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Why Falling Homeownership May Be a Good Thing

DailyFinance Staff — 2012-01-19T16:30:00 00:00

Filed under: News

By Dan Caplinger

Ever since the end of the boom years of the early 2000s, the housing market has struggled to hit bottom, seemingly plowing ever lower even after years of declines. As a result, millions of former homeowners have lost their homes, while millions more owe more on their mortgages than their current homes are worth. Many have bemoaned this trend as meaning the end of the American Dream of homeownership.

But when you take away the emotional response to the housing bust, the question remains: Are falling levels of homeownership really such a bad thing? For many, owning a home never made financial sense -- and avoiding the burden of having so much debt on your biggest asset can make your financial life a lot easier.

Falling From Record Highs

When the Census Bureau released its 2010 housing data last year, it revealed an astonishing fact: The percentage of Americans who owned their own homes fell by the largest proportion since the Great Depression. That made for good headlines at the time, as media sources proclaimed the death of the American Dream.

But a closer look at the numbers reveals a much different picture. During the Great Depression, many fewer people owned their homes -- around 45 percent, according to Census data. But by 2010, that rate was up to 65 percent -- meaning that tens of millions more American families became homeowners during that period. The rate even got closer to 70 percent before the housing crash.

The More Important Statistic

By themselves, these figures don't mean much. Whether someone owns a home or rents one from someone else doesn't matter in terms of overall demand -- as long as either a homeowner or an investor/landlord wants a property, the effect should be the same. What has really caused a problem, though, is the number of empty homes.

Again looking at Census data, the number of empty homes jumped by about 4.6 million over the past decade. When you consider that the total housing stock jumped by only 16 million homes, you can see that new supply far exceeded actual demand for real estate. Overbuilding was especially rampant in hot areas of the country, including the Desert Southwest and the Deep South.

Overbuilding worked out great for homebuilders at first, as it didn't cause any problem as long as there was enough demand for the homes. Between 2000 and 2006, Hovnanian saw sales jump more than fivefold -- only to give back every bit of those gains by last year. KB Home, which got in on the boom earlier, saw the same trend -- and its recent sales are only a third of its 2000 revenue. Standard Pacific and other builders in particularly hard-hit regions were especially prone to big leaps followed by inevitable declines.

The New Normal

Meanwhile, the aftermath has driven many speculators out of the market -- at least those who are seeking short-term rather than long-term profits. Even though that hurts demand in the short run, it arguably makes the market healthier in that it more accurately reflects the intrinsic demand for housing as a necessity rather than simply as an investment asset.

Of course, not everyone wins in that scenario. Hamstrung mortgage banks Citigroup and Bank of America would likely prefer more speculation in the market, since it would help those institutions get bank-owned assets and bad loans off their books more quickly.

But for people trying to decide whether to buy, the combination of low interest rates and cheap housing makes buying as attractive as it's likely ever going to be. So if your finances don't work out to allow you to buy now, they likely never will. That may sound brutal, but that knowledge should help those who can't afford a home to make arrangements that will work -- and hopefully benefit from the freedom that not being tied down to a house provides.

The Dream That Became a Nightmare

So rather than a regretful loss of the American Dream, falling homeownership could actually be good both for individuals and for the economy as a whole. Instead of betting your entire financial life on a place to live, you can look at the housing bust as your wake-up call to consider other priorities first.

Even if you have a big mortgage weighing you down, you still need to save for long-term goals like retirement. You'll find several stocks that can help get you there in The Motley Fool's latest special report. It won't cost you a thing, but jump on your chance now before it's gone.

Also see:
Open Houses of the Week: Jan. 20-24
5 Reasons Why Real Estate Deals Collapse
Most Americans Still Believe in Homeownership, Poll Says

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Homes Lose $700 Billion in Value in 2011, Report Says

DailyFinance Staff — 2011-12-23T15:30:00 00:00

Filed under: News

By Sheryl Nance-Nash

The year-end housing news is sobering -- U.S. homes are expected to lose more than $681 billion in value in 2011. But there's an upside -- that's 35 percent less than the $1.1 trillion lost in 2010, according to new research from Zillow, a real estate information marketplace.

What else did the research show? Just nine out of 128 markets analyzed had gains in values in 2011. Bragging rights go to the New Orleans area, where the gains were greatest at $3.5 billion. Pittsburgh claimed the number two spot with a gain of $2.7 billion.

