Mortgages and Homeownership: A Mixed Bag of Curses and Blessings in the Current Economy

Following is the guest post written by Michelle Studer from budgetpulse, an interactive, web-based budgeting utility. It reflects the rhythm and the flow of savings and spending goals.

Like other aspects of today’s economy, home ownership equals hardship for some and opportunity for others. On the one hand, the sub-prime mortgage mess was a major factor in last year’s economic meltdown and current foreclosure rates are through the roof. On the other, low selling prices and rock-bottom mortgage loan rates have created a fantastic market for potential home buyers. Courtesy of some recent industry data, here’s a closer look at both sides of the issue.

The Downside

The American Dream has always included the promise of home ownership, but for some the reality of owning a home has been nothing short of a nightmare. According to a recent Reuters article:

• 12 percent of U.S. homeowners paid late on their mortgage loans or were in the process of foreclosure during the first quarter of 2009.

• Data from Standard & Poor’s/Case-Schiller Indexes revealed that home prices have dropped 32 percent from their peak in 2006.

• Up to 40 percent of the houses with so-called “failing” mortgages are vacant homes, which seemingly indicates abandonment in many cases by homeowners unable to pay their mortgage bills.

In addition, the Wall Street Journal reports that the national average for foreclosures jumped 35 percent in the 12-month period between April 2008 and April 2009.

The Upside

Overwhelmingly, the economic news has been more bad than good this year. However, now is the perfect time to buy a house if you’ve managed to hang onto your money despite the recession. In fact, buying a home has become more affordable even in the priciest markets. One example of this is found in the WSJ’s coverage of First American CoreLogic’s LoanPerformance Home Price Index data, which reveals that home prices in the New York City metro area have fallen 10.6 percent within the past year. There are some additional upsides as well, such as:

• For existing homeowners, CNN Money reports there’s a “silver lining” when it comes to falling home value: lower property taxes.

• A few weeks ago, it was possible to get a mortgage loan at an interest rate of less than 5 percent. Since then, rates have started to inch up again, indicating that higher interest rates will become the norm again as the economy improves. However, there’s still no time like the present to take out a mortgage. Today's rates are below 6 percent, which will seem like a steal a few months from now.

• To sweeten the home-buying pot a bit more, the federal government offers a first-time home buyer tax credit of $8,000 that applies to any first-time home purchase made between April 9, 2008 and December 1, 2009.