60 Minutes profiles strategic defaults
I still see this phenomenon as a major risk to US growth due to the credit writedowns associated with it. However, the vast majority of house price losses are behind us. If house prices double-dip as they appear to be doing now, the losses should be much less than during the first dip.
It’s interesting to hear the first-time homebuyer psychology of not wanting to get priced out of the market during the boom, getting in before prices rise further. This is one of the self-feeding mechanisms of house-price bubbles. The flip side of that – not wanting to get in negative equity, afraid that prices will drop further – is what we witness on the way down. Again, this is a self-feeding mechanism that leads burst bubbles to overshoot to the downside.
Here’s a question for those people who bought overpriced homes at the height of the bubble like the last man in the video: didn’t you do a buy vs. rent calculation and realize you were paying a lot more to buy? Unless you were bamboozled by a teaser rate, you couldn’t have possibly thought this was a good economic decision except if house prices continued to rise.