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March 28, 2012


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"America's wealthiest families are now losing their homes to foreclosure at a faster rate than the rest of the country"

I think they got that bit wrong or at least just stated it wrong. What they're saying there makes it sound as if a higher % of expensive homes go to foreclosure but that is not the case.

Elsewhere the same article says that 36,000 million dollar homes went to foreclosure over the past year. Over 2 million total homes are impacted by foreclosure. As of 2009 there were about 76.4 million owner occupied homes and about 2.8 million homes over $750k in value (therefore fewer than 2.8M are >$1M). Roughly speaking about 2.6% of all homes went into foreclosure and less than 1.3% of the million dollar homes.

I think what they probably meant to say that the wealthy are seeing foreclosures increase faster. e.g. they might mean that the foreclosure rate has increased 273% for $1m homes since 2007 but is only up 200% for homes overall in the same period. But that doesn't mean that a higher % of expensive homes go to foreclosure cause it could have gone from 0.3% to 1.3% while the general market went from 0.9% to 2.6%.

"And it's especially difficult if that large percentage is in your home -- since it's illiquid, you need it to live in, etc."

You should not consider your home to be an investment for precisely this reason. And the fact that it is really a liability, not an asset.

I'm worried about my dad. He's a builder and is nearing retirement. He decided to build two last homes before retiring, and made them big ones (over $1 million each). This was just before real estate took a nose dive.

One sold, one hasn't. He's been holding onto this property for over four years. Every month he loses money to the tune of $1200 (his retirement money) to pay for condo fees, as the house he built is located on a condo-style street, with maintenance fees, etc.

I can't imagine the stress he's going through. What was supposed to be a boost to his retirement income will likely be his swan song. He's put his own house on the market now in the hope of selling at least one to help pay for bills.

What kills me is that this is a man who has been working since he was six years old -- yes, six. First on a farm, then at twelve he was put to work in construction. He's now sixty-seven. When will it end?

I didn't plan to be, but I am currently the perfect example of how much easier you can make life on yourself if you don't stretch it on your home.

10 years ago we bought a large home that wasn't exactly a beauty but was one in the location we wanted to raise our kids (backs to a state forest, so I feel like I own 10K acres and not just the couple it sits on, and great schools). Was a great price, largely b/c of just being very ugly ($150K, this is not near any metro areas, i work from home and travel). I put about $10K into necessary repairs.

My salary grew quickly, we threw a bunch at the home and paid it off in 5 years. We later did what to us was a huge once in a lifetime remodel ($110k) using savings and the realization we will probably never move again. So we now have a paid for home that we consider our dream home where we love to live. So I've put $270K into it now, really have no idea what its really 'worth', and don't really care.

With a paid for house and money in the bank and investments, I felt confident enough to start a business. Have great profits when I have the work, but sometimes is extremely slow. Back when I was making my best salaries, the home affordability calculators said I could 'afford' a $900K home, which almost makes me sick thinking about it. If I owned a $900K home today I would be in a tough spot, would probably have to consider moving to somewhere I don't want to live to take a job I would not like. Good chance that home would be underwater and getting rid of it would be difficult/costly.

But my business down times now are like vacation, almost a semi-retirement due to the lack of financial stress.

@ Steve

I think you're wrong on "I didn't plan to be...". Sounds to me like you planned everything perfectly. Congratulations and enjoy your life!

I noticed a mistake in my comment above.

I said there should be fewer than 1.3% forecloses in the >$1m home segment. It should actually be more than 1.3% foreclosures.

Theres fewer than 2.8M homes and 36k foreclosures. SO that should equate to more than 1.3% rate.

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