With thanks to Dr. Strangelove, I thought about what the housing ‘bubble’ bursting means to someone that doesn’t plan on moving anytime soon. I and the family are quite happy where we are for the moment. The mortgage is well within our means, and we aren’t going to be having any increases in family size short of adoption or a miracle. We have a 30 year fixed mortgage at 6.625 (yes, it probably could be a bit lower if I REALLY looked around), so there will be no unexpected rate increases unlike with the formerly popular Adjustable Rate Mortgages (ARMs).

There are some pros and cons to the situation for the stay-in-place homeowner.

Pros

• No unexpected interest rate hikes – As mentioned earlier, many people planning on staying in their houses for more than a few years have generally opted for the 15 year or 30 year fixed-rate mortgages. With the housing bubble starting to deflate, interest rates creeping upwards, and the first wave of ARM adjustments starting to effect the mortgage lending industry, those people that can no longer support their ‘McMansion’ houses are finding that the re-finance they were planning on doing is not going to happen.
• No loss in home value (yet) – As with stocks, you don’t actually ‘lose’ money on your house until you sell it. With the drop in home prices reaching 6.5% the long-term homeowner can take a slightly more philosophical view of the recent housing price drops. If you bought at the height of the price increase, and now have to sell because your ARM is eating you alive, it only makes the matter worse.
• Living Within Your Means – I know a number of people that have purchased a large house, with the interest-only or 3/1 ARM that is STILL costing them the majority of their take home pay, only to end up with few belongings in the house. These houses look like empty model homes because their owners can’t afford to buy furniture after paying the monthly mortgage.

Cons

• Seller’s Remorse – Also known as ‘I should have sold the house when it was worth $150k more’. Selling and getting OUT of the market before the bubble bursting could have net you an enormous increase in the sale-value of the house. The old saying ‘things are only worth as much as someone is willing to pay for them’ would have worked in your favor. However, then you would have had to deal with finding another house with an equally inflated value, so it might not have been that much of a benefit all told.
• Fixed-rate Mortgages – With the variety of mortgage types, and the creativity of the lending community working to seemingly try to ‘give’ money away to home buyers, there were many loans with a VERY low interest rate, and even interest-only and negative amortization loans (loans that actually caused the principle to increase because the minimum payment wouldn’t cover the interest amount on the loan). This would mean being able to pay down those outrageous house prices a little more in the years before the ARMed bandits came in by including additional principal payments (assuming the homeowners getting these mortgages could afford to pay extra and buy-down the principle while they had the chance).

Admittedly, those cons are a little contrived, but I was hard-pressed to find anything affecting me that was caused by the housing bubble. I’m going to ride this storm out where I am, and if/when we decide to move, it’ll be after the housing industry has calmed down a bit.