Tuesday, July 31, 2007

Cramer Says: "Dump Your House"!

Jim Cramer from CNBC on the collossal housing crash and whether you should keep paying your mortgage on a so-called "asset" declining in value, or just dump your losses and rent.
Very compelling statement also on prioritization of paying your bills: Pay off credit cards first, THEN pay your mortgage.
Transcript Courtesy of Housing Doom:

Here's the video link: http://tinyurl.com/2kqgnf


Torabi: "I have to bring up a video we did yesterday that was entitled ‘Walk away from your house’". Torabi: "Jim Cramer says, y’know, ‘there is a time to walk away from your house’. To re-visit the video yesterday, you said, ‘when your house is down 20%, essentially, when you have no more equity left…’"

Cramer: "Right"Torabi: "…that’s a good time to sell…"

Cramer: "Yeah"Torabi: "… but what [unintelligible] because that"

Cramer: "Well not just sell, to walk away. You can’t sell it."

Torabi: "How do you walk away?"

Cramer: "Well you just default on the mortgage. It makes huge economic sense. You go rent. Uh, you don’t want to lose your job, so you keep your car. Uh, you keep your credit cards so you can buy, and all that really happens is is that you made a bet and you lost, so don’t compound it by continuing to pay."

Torabi: "Now the hierarchy of debt, you were saying also that y’know, your credit card debt should be less of a priority than if your house is losing value"

Cramer: "Oh, yeah, credit cards are much more important than your house. Remember, your house is only a good bet if you can build equity. But if you are going to lose money each month, you might as well rent. You shouldn’t own."

Torabi: "And, but, yesterday you’re also saying there are no places in this country where there is value in homes. A lot of homes are depreciating…"

Cramer: "No, No, there is no place where [mumble] you wouldn’t be down on your home if you bought it in 2006, that’s what the issue is. So, I’m saying that buying homes in 2006 was like buying the Nasdaq in February of 2000. They’re very very similar - it was better to be margined out than to continue to put capital against those Nasdaq stocks."

Cramer: "There was a report this morning by David, I believe it was David, uh, Blitzer, on, when I was on with the wonderful and fabulous Erin Burnett and it was that the, some housing prices have, uh, been, have actually stopped going down and some are going up and I just think that’s not true. I think, like, bad CDOs, and, like, bad leveraged loans, the actual mark to market is down everywhere. I get that from the 5 homebuilders whose conference calls I listen to. There are no up markets, and there are markets that are falling 20-30%, and those are the ones where it’s much smarter to walk away from your house."

Torabi: "Is the 20-30%… what’s that based on, or is that just…"

Cramer: "It’s where the, uh, purchase prices are, uh, when you back in the discounts. The discounts are very hard to see, cause all the homebuilders do two things: One is is that they offer incentives that don’t surface, so the list price is $250,000, but you’ll get rebates just like a car, so the list price of a car is $25,000, y’know, but you’re really only paying $18,000, so take in that, and the second thing is is that there’ll be Realtors, and what’ll happen is is that you’ll say ‘look - the list price is $225,000′, but you can negotiate down and go $190,000. I’m using the negotiable prices.

Cramer: "This is happening in the inland empire, in Sacramento, uh, it’s happening in Phoenix, it’s happening in Denver, and it’s happening in Las Vegas, and in southern California, uh, anywhere near the bread, the so-called bread basket, Modesto, these are all places where there’s tremendous overbuilding, and where it may pay to leave your house."

Hey Jim,
"Boo-Yah!" from overpriced and overvalued Orange County, Southern California.

1 comment:

Anonymous said...

I bought a home in AZ for 222K...I had a loan for 178K and one for 44K. I refiid the 44K and got 32K in cash to pay credit cards and bought 20K in Land. Now I owe 256K and the home is worth 170K. I'm having a hard time to keep paying 1500 a month interest only loan and I'm thinking of walking away. Other than the Foreclosure in credit and destroying my credit for some years..can the bank go after me for the difference of the current 256K loan and what is sells for? I heard AZ don't have Deficiency Judgments for properties less than 2.5 acres and used for single family primary residence. Please let me know what will be the consequences if I walk away.. I can't continue to pay for it...