One-Fourth of Borrowers Are Underwater
More than 23 percent of people with mortgages owe more on their properties than they are worth, according to a report released Tuesday by research firm First American CoreLogic.
Another 2.3 million homeowners are within 5 percent of being underwater, bringing the total of those who are upside down or close to it to about 28 percent.
About 5.3 million U.S. households have mortgages that are at least 20 percent higher than their home’s value, the First American report says. Borrowers owing more than 120 percent of their home’s value are the most likely to default, First American calculates.
The majority of underwater mortgages are in the following states:
- Nevada: 65 percent of home owners are underwater
- Arizona: 48 percent
- Florida: 45 percent
- Michigan: 37 percent
- California: 35 percent
The report also notes that most U.S. homeowners have home equity, and nearly 24 million owner-occupied homes don’t have any mortgage at all, according to the U.S. Census Bureau.
First Time Homebuyers Tax Credit Extension/Expansion is Approved
- Last week, the U.S. Senate and House passed legislation that included an extension and expansion of the tax credit for homebuyers. President Obama signed the bill into law at the end of the week.
- The $8,000 first-time homebuyer tax credit will continue until April 30, 2010, and the income limits have been increased to $125,000 for single filers and $225,000 for join filers.
- Additionally, current homeowners who have lived in their home for five of the previous eight years are eligible for a $6,500 tax credit.
- There is a purchase price limit of $800,000 for the home, and it must be maintained as the purchaser’s primary residence for three years or the tax credit will be due back to the IRS.
- Unlike the current tax credit program, the extended program allows any purchaser who has a binding contract in place by April 30, 2010 to close by June 30, 2010 and still qualify.
Keeping Kids Safe at Home
A survey by Safe Kids Canada, a national program of Toronto’s The Hospital for Sick Children, says that 86 per cent of Canadians assume that the household products they buy are safe for the family to use. But this isn’t always the case, says Safe Kids.
“Children are particularly vulnerable to home product-related injuries, often using normally safe products in ways they were never meant to be used,” says Pamela Fuselli, executive director of the association. “Parents and caregivers need to consider how a child sees different products in the home and anticipate how they could be harmful if used improperly.”
For children ages four and younger, the biggest risk is falling from furniture. For example, Safe Kids says between 1990 and 2007, more than 5,400 injuries involving falls from bunk beds were reported in this age group. It says only children over age six should be allowed to use the top bunk, and padded carpeting should be installed under the bed. Other common incidents for the youngest age group include falls from tables, chairs and couches.
Toppling furniture is the number one risk for children ages five to nine. Televisions are one of the biggest hazards, more than 100 children visit the emergency room every year because they have managed to pull a TV onto themselves. Safe kids says television sets should always be kept on low, sturdy furniture and not on dressers. Safety products such as angle-brackets or furniture straps can be used to secure the set.
Water coolers, wall units and bookcases are other pieces of furniture that frequently fall on children.
For kids ages 10 to 14, backyard play equipment poses the biggest risk of injury. While parents can’t build a bubble around kids to keep them safe at all times, and the odd scrape and bump is bound to happen to active kids, there are some things that can be done to help minimize playground accidents. The equipment should be surrounded by a deep, soft surface such as wood chips or sand to help cushion a fall. In cool weather, kids should not be wearing clothing with drawstrings, since they could be caught in the equipment and cause strangulation. Scarves should be tucked into clothing.
Trampolines have become popular in backyards in recent years, but Safe Kids says that even with adult supervision and “spotters,” the risk of injury is too great. It says it agrees with the Canadian Pediatric Society and the Canadian Academy of Sports Medicine that parents should not use or buy trampolines at home for children and youth.
The survey also showed that almost half of Canadians rely on the media to keep them informed about product recalls. However, Health Canada reported at least 82 separate product recalls in 2007, far too many for the news media to cover.