Who were the biggest losers? Big cities with lots of housing, like Los Angeles, down $75.5 billion, New York ($44.8 billion), and Chicago ($41.7 billion). Overall, more than 90 percent of markets lost value.

"While homeowners suffered through another year of steep losses, the good news is that homes are losing value at a substantially slower pace as the market works its way towards the bottom," noted Zillow Chief Economist Stan Humphries in the report.

Read the full story at DailyFinance.

Also see:
Open Houses of the Week: Christmas Edition
Celebrity Real Estate Trends of 2011
Most Controversial HOA Moves of the Year

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Taking a Tax Loss When Property Value Declines

DailyFinance Staff — 2011-11-16T09:00:00 00:00

Filed under: News

In today's episode of "Money and Happiness," DailyFinance's Laura Rowley turns to taxes. A reader asks: If I sell property at a loss, can I deduct it on my taxes? Watch the video for the answer.

Got a question for Laura? Check out more Money and Happiness videos on DailyFinance.

See also:
Top Tax Deductions By Room
Don't Let High Property Taxes Stall Your Home Purchase

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Homeownership: From American Dream to Nightmare?

DailyFinance Staff — 2011-11-09T13:30:00 00:00

Filed under: News

By Sheryl Nance-Nash

Here's more evidence that the foreclosure crisis has changed the way we think about homeownership's place in the American dream. Nearly half of those polled in a newly released survey said that owning a home today was a "nightmare."

Nearly 70 percent of those surveyed by Home Value Insurance Company believed home values had gone down in their neighborhoods in the past three years. Most either expect them to continue their descent (19 percent) or remain static (67 percent) in the next year. More than a third (37 percent) said buying a home is generally risky, and nearly 20 percent said they aren't sure they'd recommend homeownership to a young person.

According to the survey, the biggest risk that homeowners perceive is declining home values. There's plenty of reason to worry. According to newly released data on the third quarter from real estate site Zillow.com 28.6 percent of all mortgage holders owe more on their mortgage than their home is worth. There's more pain to come: Home prices are down 4.4 percent compared to the third quarter of 2011 and, Zillow predicts, prices won't hit bottom until 2012.

Whether or not the foreclosure crisis has upended the American Dream is a popular line of questioning for pollsters. And surveys don't point to a clear trend. Nearly 90 percent of those surveyed in June by The New York Times and CBS News said homeownership was an important part of the American dream, though nearly a quarter said their home was now worth less than what they owed on their mortgage. In September, 70 percent of those responding to Trulia's American Dream survey, still said they believed that homeownership was a central part of the American Dream, a level that had been unchanged since January.

Browse through photos of millions of home listings or search foreclosure listings

The View From the Home Front

"I once looked at my home as my dream," says Alexis Booras, of Sadsbury Township, Pa. "Plenty of room for pets, a beautiful yard, quaint, perfectly sized Cape Cod in a very safe, family neighborhood. I didn't buy with the intention to sell; I planned to retire here, in my own little paradise."

"Now I fear that I won't even have my home when I'm 55. The state of this country, real estate and the economy has turned my dream into a nightmare of living in constant fear," says Booras, who was laid off from her $83,000-a-year job of 25 years in 2009, at age 50. She is still unemployed.

To Buy or Not to Buy?

So, is it still worth it to own a home? "Worth is a slippery slope -- subjective," says Michael Kay, a financial adviser and president of Financial Focus. "Redefine your values and make decisions based on them. The American Dream is being recast toward lifestyle, and not necessarily homeownership."

For those who remain undaunted by years of declining prices, Kay says, "Look at the worst case scenario. If you take out a variable rate mortgage, find out what's the maximum payment possible. Be ready to spend for maintenance. View the deal as you would any investment, but ask yourself, does it provide peace of mind, roots, sense of family-stability? Define your 'why' before walking down that road. Look at the numbers carefully. If it's a good deal -- go for it."

Also see:
Where Are the Real Home Bargains? Not Where You Think!
Mortgage Rates Stay Low, But Homebuyers Aren't Budging

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One Homeowner's Foreclosure Clock: 2 Years and Counting

DailyFinance Staff — 2011-10-19T07:00:00 00:00

Filed under: News,Foreclosures

By Laura Rowley

Losing your home to foreclosure is traumatic, no doubt. And for a variety of reasons--from internal bank bureaucracy and missteps to slow-moving government programs--the pain can stretch out for months.

