Expenses on Rise, Homeowner Burdens Get Heavier

Reuters ^ | 05-06-03

[Brian S]

By Aleksandrs Rozens

NEW YORK (Reuters) - Credit cards with double-digit interest rates have eaten away at Linda Schrock's savings, making it tough for the Appomattox, Virginia, lab technician and her husband to make timely mortgage payments.

These hefty costs come at a time when the Schrocks -- and many other Americans -- are faced with rising costs for the unavoidables that come with home ownership, like real estate taxes, insurance and energy.

"The costs go up. There is never enough money. You have these insane credit cards you can't get paid off," she said. "You do without stuff if it comes to paying for your home. You're going to make a house payment."

While many home owners think housing affordability is all about the impact of interest rates on the monthly mortgage payment, mortgage rates are not the only consideration.

"Recent indications that insurance rates are going up, combined with the likelihood the fiscal difficulties of state and local governments will lead them to raise property taxes, will also affect the ability of borrowers to acquire mortgages or meet their current mortgage obligations," said Douglas Duncan, chief economist at the Mortgage Bankers Association of America, an industry trade group.

"For those stretched to make mortgage payments, we could see a rise in delinquencies," he said. Duncan predicts "it will take a while to feed through, maybe later in the year, or early next year."

State and local governments, hit hard by the economic slump, are boosting taxes to close huge budget gaps.

CARD AND AUTO DEBT -- TEA LEAVES?

Signs of trouble for home owners may already be brewing.

Usually, late payments on mortgage debt are preceded by late payments on credit cards and auto loans. After all, few people want to lose the roof over their head.

"It is cards first, cars second and then the home," said Chris Viale, of Cambridge Credit, a firm that helps consumers work out their debt problems. But, he noted, "sometimes, they'll let the home go before they adjust what they pay for cable TV."

Viale has recommended his clients take any tax refunds they get and pay off debt, beginning with credit cards.

The rise in late credit card payments has already been spotted.

In March, the American Bankers Association said fourth-quarter 2002 credit card delinquencies shot to highs not seen since the group began tracking payment behavior 13 years ago.

Much of that rise in delinquencies was tied to a sluggish employment market, which has worsened since March. Last week, the U.S. government said the nation's jobless rate rose to 6 percent in April.

At the same time, Moody's credit rating agency reported that auto loan delinquencies were on the rise and the MBA reported homes in foreclosure in the final quarter of 2002 zipped to record highs.

These signs all point to tough going for home owners.

"With the increase in real estate taxes, they'll be caught by surprise," said Viale.

[Aggie Mama]

Especially here in Houston. There's been some tremendous lobbying to try and get some of the property evaluations changed here, but I don't know how they are going to do it. We have been in our home 4 years and our mortgage payment has gone up $500 a month during that time simply due to property tax evaluation!

[AppyPappy]

Banks gave out credit cards to every Tom, Dick and Harry. They hand them out on college campuses. They have failed to see the political reality. People who are heavily in debt are willing to vote for debt relief at any price and the Democrats can seize this idea and run to victory with it. And the banks will pay the price for they naivety.

[Gabz]

We just (less than 2 weeks ago) moved from central Delaware to Accomack County, VA.

The property tax on my 2 acre mini-farm is only about a quarter of what we were paying on our town house. But the homeowners insurance premium is just over double.

We have a larger mortgage here than we did in Delaware, but our monthly paymjent is less.

And we have some credit card debt and a car payment and I haven't been gainfully employed in nearly 2 years - but we are making it.

[tsomer]

Recent indications that insurance rates are going up, combined with the likelihood the fiscal difficulties of state and local governments will lead them to raise property taxes...

During the raging 80's, when we bought our first house the mortgage rep encouraged us to "stretch", saying that we'd make more money and be able to afford more later on. That was the prevalent thinking among the yuppies back then.

They are now caught between the upper millstone of declining wages, and the nether, of rising "maintenance" costs.

This is the problem with the general wisdom about real estate as an investment: the bank or the government can take it from you.

[Gabz]

Two folks working and they're having trouble with mortgage payments? Maybe they're living beyond their means. Nah - that couldn't be it.

Exactly.

My husband has a good job, we don't have a 6 figure income and we do have some credit card debt and a car payment - but we are not behind in anything and we have want we need. And if we don't have cash for something we "want" it waits until we do have the cash.

I'm the first to admit that I learned these lessons the hard way - but I did learn them and learn them well.

