by Alex Wang on Mar 14, 2007 | No Comments »
The beauty of real estate is that you can apply a lot of its concepts to other areas. In this case, Money Crashers writes about being upside-down on a car loan and bootstrapping your way out of a situation where you owe more on the loan than your car is worth.
Traditionally it's been easier to go upside-down with cars because of the massive upfront depreciation once you drive it off the lot (and personal finance gurus will say that you should let someone else take the hit on the first two years of depreciation and buy used).
But being upside-down with negative equity in your house is happening more often because of housing depreciation in many areas as well as the negative amortization on many subprime loans. Many people in that situation just take the credit hit and walk away. Some have to.
I heard a joke (at least, I hope it was a joke!) that Washington Mutual is going to be the biggest land owner in the U.S. over the next few years. The key to ensuring that your standard-of-living goes up when you buy a house is to make sure you don't spend more than you can afford financially and psychologically.
But catastrophic depreciation in Silicon Valley real estate, while an extremely popular notion, is offset by any of the high-paying jobs you, your neighbors, and their bosses have, plus additional growth. Yes, there are less jobs here than during the tech bubble, but you have to be careful with statistics and inflection points — jobs are coming back, and while our Bay Area real estate market is correcting, it's not correcting using a pinprick.