Posts about Mortgages
Demographics
Mapping underwater mortgages shows shocking divide
The Washington Post created this astounding map of the places where the greatest percentage of mortgages are "underwater," or owe more than the home's current value.
The Post's article, which talks about how home prices have risen, says:
Many of the homeowners with mortgages higher than their home's value were clustered in the eastern parts of the District and in Prince George's County.This makes it clear that the economic recovery is not hitting all areas or all people equally. We need more jobs east of the river and in Prince George's County, especially at Metro stations, to help our economic success benefit all.
Development
Would mortgage tax reform slow sprawl and gentrification?
The co-chairs of the deficit commission created by President Obama released several proposals this week as a starting point for a conversation about deficit reduction. One of the proposals drastically reduces the largest home ownership subsidy, the mortgage interest tax deduction.
Photo by Dean Terry on Flickr.
The proposal would lower the mortgage cap within which mortgage interest is deductible from $1 million to $500,000 and eliminate the deduction for second homes and home equity loans. Such a structural change in housing incentives could have big consequences for sprawl, gentrification and other housing and land use patterns.
Sprawl: This subsidy encourages people to build more expensive homes, which are generally bigger, detached, single-family homes. Reducing this subsidization of home sizes would thus lead to greater density as a natural outcome of the free market.
Gentrification: A common response to the argument that reducing this subsidy will reduce sprawl is that it will also reduce urban infill of condos that are more expensive than existing housing. While this may concern some urbanists, I think this would be great. Poor and working class neighborhoods would upgrade their housing stock more organically, without the sudden displacements of existing residents that can occur through government-subsidized luxury condos.
Furthermore, by encouraging people to leverage themselves to the hilt, this subsidy helps undermine communities when home buyers bet big on the housing market and lose. This is true whether the buyers move into new sprawl developments in Prince George's County or infill in Columbia Heights.
The idea that the mortgage interest deduction boosts home ownership rates is a myth, as numerous economists have demonstrated. But simply comparing home ownership rates by country makes the same point.
Home ownership by country.
The United States is one of only four developed countries that allows homeowners to deduct mortgage interest. And the other three (Sweden, Switzerland and the Netherlands) tax imputed income from home ownership.
Clearly, offering the most generous housing subsidies in the developed world is not the key to boosting home ownership.
Before 2010, most opponents of the mortgage interest deduction considered it a sacred cow. But with the deficit commission's co-chairs attempting to insert real solutions into the deficit debate and Tea Party-supported members of Congress talking big about deficit slashing, perhaps this massive subsidy is no longer off the table.
Roads
Rewarding urban living in mortgages and insurance
For over 50 years, the U.S. economy has shaped itself around suburban development and car-centric life. From mortgages to insurance, companies assumed that the standard household occupied a detached single-family home and drove to work. This built-in bias meant that even as Americans, from young singles to empty nesters, started to crave walkable cities once more, the economic deck was stacked against city life, keeping the middle class largely out of the cities.
Transit is no longer just for creeps
and weirdos. From a 2003 GM ad.
Now, the market is responding to the recent demand by creating products tailored for urban living. Pay-as-you-drive insurance and location-efficient mortgages both give people credit for the driving they don't do and shouldn't have to pay for.
Progressive Auto Insurance is being, well, progressive by offering the nation's first pay-as-you-drive policy.
Drivers who sign up for MyRate will install a small wireless device in their cars that transmits to Progressive not just how many miles they drive but also when those miles are driven and, to some extent, how they are driven: the device measures the car’s speed every second, from which Progressive can derive acceleration and braking behavior. Which means that Progressive will not only be able to charge drivers for the actual miles they consume but will also better assess the true risk of each driver.According to Freakonomics authors Levitt and Dubner, between pollution, congestion, and damage from auto collisions create negative externalities to society of $300 million a year
People who commute by transit, foot, bike, rollerblade, scooter, or carpool save a lot of money in transportation costs (and more with PAYD insurance). Why not account for that in determining mortgage qualification? Lower expenses mean someone can reasonably afford a higher mortgage. That's the idea behind the Location-Efficient Mortgage, which are available so far in Chicago, Seattle, Los Angeles, and the SF Bay Area to home buyers who purchase homes in efficient locations.
It takes time for the economy to shift to accommodate new consumer demand, but it does. And the consumer demand is there for more walkable, transit-oriented urban neighborhoods. Not everyone wants to live in a townhouse with a corner grocery nearby, but more people do than can find safe, affordable townhouses. As long as cities allow more to be built, insurers and mortgage lenders will adapt.
@ggwash
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