Already this year, there have been product recalls for playpens, bicycles, toy beach chairs, charm bracelets, children’s sleepwear, waffle makers, hair care products and much more. Some of the items are recalled because they don’t meet safety regulations, some don’t have correct labeling, and some are downright scary. Some recalled bicycles, for example, have a suspension fork that “can lose alignment with the handlebar, causing the front wheel to turn unexpectedly. This can cause the rider to lose control of the bicycle and crash,” says Health Canada.
A recalled “mood ring” has levels of lead that exceed allowable standards, and could cause lead poisoning. The waffle makers pose a shock or fire hazard.
Health Canada’s list of product recalls should be checked often by parents.
Health Canada has also banned a few children’s items that it deems unsafe. These include lawn darts with elongated tips and baby walkers.
Some other products, like trampolines, are not banned but could be very dangerous. Baby bath rings, for example, can give parents a false sense of security that they will hold a child up in the bathtub. Children should never be left unsupervised in the tub, even for a moment.
Children’s car seats, baby strollers, cribs and baby gates, if more than a few years old, probably do not meet current safety requirements. Parents should not buy such items used unless they are sure they are in good shape and meet regulations. Hockey helmets only last about three to five years, and should not be used if they have been subject to a major impact.
Toys with magnets in them can be particularly dangerous if they are swallowed by a child, leading to death or serious injury. Most of these magnet toys have been recalled but there may still be some being sold at yard sales.
When it comes to child safety, a little paranoia can be a good thing. Take a look around your house from a child’s point of view and make sure it’s a safe place to play.
How much does a foreclosure cost?
Plenty of people are concerned about the cost of bailing out Main Street – the people who stand to lose their homes in the midst of the current financial crisis. Many feel that it’s not the job of the federal government to bail out homeowners who cannot afford their monthly mortgage payments. After all, those people took out risky loans. They are the ones who signed the loan documents. They are the irresponsible borrowers running this country into the ground.
For a moment, let’s ignore the question of who’s at fault. There’s plenty of blame to go around. For now, let’s consider what it costs when homeowners are allowed to lose their homes to foreclosure and who ends up with the bill.
According to a report by the Joint Economic Committee of Congress, the average foreclosure cost amount to about $151,000, with several parties picking up the tab:
Homeowner: $7,000
Lender: $50,000
Local government: $19,000
Impact on neighboring home values: $75,000
Estimated total cost of one foreclosure: $151,000
This doesn’t even account for other potential costs, including the cost of lost productivity, a reduction in a family’s purchase power, lost federal income taxes, and the emotional and psychological costs of losing a home and losing friends and neighbors.
Although neighboring home values usually take the biggest hit as a group, the lender stands to lose the most as an individual party. The Mortgage Bankers Association (MBA) released a policy report in May, 2008, in which it supports the fact that lenders are often the biggest losers in foreclosure: “While losses can vary widely, several independent studies find them to be generally quite significant: over $50,000 per foreclosed home or as much as 30 to 60 percent of the outstanding loan balance.”
Multiply these losses by the estimated 250,000 homeowners who are likely to lose their homes to foreclosure every three months, and we’re looking at over $120 billion in losses annually.
Now, bailing out Main Street doesn’t seem like such a costly proposition. In fact, not bailing out Main Street could be the most costly option of all.
What’s Ahead for Real Estate in 2009
2009 will be a year of recovery and stabilization for the real estate industry. Here are my 15 top predictions for 2009:
1. Mortgage rates will drop, then rise, and finally stabilize
- Rates will be at a historical low in the first part of the year.
- Rates will go up in early spring.
- Rates will level off after the first half of the year.
2. Investors will come back into the market in 2009
- The Federal Reserve plans to pump up the housing sector by buying up to $100 billion dollars worth of bonds issued by Fannie Mae and Freddie Mac.
- The Fed will also buy ½ trillion dollars of mortgage-backed securities issued by Fannie Mae, Freddie Mac, and Ginnie Mae.
