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How Bad Is The Housing Market? One Man's Tale

I received the following email from Jeff in San Diego and was so struck by how reasonable, matter-of-fact and truly troubling it is. I know it's California, but I believe it's an example of a spreading trend nationwide:

"Last year I was paying triple payments to pay down my mortgages. I stopped overpaying at year end because my business was slowing. I think it was in April that I started really wondering what my house was worth, then there were 3 short sales that went through in my neighborhood and I was shocked at the price they sold at. I was 30% underwater after paying down my mortgages $100k in the previous year. My house value fell from (last appraisal) $1.250 to $650k! At this point (about 2 months ago), I started looking closely at loan modifications and I quickly got the impression that principal reduction was not realistic. Suddenly it occurred to me that the 3 short sales in my neighborhood had accomplished principal reduction, when loan modification would not. I told my wife to find us a rental for $6,000/month or less (the amount I was paying to stay in this house), and within about 2 weeks we were happily renting for $4,400 in the nicest neighborhood we have ever lived in. I was advised to stop paying my mortgages and we listed our short sale at $650k since the comps were clear and rec’d multiple offers immediately. I expect the banks will accept the offers, but the are very slow, so who knows. My perfect credit has been ruined for now, but I have no debt anymore, so I think it is a fair trade. In my view, unless principal reduction is available, prices will continue to drop and people will continue to walk away from their houses."

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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