New Visions Commentary: What Will You Do If Your House Goes Underwater?


B.B. Robinson

What Will You Do If Your House Goes Underwater?

by B.B. Robinson, Ph.D. (bio)

In September 2005, Hurricane Katrina hit New Orleans, and related floods placed thousands of homes underwater.  Now the word is that many homes across the nation soon will likely go under water in financial terms.

In these cases, “underwater” means that the value of a home, based on the price that it fetches in the market, will be less than the value of the remaining payments due on the mortgage for the home.  These homeowners will be asking themselves, “Is it logical to permit foreclosure or to continue making payments on a mortgage that has a value greater than the market value of the home?” 

Shelter – a home – is an essential requirement.  Therefore, it is usually logical to purchase a home.  However, if a house “goes underwater,” it may be practical to make an adjustment in shelter requirements.  If homeownership is absorbing too much income, if the home is underwater, and if there are lower-valued homes in the area that meet shelter requirements, it may be wise to trade-down or out; i.e., sell a high-valued home and purchase a low-valued home (or rent). 

Some economists will argue that declining home values are likely to be a short-term (five years or less) phenomenon, and that the prudent action is to sit tight with the home that one has, as it likely will regain its value in time.  These economists may be correct.  However, it may take longer for there to be a full recovery in home values.  Moreover, the declining dollar and the nation’s dependence on imports could force many Americans to spend increasing proportions of their income on other essentials – food, medicine, transportation, etc. 

Of course, one should consider many factors carefully when entertaining a decision to trade down or out:  e.g., educational expenses for children, prospects for relocations due to career changes, retirement plans, etc.  So one should respond to a house going underwater within the context of a long-term plan.  If you don’t have such a plan, it may be time that you develop one.

About one thing we can be certain: news spreading about homes going underwater and about related foreclosures could ignite a panic as homeowners attempt to cash out (trade down or out) before home values fall even further.  Such a panic could be devastating.  Therefore, homeowners in black communities should develop a strategy to hold home values up.

We know for certain that economies have cycles.  Therefore, homes going underwater creates an opportunity for great benefit for those poised to purchase these homes at a deep discount and resell them later when the home market recovers. 

Consequently, black Americans may benefit from homes going under water by pooling resources to create funds to purchase these homes when mortgage companies put them on the resale market.  Certain black families, churches, and businesses are in a position to purchase such homes and reap the benefits.  Of course, purchasing such homes may present a risk, because housing values in certain areas may never recover.

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B.B. Robinson, Ph.D. is a member of the national advisory council of the black leadership network Project 21.  You can visit his website at  Comments may be sent to [email protected].

Published by The National Center for Public Policy Research. Reprints permitted provided source is credited. New Visions Commentaries reflect the views of their author, and not necessarily those of Project 21 or the National Center for Public Policy Research.

The National Center for Public Policy Research is a communications and research foundation supportive of a strong national defense and dedicated to providing free market solutions to today’s public policy problems. We believe that the principles of a free market, individual liberty and personal responsibility provide the greatest hope for meeting the challenges facing America in the 21st century.