American Dream 2: Default, Then Rent
Wall Street Journal
By MARK WHITEHOUSE

Analysts at Deutsche Bank Securities expect 21 million U.S. households to end up owing more on their mortgages than their homes are worth by the end of 2010. If one in five of those households defaults, the losses to banks and investors could exceed $400 billion. As a proportion of the economy, that’s roughly equivalent to the losses suffered in the savings-and-loan debacle of the late 1980s and early 1990s.

The flip side of those losses, though, is massive debt relief that can help offset the pain of rising unemployment and put cash in consumers’ pockets.

For the 4.8 million U.S. households that data provider LPS Applied Analytics estimates haven’t paid their mortgages in at least three months, the added cash flow could amount to about $5 billion a month — an injection that in the long term could be worth more than the tax breaks in the Obama administration’s economic-stimulus package.

“It’s a stealth stimulus,” says Christopher Thornberg of Beacon Economics, a consulting firm specializing in real estate and the California economy. “The quicker these people shed their debts, the faster the economy is going to heal and move forward again.”

Love the point about the ‘stealth stimulus’. I’ve never quite understood Americans obsession with homeownership. Why pour all your hard-earned cash into an asset you can’t afford? The article details a few families around the country and what they now do with the extra cash that is no longer going towards a mortgage.

I’ve lived in Charlotte going on 4 years now. I have lived in 4 different homes and locations in that time. Renting gives me the flexibility to check out areas of the city I would never have the chance to if I owned a home. A few friends have purchased homes during that time and regret the suburban lifestyle they have committed to.

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