It takes an average of 336 days for a home to move through the foreclosure process, from the first day a default notice was filed to the final disposition of the property, according to the latest report from RealtyTrac. That's the longest average since 2007.

For Janet, a 48-year-old attorney and mother of five who asked that her full name not be used, the process has stretched out for nearly 900 days, and counting. That's more than two years without paying a single mortgage payment.

Her story is a lesson on how to keep a roof over your head.

"It requires fortitude -- never take no for an answer -- and an ability to not become intimidated by paper," says Janet, who now lives on Social Security disability payments. "Paper is just paper. If it's a 40-page form, fill it out and send it in. Never let the process get in the way of the goal -- to stay in your home."

Read the rest of Janet's story on DailyFinance.

Also see:
Mortgage Mod Hell: Trapped Between Lenders, Collectors
HAMP Mortgage Modification Program Still No Help
The Mortgage Fix That Can Save the Economy

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VIDEO: When Does It Make Sense to Pay Off Your Mortgage?

DailyFinance Staff — 2011-10-17T12:25:00 00:00

Filed under: News

Paul, 62, is like a lot of people near retirement: He wants a safe place to invest his money. But the interest rates on savings accounts barely keep up with inflation. Would it make sense to pay off a mortgage instead?

In this week's installment of "Money & Happiness" DailyFinance's Laura Rowley reports on the three questions you need to ask before blowing your available cash to pay off your mortgage.

See the original post on DailyFinance.

See also:
A Win-Win? Housing Inventory Down, Home Sales Up
Open Houses of the Week: Rising Markets

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How to Improve Your Odds of Getting a Mortgage

DailyFinance Staff — 2011-10-12T09:40:00 00:00

Filed under: News

By Sheryl Nance-Nash

More than 2.5 million people were turned down for mortgages in 2010, according to the Federal Financial Institutions Examination Council. That's about 23 percent of all those who are seeking a loan to buy a house.

Compared to just a few years ago, the number is quite low -- but it's sure not because lenders are making it easier. It's because fewer Americans feel ready to buy a home.

With statistics like those, it's clear that the housing market isn't going to lead the nation out of its economic doldrums, and the numbers are none too encouraging for anyone eyeing a real estate purchase. Whether you're a first-time homebuyer looking to capitalize on historically low interest rates, or a homeowner hoping to upgrade, figuring out how to get a smile out of a lender is task No. 1.

So what do banks want, anyway?
1. Strong credit

If you have a weak credit score, a history of late payments, or you owe a hefty chunk of change on credit cards and elsewhere, you're unlikely to get the go-ahead. You can also get harpooned if your credit profile changes in mid-process, says Keith Gumbinger, vice president of HSH.com, a provider of mortgage data. So keep things consistent while your application in under review.

Consistently making only the minimum payments on your debt suggests to lenders that you can't pay the full balance and may be under financial stress, says Dana Dratch, a regular contributor to Bankrate.com. Further, opening a raft of new credit lines in a short period of time is a tell-tell sign that your finances are shaky.

Read the full story at DailyFinance.

See also:
First-Time Homebuyer's Guide
Low Mortgages Are Great -- But Most Can't Qualify

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Retail's Afterlife: The Mall-ification of the American Church

DailyFinance Staff — 2011-10-04T14:10:00 00:00

Filed under: News

By Alice Hines

Stroll through White Oaks Mall in Springfield, Ill., and you'll see the usual suspects: Spencer Gifts, Panda Express, Gap Kids (GPS). If you're preoccupied, you might not even notice iWorship. The low-key illuminated "iWC" sign, flat-screen TV, and a welcome banner splashed with what look like '90s-era tech-company logos give it the appearance of a computer repair shop. Only if you look closely -- or happen to be there on a Sunday morning -- might you realize that iWorship is a church.

iWorship Center isn't your typical Christian congregation. The self-proclaimed "media-driven" church opened in the space previously occupied by the White Oaks Mall Cinema in 2010, when membership at its first location had reached capacity. Sermons are preached in the theaters, with portions simulcasted onscreen. Originally, two of the theaters were to be converted into the aptly named "Paintball Heaven" in a deal struck with mall management to help the church pay its lease.

