Last night I had a nightmare: the banks sent out notices for everyone to pony up the balance of the mortgage. (I swear, I’m not making it up, I even woke up an hour early from worry.)
Apparently, the banks can really do it and in fact they had done it in the 80’s, though selectively. I never read that fine print of our mortgage, but I hear that this clause is there.
Anyway, so this happens, and obviously most people can’t pay what they owe, so they start listing their properties for sale and there’s a glut of properties and prices are dropping. How many people can really pay for real estate in cash? Very few. So the prices are dropping, and it’s pretty much impossible to sell the place and pay the bank so the only thing we can do is leave.
That scared the hell out of me because recently I started thinking of our condo ‘equity’ as part of our net worth. Not for lines of credit or whatever, just it’s nice to think that should we sell the place we’ll have an X amount of money in our pocket. If the above scenario plays out, the only money we’ll realistically have is the money in the bank.
It’s probably an unlikely scenario in Canada … at the moment (knock on wood), but always keep in mind that this is a fragile system, as we’re observing the U.S. real estate market.
This would be an easy way to completely decimate the middle class, by the way.
Moral of the story – having cash is nice, the more the better.
But I have another – waking – nightmare related to hoarding cash. Will tell all about it in part 2.