[Koblenz]

Live within your means. I am in the process of reapplying for a mortgage, and I'm self employed, which has made it difficult. Yet the banker I spoke with was astounded that I'm 32 years old and that my mortgage is only going to cover half of the market value of the house (the rest is pure equity). I always have paid off my credit cards every month. Credit cards are awesomely convenient, but you've got to pay them off. I use the Amex Cashbuilder, which gives 1.5% cash back: last year I got about $800 in refunds (I charge frequently, often for my consulting business, which is subsequently reimbursed by clients). I got my first credit cards in college, and I made sure that if I didn't have the money, I didn't buy it. And that's worked like a charm.

[thepainster]

OK enough of the gloom and doom. I live in Austin Texas. I just got my latest tax appraisel on my home. Guess what it went down about 5%. Theoretically I lost a little equity, but realistically I will be paying less taxes.

We also recently refinanced our home. Guess what, I am now paying the same mortgage for a 15 year note as I was a 30 year note. Interest rates are that low.

Yes home insurance is up. In Texas this is mainly because of the lawyer induced "Black Mold" issue. However, If you can't pay your mortgage because your insurance went up, in my opinion you are living beyond your means.

I am tired of all these negative articles about the economy and inverviews with these crybabies. Americans are soft. We have been living high on the hog for too long. There are whole generations that have learned nothing from hardships. Everything has been too easy. All they know how to do is whine. </rant>

[Gabz]

I am tired of all these negative articles about the economy and inverviews with these crybabies.

I agree with you.

Granted, there are some areas where the economy could, conceivably be better, but in general it has been much worse.

[jackbill]

I called the insurance company and bawled them out, only to be told that EVERYBODY saw double-digit house insurance price hikes.

One of the reasons for increases in homeowners' insurance premiums - and other forms of insurance - is low interest rates and the poor stock market.

Insurance companies pool the premiums and invest them, as a reserve against future losses. The poor market and lower interest rates (bonds, CD's, etc.) mean that the reserves haven't been building up as previously. Thus, the premiums have to increase.

[RooRoobird14]

I have a hard time feeling sorry for homeowners who bought a home they could barely afford even with with both husband and wife working--that is how couples seem to do things these days.

There are too many middle class Americans living way beyond their means: living in huge houses, leasing huge gas-hog SUV's, running up credit card debt, and not being prepared for the possibility of one or both of them being laid off.

Financially speaking, the above is the equivalent to having promiscuous unprotected sex over and over again--eventually one's irresponsibility catches up with them in one way or another.

[DensaMensa]

}If a homeowner hasn't refinanced...are dumber than a bowling ball.

Not everyone has a home loan. What then?

[dalereed]

"If a homeowner hasn't refinanced...are dumber than a bowling ball."

I have a $700k home and a $200k condo with no mortgages, $$60k in the bank, and no debt of any kind,why would I "refinance"?

[OrioleFan]

Sounds like Linda needs a tax cut...

[The South Texan]

Values actually went down in the People's Republic of Austin. Not down here in Corpus. Some folks had there double from last year. Add in the huge increases in all types of insurance, especially homeowners and health, the Trial lawyers that run the Bannana Republic down here are the only ones doing well.

[DensaMensa]

}"If a homeowner hasn't refinanced...are dumber than a bowling ball."

Sorry, that wasn't my line. I just responded to it (in much the same way as your response).

[thepainster]

There are a lot of high tech folks out of work in Austin and this has resulted in downward pressure on homes. However, there are still certain select areas where pricing is stable or rising.

[Brian S]

THE NERVE OF YOU TWO!!! How dare you not pull out all your equity, 125% if you can get it, and spend, spend, spend this economy into recovery! The gov't is racking up debt and spending, spending, spending so you best do your part too! Why, somebody might accuse you of being 'unAmerican' or something.

/sacrasm off lol!

[sergeantdave]

In 1900, one could buy a well-built four bedroom home in America for $600. The average wage was $60 per month with no income tax payments, no SSI. A house cost less than a year's wages.
Today that house, built with less quality and craftsmanship, costs an average of $150,000. The average wage is about $30,000. Add compounded interest and you're paying $300,000 - 400,000 for that house.

America is being strip mined of its wealth. Guess who's behind the curtain manipulating this scam.

[WARF]

I have been out of College for almost 11 years . By the time I graduated college I had almost 25,000.00 in credit card debt. Needless to say I am still in credit card debt but only about 8,000.00 now . I have not used a credit card in almost 5 years now. I have only 1 active account. You need at least one to rent anything ( room, car , etc. ).

[WARF]

I have been out of College for almost 11 years . By the time I graduated college I had almost 25,000.00 in credit card debt. Needless to say I am still in credit card debt but only about 8,000.00 now . I have not used a credit card in almost 5 years now. I have only 1 active account. You need at least one to rent anything ( room, car , etc. ).