Malls and churches may seem like an strange combination, like Auntie Annie's pretzels washed down with communion wine. Still, over the past decade, congregations in Kentucky, Alabama, Tennessee, Michigan, Florida, Ohio, and Colorado, among others, have taken advantage of cheap suburban retail space to expand.

Store Purgatory; Seeker Paradise

As malls across the country empty out, it's no wonder their remains are being scavenged. According to the International Council of Shopping Centers, a third of America's indoor malls are currently in "financial distress." Retailers are leaving indoor and strip malls for popular outdoor "lifestyle centers," those cutesy, mixed-use developments that resemble the Main Streets their predecessors helped destroy.

Read the full story on DailyFinance.

See also:

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Viva Las Vegas! Sin City Now Bargain City
A Fine Line: Is Religious Real Estate Kosher?

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How Paying Rent Can Boost Your Credit Score

DailyFinance Staff — 2011-09-29T10:35:00 00:00

Filed under: News

Numbers can drive you nuts. Some folks don't like the digits that reveal their ages, others get frustrated by the ones that make up their bank balances. Some parents can't figure out the "new math," and some of us are still a little shaky on the old math. But one number nearly everyone would agree they'd like to raise is their credit score.

In these times when credit is still tight, money is short, and jobs are hard to come by, the benchmark of your credit score carries more weight than ever.

In a sense, your credit score is a crystal ball that's meant to reveal your character, and building a credit history is key to making that picture clear. Traditionally, that meant taking on debt that you could then pay off, like a mortgage, car loan or credit cards. But in terms of your credit history, paying your rent on time meant nothing.
Now, there's an option for the nation's more than 100 million renters -- the newly launched RentReporters.com, which verifies your rent payments with your landlord and securely provides the information to Payment Reporting Builds Credit, which then can be included in a FICO Expansion Score.

Experian announced earlier this year that it would accept rent payment data as a traditional credit item on its national credit reports.

"Having been where many of our customers are now, I know firsthand the economic circumstances that can result in a poor credit score," said Crispin Luna IV, founder and president of RentReporters.com, in a prepared statement. "RentReporters.com allows essentially every renter in the U.S. to take one step closer to homeownership and leverage their rental payments towards a better credit profile."

Read the full story on DailyFinance.

Also see:
Yes, You Can Buy a Decent Home for $10,000 or Less
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Real Estate Commission: How Much Should You Pay?
Foreclosure: What It Means for Renters
Tips for Finding a Rental Apartment

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Young Real Estate Investor: Where to Stash Extra Cash?

DailyFinance Staff — 2011-09-08T08:00:00 00:00

Filed under: Advice,Investing,Refinancing

Andy Buman, 29, got interested in real estate a few years ago while working in construction. Since then, he has purchased two bank-owned single-family homes near Omaha, Neb., as rentals, and last fall bought a primary residence for himself and his fiancée, Valerie (both pictured at left). He has managed to save $20,000 in cash, and is looking for the smartest way to apply it.

Buman, an Iowa State graduate who now manages a call center, comes from a family of strivers. His great-grandfather emigrated from Germany and started the farm in Harlan, Iowa, where Buman grew up -- and where his uncles and grandfather still raise 2,000 head of cattle and 1,000 acres of corn. (His dad went into banking.)

From the outset, Buman focused his real estate interests on a few small towns surrounding a retail distribution warehouse and a trucking center, about 25 miles from Omaha. The Omaha/Council Bluffs, Iowa metropolitan area had an unemployment rate of 4.9 percent in June, which explains how Buman managed to rent both homes five hours after listing them.

"There's a lot of employment -- services, farming, cattle, railroads, stores -- it's not hard to get a job here," says Buman. "A lot of employees want to be close to work and the cost of living in these little towns is next to nothing."

His first purchase was a two-bedroom, 900-square-foot home for $24,000. He invested $5,000 in repairs, rented it for $550 a month, and has already paid off the mortgage. Buman followed up with a four-bedroom 1,500-square-foot home. He paid $34,500, invested $7,000 in repairs and rented it for $700 a month. The home still has a mortgage balance of $16,500 at 5.5 percent.

Last fall, Buman and his college sweetheart, who are marrying later this month, bought a three-bedroom ranch 10 minutes from Omaha for $185,000. It's close to family, and to the University of Nebraska Medical Center, where Valerie begins her residency next spring.