3. Buyers will jump off the fence and come back into the market
- With fixed rates in the mid-fives — combined with pricing at 2003 and 2004 levels — it is an excellent time to buy. Buyers will finally jump off the fence and back into the market.
4. Sellers will become creative with alternative ways to add value to their home sale with incentives such as:
- Interest rate buy-downs
- Seller financing
- Other incentives
5. Listing Inventory will go down as the market absorbs inventory
- Nationally, listing inventory will begin to go down as inventory is consumed by many markets where new home inventory is on the decline. Builders in 2008 focused on selling existing inventory and did not focus on building new projects so as the year goes on inventory numbers will decrease. Coupled with lower interest rates and higher investor confidence, this consumption of inventory will continue.
6. Market time will decline and remain on the lower end of the spectrum
- Days-on-market numbers will go .down in 2009 due to a lack of new home inventory coming on the market.
- With investors and buyers coming back into the market, the days-on-market numbers will level off and then start to decline in early spring.
7. Real Estate agents will leave the industry in record numbers
- Real estate agents that were not prepared for the 2008 market will continue to leave the real estate industry. Agents that hang in there and focus on great client follow up will be rewarded in 2009.
- Agents who remain will go back to basics to exist – then thrive — in the current market.
8. Builders will use auctions to sell off inventory; many will leave the business entirely
- Builders will turn to auctions to liquidate remaining properties.
- Builders will leave the industry due to financial pressures from the lack of 2008 sales.
- New construction will virtually grind to a halt as builders are unable to develop new product as a result of excess inventory / poor sales in 2008.
9. New home inventories will reach record low numbers in the fall of 2009
- Many builders stopped buying land in 2008, and will therefore be unable to build in 2009.
- Builders stopped building in 2008 and concentrated on selling standing inventory. As a result, they were not building new inventory. This will lead to an inventory shortage in 2009.
- Existing new home inventory will be absorbed by the fall of 2009.
10. Consumer confidence will improve in the spring of 2009
- Consumer confidence will improve in the spring of 2009, and buyers jump back into the market…carefully.
- Consumers will look to real estate agents for guidance in buying and selling.
11. Appreciation will be small to nonexistent in most markets as the industry stabilizes
- Most markets across the country will see little or no appreciation while the market stabilizes and inventory gets absorbed by the market.
- Some markets will continue to see their markets decline into the second half of 2009 as inventory levels stabilize.
12. The rental market will BOOM IN 2009
- It’s estimated that almost 2 million homes will be foreclosed on in 2009. This will transform many former homeowners into tenants.
- Banks will rent their real estate owned properties rather than sell at a substantial loss.
- Tighter credit criteria will force potential buyers to renew their current leases after they are turned down for a mortgage.
- Consumer fear and an uncertain employment picture will keep would-be, credit- worthy buyers on the sidelines, leading to reduced turnover in rental housing.
- Americans who have realized a loss by recent homeownership will decide that ownership is not worth the risk and trouble. They will sign a rental lease and happily return to rental living.
13. “In demand” homes will become the “safe necessity” of 2009
- Smaller, green-built, and energy efficient homes will be in big demand.
- Home with a good location in relation to work and school will be in demand.
- Homes in the mid-range of price for their market will be in demand as more homebuyers become more frugal.
14. Real estate companies will merge in 2009
- Smaller real estate companies will merge with larger companies to make it through the market downturn.
- Competition in the industry will shrink as the number of companies and the numbers of agents is reduced.
15. Second home markets will see far less activity; many will suffer in 2009
- Second home markets in many markets will suffer due to the financial losses owners of second homes experienced as their stock portfolios, pensions, or other investments devalued and deteriorated.
- Second home markets will suffer due to consumers’ need to relocate assets and financial priorities.
While we will see adjustments in 2009, it’s sure to be a much better year than 2008.
