Transportation costs may soon become a recognized expense for mortgage applications if the Natural Resources Defense Council study holds up.

The San Francisco Chronicle reported that the study showed that higher transportation costs resulted in a higher foreclosure rate:

The draft report looked at trends associated with 40,000 mortgages in San Francisco, Chicago and Jacksonville, Fla.

The release date for the final study has not been announced. The research included borrowers’ income and expenses, credit scores and loan-to-home value ratio.

It focused on the average number of vehicles owned per household in a neighborhood, and through a complex formula, found that the likelihood of mortgage foreclosure increased as neighborhood vehicle ownership rates rose.

If transportation costs were as much as 17% of a household budget, as the study suggests, a $5/gallon price for gasoline could negatively impact a family’s budget. Recent years’ foreclosure activity suggests that compunction towards making mortgage payments has given way to liquidity concerns. Moreover, a legal scholar suggests that any moral consideration associated with a strategic default is passe.

Let’s consider the hypothetical case of a family, with jobs in Los Angeles County, who purchased a $400,000 Riverside, CA home in 2007. The home price has withered to $300,000 and the family has “lost” their $80,000 down payment; they are $20,000 “in the hole”. This has them feeling despondent about the future of the property as an “investment”. Continue reading this post

The economy’s decline leveled off significantly from April through June, confirming  that the worst is behind us.

GDP declined at an annualized rate of 1 percent in the second quarter, after shrinking an amazing 6.4 percent earlier this year. But consumer spending, 70 percent of economic activity,  continues to fall as Americans continue to save and  reduce debt. Economists express concern that our basic spending habits have been permanently altered by this great recession. This is also having an effect on rentals as renters downsize or insist on rent reductions.

With this as a backdrop we looked at rental rates which a are a prime factor in evaluating a property. We clearly have a long way to go. The Dept of Commerce chart indicates we are at a fragile beginning of a recovery. The key to successful property ownership now will be to keep it occupied and ride this out. Continue reading this post