The home has a 30-year, fixed-rate mortgage at 4.25 percent, and a balance of $168,000. When the balance on the loan falls below $148,000, the couple can stop paying mortgage insurance, which costs $94 a month.

Buman's question: With his extra $20,000, should he pay off the mortgage on the rental property? Pay down the single-family home to eliminate the mortgage insurance payment? Or consider another option?

See the full story at Daily Finance.

Also see:
College Town Real Estate Investments Score High Marks
Low Refi Rates Are Great, But Not for Everyone
5 Reasons Why Real Estate Deals Collapse

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Will Latinos Lead a Real Estate Recovery?

DailyFinance Staff — 2011-09-06T11:15:00 00:00

Filed under: News,Buying,Selling

Like many aspiring home buyers, Gil Lopez, 29, is striving to find the right neighborhood for his young family. His bank has qualified him for a loan large enough to buy a $300,000 home, but he has set his own price cap firmly at $230,000 as he searches through north San Diego County. Affordability is his mantra, having had a front row seat to the the darkest hours of the housing crash. Both his parents and his sister's family lost their homes to short sale and foreclosure, and now live in an apartment rental with "only one bathroom."

Yet Lopez escaped the crisis relatively unscathed and has spent the last few years building his credit and his education. Today, he works as an investigator for the district attorney's office. His wife is in school and works part-time, and they both take care of their 3-year-old daughter. The combination of housing affordability, low interest rates, life stage and ambition for building a nest egg have come together to lure Lopez into the housing market this summer.

Finding the right house is not easy. The inventory in the northern San Diego area bears the scars of neglect from foreclosures -- dead lawns, peeling paint, crime -- but that isn't deterring Lopez. He has saved $7,000 for a minimum 3 percent down payment, and is ready to take advantage of home prices that are down as much as $100,000 from the market peak.

"We are ready as a family to take it to next level and own," says Lopez. "You work hard for what you want and then you get it."

For the full story, see Daily Finance.

Also see:
Realtors' Latest Challenge: A Surge of Squatters
How to Buy Foreclosures
VIDEO: All About Short Sales

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How to Avoid Post-Irene Home Repair Ripoffs

DailyFinance Staff — 2011-08-30T16:00:00 00:00

Filed under: News

The estimated tab for Hurricane Irene's fury is already in the billions of dollars. If you're among those who have property damage, proceed with caution -- you don't want to get hit again, this time by home repair companies that jack up their prices, do a poor job, or walk away before the work is finished.

The Better Business Bureau is warning Americans about fly-by-night bogus contractors, "storm chasers" and door-to-door salespeople peddling dubious deals that may cost homeowners thousands of dollars and create serious headaches.If you've suffered storm damage, you're probably feeling a strong sense of urgency to deal with it -- but if you can, take your time. Right now, there are a ton of people just like you, looking for help. Trouble is, some of the best contractors are probably already booked with jobs that began long before Irene. And others are going to be snapped up quickly by your fellow storm survivors, so good help might be harder to find than you would anticipate.

Run from any contractor who uses high pressure sales tactics or requires full payment upfront, as well as any one who requires you to get the necessary permits.

How will you know a storm chaser? They appear uninvited at your doorstep, often in unmarked trucks, according to the BBB. Don't be surprised if they ask for big bucks up front and promise you the moon. Say no thank you politely, and close the door.

Get the full story from DailyFinance to learn how to steer clear of scams.

For more home improvement tips and advice, see these AOL Real Estate guides:

Home Improvements: Do It Yourself or Hire a Contractor?
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Will Obama Refinance Your Mortgage?

DailyFinance Staff — 2011-08-25T10:45:00 00:00

Filed under: News,Financing

Several media reports claim that one of the tools the Obama administration may use to resurrect the housing market and help mortgage holders remain in their homes is a program which will let people refinance at current mortgage rates. With rates at all-time lows, refinanced mortgages could save people hundreds, if not thousands of dollars a year.

The New York Times reports that "A wave of refinancing could be a strong stimulus to the economy, because it would lower consumers' mortgage bills right away and allow them to spend elsewhere." The paper also points out that some federal regulators may try to block such a move. The plan could also complicate the value of certain mortgage-related investments.
The program would face other hurdles. It's possible that financial firms, such as banks, might need new appraisals, a process which can take weeks. There is also the issue of whether the deal would only be extended to people with good credit ratings.

Read the full story at Daily Finance.

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