I was having a conversation with a client recently to whom I have sold two homes. His current home, his primary residence is now way under water. The purchase price of the home was in the mid $800,000 range. Today the home is valued at around $500,000.

It would be important to note this client is a very conservative man, married with a couple of children. He is not impulsive. He is very analytical, extremely conservative and successful, and has an excellent job plus lots of savings.
For him, buying a home is a very arduous task, as he constantly questions himself about making the right decision. That is where I come in, providing him with enough information, market statistics and emotional support (hand holding) to make a decision.
Recently I called to tell him that I thought we should, in earnest, find him the move-up home he and his wife have coveted for so long. I told him the combination of today’s interest rates and low prices will not last. He agreed and thus began the portion of the eye-opening conversation I am sharing with you here.
I asked him, if he was planning on selling the current residence or would it become a rental property? With almost no hesitation, he told me he would just let the home “GO”. “Go,” I said. This was a radical answer coming from this gentleman. It must be a joke, I thought. I needed to probe further. “Let the home go,” I said, “as in let the bank foreclose on the home?” “Yes,” he replied. “It doesn’t make good business sense to keep it. If you look at the loss on the house in this current market and figure a modest gain going forward, it will take years for the home to reach the same market value as when I purchased it. At that point I would have zero return on my investment. Keeping it would be a very bad business decision.”
I must admit that what he was saying was true. Being analytical, he had looked at the numbers and arrived at his conclusion. He is right. It will take a long time to rebound to its original market value, but let it go…..I couldn’t believe he was actually serious. He was and is dead serious. From his point of view he is looking at the purchase of his current home NOW as a business deal gone bad. He sees no purpose in throwing “good money after bad”, so he wants to purchase his move-up home while he still has stellar credit, verifiable income and strong cash assets. Once he owns the new home, he will let the current residence go. He figures he is better off washing his hands of his bad investment and focusing his attention on building his cash reserves and making other investments that will give him a positive return on his investment. “After all,” he said, “I need to think of my growing family. If I keep the house, it will take years just to see the house reach its original value and I will still be behind the eight ball with no return on my investment at that point. It doesn’t make sense to keep it.”
Suddenly I realized I was staring in the face of a “new” type of foreclosure……….not one out of financial desperation, but one out of financial “choice.” How many others will be making this type of decision and what will  it do to an already unstable marketplace?