housing costs

The USA Today has a piece showing the bleak state of the housing market.

"The percentage of households that own homes hit a peak of almost 70% in 2004 and 2005. By the second quarter of this year, that slipped to 67.4%, according to the Census Bureau. Now, a University of Utah analysis projects it'll drop to about 63.5% by 2020 — the lowest since 1985. . ."

Renting might become more appealing because "households are smaller. The youngest of 79 million Baby Boomers will turn 56 by 2020 and many will be empty nesters who favor small homes. The 20-something millennial generation is at a peak age for renting."

This is something my mother and I talk about constantly. She's the VP of a local bank that has about 5 branches and does primarily home loans or construction loans for new homes. Lately, many of my friends have come to her asking questions about buying a house because so many feel this discomfort putting money into a place for rent and not owning something in the end. At the same time, the economic shortfalls our generation faces prevents us many times from being able to make that leap into home ownership simply because we're priced out of the market.

My mom says this is crap. Despite student loans, when you buy a property in today's market you're buying an investment that will be worth more years down the line. For folks who aren't in a city to stay or if you're up to your eyes in credit card debt, renting is still the best option, but if you're in the area for the long-term, your folks can help you get rid of the credit cards, and you have a job for now, even if its an entry level job, she says you might consider buying your first place.

A few years ago at the peak of the market it was the time to sell. Housing prices were through the roof and those who purchased homes did so at top dollar. Today, everyone is selling either out of necessity, curiosity, or convenience. The result is an overabundance of property, driving down the cost of a house, particularly those older homes that don't feature many of the new spicy appliances and open floor plans. Sure they might not be as sexy, but a fixer-upper can be a steal especially if its a foreclosed property or bank owned.

At the same time, the government is offering unbelievable incentives for first time home buyers, many of which are under 35. If you buy your first house before December 1, 2009 you get an $8,000 tax credit. For two of my friends who've purchased in the last 3 months, they went back to amend their 2008 taxes and got their $8,000. One of my friends in Oklahoma applied the $8,000 to the principal on her mortgage, the other in Denver is buying new bedroom furniture.

This is all in efforts to spur the industry that is hurting so significantly, but because so many young people graduate with so much debt, they think they aren't financially stable enough to buy homes. At the same time, most banks aren't doing any kind of marketing outreach to the Millennial Generation via tools like social network or even traditional marketing to youth simply because they aren't educated about its benefits.

So we end up with predatory lenders who prey on anything that moves, instead of honest banks who could be utilizing good marketing techniques to promote youth friendly living. Options like condos, urban lofts, townhouses, downtown revitalization projects, and all sorts of home owner choices are available to youth who might be interested, but simply don't know it's an option for them. Remember, this is a first home, you don't need the antebellum house with just you, the dog, and a roommate.

Mom says this is a buyers market, and if you have the right credit now, you shouldn't let the fear of the economy scare you away from owning your first place, building your credit, and developing your investments rather than continuing to write checks to pay rent to something you'll never own.

Sorry, I forgot to post this morning. I'm at NN with Kevin and Mike and have been trying to splice the video from our Youth Caucus yesterday so we can post it here. For today however... I bring you the Sumbprime Blues - my latest Rock the Trail Blog post.

The US Senate passed a housing and foreclosure prevention bill last Friday. This is in effort to stop the growing foreclosures on homes and families in crisis. The bill would create a $300 billion government-backed foreclosure prevention program and increase oversight of major government backed lending institutes Fannie Mae and Freddie Mac.

However, this Monday the Federal Reserve announced the approval for a "final rule for home mortgage loans." The Fed says this final rule "prohibits unfair, abusive or deceptive home mortgage lending practices and restricts certain other mortgage practices. The final rule also establishes advertising standards and requires certain mortgage disclosures to be given to consumers earlier in the transaction. "

But according to a CNN report, consumer groups believe these new regulations

"contain too many loopholes, allowing reckless lending to continue. Industry executives say the proposals place too great a burden on lenders and will prompt them to further restrict credit."

Oklahoma RoseRock Bank Senior Vice President Sue Pyle says the home foreclosure crisis and new guidelines will have a major effect on new home buyers, who are often young.

"These new changes in the underwriting guidelines make things more difficult for first time home buyers," Pyle says. "When a loan application is submitted it's reviewed in much more detail with more financial documentation. What could have been approved in the past may not be today."

One monumental item Pyle says, is the increased importance of a buyer's credit score. With recent changes the minimum requirements have been increased substantially.

"If you missed a few student loan payments, which resulted in your score being lower, this could prevent you from being able to buy a house. It wasn't that tough in the past."

In addition to requiring a higher credit score, the minimum down payment required has gone up.

"We are seeing guideline changes where a great deal more financial documentation is required including deposit statements, pay stubs, with many more items being verified and re-verified than in the past," she says.

She describes a client who recently submitted 2 years of tax returns, 2 years of W2 forms, 2 recent, consecutive pay stubs, a verbal verification of the borrower's employment was completed by the mortgage processor, as well as another verification by the mortgage underwriter. This example was a home buyer that had very high credit scores and sufficient down payment funds Pyle explained.

"Even after all of that," she said, "the mortgage investor re-verified employment after the loan closed. In the past new home buyers could get a home loan with zero money down and the only verification of employment completed was one pay stub. Many changes have taken place. All home buyers, including first time home buyers, have been effected."

The changes are also causing problems for all residents who are renting homes. Investors renting homes also have stricter requirements, like bigger down payments. These end up being passed on as higher monthly rental payments. At the same time, some homeowners buy a property at an adjustable rate. This means as time goes on the interest rate on the loan fluctuates up and down and can influence the cost of the payment on the house. If someone is renting that house it means their rent can go up and down, too.

A story about local rent prices near Howard University was posted in the Hilltop Online. According to local resident R'Keim Young the cost of housing was so much that he had to go back to living in the college's dorms.

"Within the last two years, prices have risen significantly," Young said. "The same houses that were about $500 monthly have now gone up $300 more."

Housing foreclosures on younger families also have a critical impact on children. According to First Focus, a Washington DC based organization that advocates on behalf of children

"An estimated 2 million children are directly impacted by the subprime mortgage crisis as their families lose their homes due to foreclosures."

First Focus's recent report shows:

• "Due to the increasing number of foreclosures, school districts across the country are experiencing increases in the number of homeless children entering their classrooms;
• Children impacted by the mortgage crisis are likely to experience excessive mobility and as a result are only half as likely to be proficient in reading as their peers. Moreover, they are much more likely to be held back and eventually drop out of school;
• Children forced from their homes experience behavioral problems, such as increases in violence."

The crisis has inspired a number of comedic mash-ups. This one, from NauticalFilms, features the Rambo solution, and BillyBobStewart brings us The Subprime Blues.