February 28, 2021

Bucks Blog: Some Borrowers Need More Equity to Sell Homes

A home for sale in Washington, D.C.Reuters A home for sale in Washington, D.C.

The number of homeowners who owe more on their mortgage than their house is worth continues to drop, but many borrowers still haven’t regained enough equity to afford to move, a new analysis finds.

About a quarter of all homeowners remain “underwater,” owing more than their home’s value, according to a first-quarter negative-equity report from the real estate site Zillow. That’s down from nearly 28 percent at the end of last year.

Zillow predicts the rate will fall to 23.5 percent by the first quarter of 2014, which will lift another 1.4 million homeowners into positive equity territory.

But for now, another 18 percent of homeowners with mortgages, while technically above water, still don’t have enough equity to make a move, bringing the current “effective” negative-equity rate to nearly 44 percent, Zillow says.

Technically, a homeowner reaches positive equity when the market value of the home exceeds the remaining loan balance. But listing a home for sale, and buying a new one, generally requires equity of 20 percent or more to comfortably meet related costs, like sales commissions and a down payment on a new home.

Such homeowners probably can’t afford a down payment, locking them into their current homes and helping to keep the inventory of homes for sale tight.

Without enough equity, such costs have to come out of a homeowner’s pocket, leaving many stuck, said Stan Humphries, Zillow’s chief economist. “You might not be underwater, but can you go out in the market and transact?” he said.

The “effective” negative-equity rate helps explain why healthy declines in the number of underwater borrowers haven’t yet translated into more homes for sale, he said.

The only cure, he said, is time.  As rising home values continue to build equity, they will eventually get to the point where more homeowners can realistically sell.

Of  the 30 largest metropolitan areas that Zillow tracks, those with the highest “effective” negative-equity rates — including homeowners with 20 percent equity or less — include Las Vegas, 72 percent; Atlanta, 64 percent; and Riverside, Calif., 60 percent.

Zillow’s negative-equity report looks at current outstanding loan amounts for owner-occupied homes, and compares them to those homes’ current estimated values. Loan data is provided from TransUnion, one of the three major credit-reporting bureaus. (Other reports estimate current loan balances based on the most recent loan on a property.)

Is a lack of equity holding you back from selling your home?

Article source: http://bucks.blogs.nytimes.com/2013/05/24/some-borrowers-need-more-equity-to-sell-homes/?partner=rss&emc=rss

Bucks Blog: Monday Reading: How to Become a Morning Person

November 21

Monday Reading: How to Become a Morning Person

How to become a morning person, mobile deals aim to poach Black Friday shoppers, inheriting a home and a mortgage and other consumer news from today’s Times.

Article source: http://feeds.nytimes.com/click.phdo?i=e30d92179ee8aaa666701505399b9967

Bucks: The New American Money Math

Carl Richards

Carl Richards is a certified financial planner in Park City, Utah. His sketches are archived here on the Bucks blog and on his personal Web site, BehaviorGap.com.

For a long time, the basic equation in personal finance has looked like this:

Income Expenses

Break this rule for very long and bad things happen. But despite this being a pretty basic concept, there seems to be a new American money equation that just won’t die, even though it simply doesn’t add up (pun intended).

I’m not sure when this happened, but somewhere along the way we started believing in this little fantasy of allowing our expenses to grow to match our income plus all the money we could borrow. At first this might not have been a big deal. Borrow a little for a car and a house, no problem.

But then we wanted more. Credit got easy and things got out of hand on both a personal and a public level. I had hoped that the meltdown we had in the credit markets a few years ago would lead to permanent scarring and get us all back to focusing on managing our expenses or growing our income in order to make the math work.

Unfortunately it doesn’t seem have had that effect. While some signs exist that we’re focused on paying down debt, there are also troubling signs that people feel more comfortable with consumer debt than ever.

This reminds me of the joke about “balancing” your checkbook based on how many checks you have left. As long as there are still checks, you must still have money!

So what does this look like in real life?

1) Shopping for a car based on the monthly payments. Buying a car will often involve borrowing money, and the monthly payment will be part of that equation. However, it should not be the starting point.

2) Shopping for a house based on the monthly payments. Most of us will have to borrow money if we decide to buy a house. But shopping for houses based on the monthly payment a mortgage broker says you can qualify for can lead to complex mortgage products that end up costing us far more than you thought.

3) Buying more stuff because you can afford the minimum payment on the credit card. I know this should be insanely obvious, but this is the kiss of death. While avoiding this trap should be important to all of us, it really hurts when this happens to people who are in college. I have a friend who is fond of telling the story of the time when he used a credit card in college to buy a backpacking tent. He made the minimum payments, and it ended up costing almost as much as the car he drove years after he graduated.

Rather than allowing our expenses to grow to match our income, plus any money we can borrow, maybe we should start using the old math: Income should always be greater than or equal to one’s expenses.

Article source: http://feeds.nytimes.com/click.phdo?i=e26bae896b147c153fc19c1352975499

Bucks: Security Freezes: How They’ve Worked Out for You

In this weekend’s “Your Money” column, I write about security freezes, also known as credit freezes, in the wake of the big customer data breach at Sony.

After such a breach, standard best practice now seems to be to offer affected customers credit monitoring or something similar. But no companies (or employers, who have experienced plenty of breaches, too) ever seem to offer security freezes, which allow the person who sets them up to keep anyone from accessing their credit reports. Without that access, companies generally won’t set up a new account, which keeps the bad guys from opening new accounts in your name.

Sony, too, isn’t offering its customers free credit freezes, alas. I’ve had my files frozen for years, and thawing them to refinance a mortgage or get a new credit card rarely requires little more than 10 or 15 minutes of effort, plus a bit of money to pay the fees.

Are your credit files frozen, and if so, how has it worked out for you? Anyone out there refused to freeze their files for whatever reason?

Article source: http://feeds.nytimes.com/click.phdo?i=1202980997bd4d86db8fa4aecf10dd82