Saturday, January 30, 2010

Walking away from a mortgage...ethical or smart?

The latest debacle that economists are talking about is the housing catastrophe, and how many home owners should "walk away" from their loans because the house's value has changed since the agreement was started. Many smart people are doing the math and realizing they can cut their losses by just leaving their current "overpriced" house and settling into something more in line with today's prices. For many this seems like a good move...but is it the right one? I see this and think of Kant's categorical imperative (For those non-philosophical types, it basically means it's OK to do something if you think everyone could do it). I'm not thinking of just home loans but extrapolating this out to other purchases made over time. What if I wanted the latest techno-gadget and just had to have it, even though I couldn't afford it? Well, I'd take out a loan of course. Now because I am somewhat familiar with pricing for tech gadgets, I would imagine that overtime the value of said gadget would drop as it became more commonplace. Would this affect the terms of my loan however?

Why is it different with houses? Could it be that as a society we stopped thinking of houses as living units and started only considering them as investment opportunities? I can see home values rise and fall with crime rates and other important factors, but what if the house next to mine sold for twice as much as I paid for mine? I would think the buyer got a bum deal and I got a steal (assuming the purchases were roughly equal all other things considered). The real question is what determines the value of a home, and why do we assume that prices should continue to rise ad infinitum? Values fluctuate for many reasons, but the primary reason they fluctuate is because of perception. If the perception of my latest techno-gadget changes, does that mean that the terms of my loan for it should change to?


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