federal government anti-discrimination arm twisting.

[pghin08]

Corporations are sitting on cash because of the uncertainty of the future of the tax code, and that will not change until a decision is made by congress and the administration in terms of long term tax policy.

Long-term? Politicians making a "long-term" decision? That's pretty funny . I don't think long-term is in their vocabulary. And the tax code, I'm sure you know, is uncertain by its own nature. Though I agree the recent partisan hackery has played a role in the massive amounts of corporate cash.

[duane1969]

To bring this back to the issue of strategic default, were a client of our firm to come to us with this idea (no one has), we'd probably advise against this. The act of voluntarily crushing your credit score would make it difficult, and subsequently, more expensive to buy another home/car/college, etc.

Question. Since you seem to understand this stuff WAY more than I do...If a person chooses to default, how long does the record stay on their credit report? I ask because I know of a woman who filed Chapter 13 and turned around the next year and purchased a $40,000 vehicle.

Heck, I'm struggling as to what I want to do. I'm unmarried (yet in a LT relationship) and I don't think I'm quite in the position to buy a house yet, but I really want to. It's so much more expensive to rent in this market.

I have a few friends who are in real estate and they have told me that this may be the best buyers market in decades. If you consider how much you pay in rent then it makes sense to get in now when houses are selling cheap and the interest rates are down.

[pghin08]

Question. Since you seem to understand this stuff WAY more than I do...If a person chooses to default, how long does the record stay on their credit report? I ask because I know of a woman who filed Chapter 13 and turned around the next year and purchased a $40,000 vehicle.



I have a few friends who are in real estate and they have told me that this may be the best buyers market in decades. If you consider how much you pay in rent then it makes sense to get in now when houses are selling cheap and the interest rates are down.

I believe it's 10 years, but I'm not 100% sure. I'm not sure how she was able to do that, but honestly, I'm not a bankruptcy lawyer, so I'm just not knowledgeable enough on the subject. If she has a financial advisor, he needs to be fired though.

I'm far too young to adequately say that it's the best housing market to buy in decades, I just know that it's a good one.

[AUTaxMan]

Long-term? Politicians making a "long-term" decision? That's pretty funny . I don't think long-term is in their vocabulary. And the tax code, I'm sure you know, is uncertain by its own nature. Though I agree the recent partisan hackery has played a role in the massive amounts of corporate cash.

Oh yeah. Also, because interest rates are so low, there is little incentive to invest.