Walking Away From Your Mortgage - The Lights Are On In Almost 19 Million Homes But Nobody’s HomeRising by over 1 Million, the number of vacant homes has now been marked at 18.6 Million in the United States.

A record 18.6 million U.S. homes stood empty in the first quarter as lenders took possession of a growing number of properties in foreclosure.

The figure is 5.7 percent higher than a year ago, when 17.6 million properties were vacant, the U.S. Census Bureau said in a report today. The vacancy rate, the share of homes empty and for sale, rose to 2.9 percent, the highest since the bureau started keeping count in 1956. About 2.3 million empty homes were for sale, compared with 2.2 million a year earlier, the report said.

The worst U.S. housing slump in more than a quarter century is deepening as falling values encourage buyers to delay purchases in hopes of getting a better deal. The median U.S. home sale price may drop 5.8 percent in 2008, the most on record, followed by another 4.7 percent decline next year, Fannie Mae, the world’s largest mortgage buyer, said April 7.

“We think it unlikely that prices begin to stabilize until vacancy rates start declining,” Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc. in New York, said today in a report for clients.

There were 129.4 million homes in the U.S. in the first quarter, the study said. In addition to homes for sale, the report counted 4.1 million vacant homes that are for rent and 4.7 million that are seasonal.

Most foreclosures are contained in the report’s “other” category, which includes homes tied up in legal proceedings as well as homes that are empty because the owner is renovating and living somewhere else, according to the Census Web site. There were 7.5 million such homes that were vacant, up from 7.3 million a year earlier, the report said.

I’ve said before that a “good time to buy” is relative to your plans. In this case, liquidity is also important. Can you survive a job loss and still make your payments? Can you stay in your house for 10 years before you break even after being upside down on your home mortgage loan for several years?

Very important questions to ask yourselves as we get more and more statistics from very reputable sources. Is it really a better time to rent than to buy right now?

Personally, I say no. Until you can purchase a property that cashflows and rents for the cost of your mortgage and HOA bill, I believe many Americans will be holding on to their pockets for the next couple years until things pick up.

Will The Housing Bubble Continue?

All signs point to yes. If you think that the ARM resets are now over and we’re in the clear. That we simply need to clear out this inventory issue and we’re good to go - consider this:

3 out of every 5 stated income loans had inflated income by at least 50%

As Slate pointed out in their article:

In 2006, a man named Steven Krystofiak gave a statement in a Federal Reserve hearing on mortgage regulation, representing an organization called the Mortgage Brokers Association for Responsible Lending. The organization had compared a sample of 100 stated income mortgage applications to IRS records.

More than 90 of the applications overstated the borrower’s income at least a little. More strikingly, more than three out of five overstated it by at least 50 percent. This isn’t a few people fibbing a little. This was the whole system breaking down.

The consequences are predictably depressing. A blogger named Michael Shedlock has done some terrific work tracking the performance of these kinds of loans. Shedlock analyzed one particular bundle of loans from Washington Mutual consisting of 1,765 mortgages from around May 2007, a total of $519 million in loans.

These were not “subprime” loans. The borrowers’ average credit score was 705, well within prime territory. This is a fairly typical package of loans for a mortgage-backed security, but one thing that does make it stand out is the proportion of these loans that didn’t ask for income documents: 88 percent.

Historically, a year into the life of a loan, well less than 1 percent of typical prime loans would be 30 days late or more. By the end of January, when Shedlock first looked at it, just eight months after the loans were made, almost one in five were at least 60 days overdue.

I believe we’ll be mid-way through 2009 before we see the dust start to settle. Even then, remember that just because things are slowing down, real estate isn’t appreciating. Consumer confidence has to rise before the market will allow real estate to appreciate anywhere near low-normal levels for several years to come.

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2008-05-14 09:33:38

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