Better to Rent or Buy

The New York Times published a user-friendly graph that measures if/when it's better to buy rather than rent.

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The "Walk Away" Myth

Maybe you’ve heard about the disturbing new “trend” of people who can afford to pay their mortgages just walking away from their homes that have declined in value. As it turns out, it’s a whole lot of nothing.

The vast majority of people who are giving homes back to the bank were investors and/or speculators to begin with, and often they had been involved in fraudulent transactions. The others are the homeowners who are losing their houses because they can no longer afford the payments due to ARM adjustments (in some cases they had been involved in fraudulent transactions as well).

As this article points out, historically (as well as currently, according to actual facts) people will do just about anything to keep their homes – certainly they don’t destroy their credit and become renters (or homeless) just because of an unfortunate blip in market values.

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PMI Revises Distressed Housing Market List

Effective June 1st PMI, a major mortgage insurance company, has added to its list of distressed housing market areas. They have also divided them into "Level 1" and "Level 2" segments. Given that the options for obtaining combination first/second mortgages to avoid large down payments have all but disappeared, how much mortgage insurance companies are willing to insure is becoming increasingly important for those seeking to purchase or refinance with minimal down payment/equity.

Areas listed under Level 1 are eligible for mortgage insurance up to a 95% loan-to-value ratio.

"Level 1 is for those... areas where we anticipate the downturn to be less severe based on underlying fundamentals, including unemployment trends, home price volatility, etc."

Areas listed under Level 2 are eligible for mortgage insurance once the loan-to-value has been REDUCED by 5% of the maximum allowable for the particular loan program being used. And in any event, the loan-to-value cannot exceed 90%.

"Level 2 is for those... areas that are projected to continue to experience more significant economic and/or housing downturns and are expected to take longer to improve."

Oregon and Washington state are not largely affected by this yet, with one exception. Bend, Oregon is on the Level 2 list. So however bleak it looks to the average person driving around Portland seeing "For Sale" signs on seemingly every third house, PMI doesn't think we have it so bad -- we'll see how it goes over the next several months.

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New-Home Sales Rose in April

A surprising market statistic was released for April: New-home sales rose 3.3%

For the short-term, this isn't necessarilly good news. The housing market is still in a slump and perhaps we haven't seen the worst of it yet, but there are some glimmers of hope:

One bright spot is that inventories decreased. The supply of homes at the current sales rate dropped to 10.6 months' worth from 11.1 months in March. The number of homes completed and waiting to be sold decreased to 181,000, the fewest since July.

Purchases rose in three of four regions, led by a 42 percent jump in the Northeast. They increased 8.3 percent in the West and 5.8 percent in the Midwest. Purchases dropped 2.4 percent in the South.

Sales of previously owned homes, which account for about 85 percent of the market, fell 1 percent in April, and the supply of unsold properties reached a record, the National Association of Realtors said last week.

New-home purchases, which make up the remaining 15 percent of the market, are considered a timelier indicator because they are based on contract signings. Resales are calculated when a contract closes, usually a month or two later.

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The Positive Fallout of the SubPrime Mortgage Crisis

The mortgage industry has been much maligned lately - partly deserved due to predatory and fraudulent loan practices committed by some. At the same time, the mortgage industry is a cornerstone of democracy, as without it, only wealthy people would be able to purchase property and build personal wealth from little to nothing.

The Federal Reserve has been criticized for not properly regulating in time to prevent such a widespread crisis as we find ourselves in today -- the result of unscrupulous lending practices. Therefore, Ben Bernanke and others initiated a proposal for some hefty regulations of the credit card industry. The credit card industry, like the SubPrime Mortgage industry, often preys upon the poor -- the one difference being, of course, that during "regular" economic times, mortgages help people increase their net worth and credit cards help them DECREASE it.

So while I wouldn't morally equate the two, if the mortgage crisis leads to increased responsibility on the part of credit card lenders, then that's one good thing about all of this.

Some of the things being considered are requiring a grace period before the payment is considered late, prohibiting the application of payments to the lowest-interest balance first and raising interest rates on existing balances.

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