There were apparently a lot of people who didn’t think that Cramer was serious yesterday. So today on The Street he says "Just default- – it makes huge economic sense."
Torabi: "I have to bring up a video we did yesterday that was entitled ‘Walk away from your house’".
Torabi: "Jim Cramer says, y’know, ‘there is a time to walk away from your house’. To re-visit the video yesterday, you said, ‘when your house is down 20%, essentially, when you have no more equity left…’"
Torabi: "…that’s a good time to sell…"
Torabi: "… but what [unintelligible] because that"
Cramer: "Well not just sell, to walk away. You can’t sell it."
Torabi: "How do you walk away?"
Cramer: "Well you just default on the mortgage. It makes huge economic sense. You go rent. Uh, you don’t want to lose your job, so you keep your car. Uh, you keep your credit cards so you can buy, and all that really happens is is that you made a bet and you lost, so don’t compound it by continuing to pay."
Torabi: "Now the hierarchy of debt, you were saying also that y’know, your credit card debt should be less of a priority than if your house is losing value"
Cramer: "Oh, yeah, credit cards are much more important than your house. Remember, your house is only a good bet if you can build equity. But if you are going to lose money each month, you might as well rent. You shouldn’t own."
Torabi: "And, but, yesterday you’re also saying there are no places in this country where there is value in homes. A lot of homes are depreciating…"
Cramer: "No, No, there is no place where [mumble] you wouldn’t be down on your home if you bought it in 2006, that’s what the issue is. So, I’m saying that buying homes in 2006 was like buying the Nasdaq in February of 2000. They’re very very similar – it was better to be margined out than to continue to put capital against those Nasdaq stocks."
Cramer: "There was a report this morning by David, I believe it was David, uh, Blitzer, on, when I was on with the wonderful and fabulous Erin Burnett and it was that the, some housing prices have, uh, been, have actually stopped going down and some are going up and I just think that’s not true. I think, like, bad CDOs, and, like, bad leveraged loans, the actual mark to market is down everywhere. I get that from the 5 homebuilders whose conference calls I listen to. There are no up markets, and there are markets that are falling 20-30%, and those are the ones where it’s much smarter to walk away from your house."
Torabi: "Is the 20-30%… what’s that based on, or is that just…"
Cramer: "It’s where the, uh, purchase prices are, uh, when you back in the discounts. The discounts are very hard to see, cause all the homebuilders do two things: One is is that they offer incentives that don’t surface, so the list price is $250,000, but you’ll get rebates just like a car, so the list price of a car is $25,000, y’know, but you’re really only paying $18,000, so take in that, and the second thing is is that there’ll be Realtors, and what’ll happen is is that you’ll say ‘look – the list price is $225,000’, but you can negotiate down and go $190,000. I’m using the negotiable prices.
Cramer: "This is happening in the inland empire, in Sacramento, uh, it’s happening in Phoenix, it’s happening in Denver, and it’s happening in Las Vegas, and in southern California, uh, anywhere near the bread, the so-called bread basket, Modesto, these are all places where there’s tremendous overbuilding, and where it may pay to leave your house."