Thanks to reader Heather, I have a new favorite real estate guru: Tom Vu. I guess I was too young to know about this guy when he was in his prime. His bluntness and blatant disrespect for our intelligence is so refreshing. You simply must watch.

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I’d say I’m somewhere between anxiety and denial now. If you can’t tell, I’m thinking of buying a house in a large West Coast city sometime late in 2007. Hurry up despondency! 🙂

This chart would be funnier if it didn’t hit so close to home. “Temporary set back, I’m a long-term investor”. That’s me! Image via Mish’s Economic Analysis.

The Center for Economic and Policy Research (CEPR), a non-governmental economic think-tank, is very upfront about its views on the housing bubble. For a clue as to what they are, check out this article titled “The Menace of an Unchecked Housing Bubble”. They draw several parallels with the tech stock market crash of the late 90s. While there is a lot of other articles of note, I was drawn in by their Housing Cost Calculator:

This calculator compares the cost of owning a home relative to renting for a potential new homeowner. The Housing Cost Calculator reports the “Net Cost of Owning” — the expected amount of additional cash available to a renter compared to the amount available to a homebuyer who buys a home today and sells the home at a specified time in the future. The calculator takes into account the unprecedented run-up in real home prices since 1997.

In other words, it says that housing prices will revert back to its historical tendency to keep in step with inflation. Remember this chart?

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I’m starting to pay attention to mortgage loan advertisements now. Most of them include both a Rate and and APR. But what’s the difference?

The mortgage rate is the amount of actual interest charged. It’s usually a round number like 5.75% or 6.0%. So if you have a loan amount of $200,000 and a rate of 5%, you would be charged $10,000 of interest the first year. But the cost of a mortgage involves a lot more than just the rate. There are origination fees, loan discount points, private mortgage insurance, etc.

The mortgage APR, or annual percentage rate, includes both the interest and certain other loan fees. Although it was designed to make it easier to compare different mortgages offered by different lenders, it really doesn’t. First of all, there is no steadfast definition of APR ? each lender can calculate it differently. Some may leave out many fees to make their APR look more appealing, while others include everything. For example, they may assume you have a 20% down payment and won’t pay PMI.

In addition, the APR also has to make some common assumptions that may skew things. It almost always assumes a certain loan amount and that you will be holding the loan for the entire term of 30 years or more. If some of the costs are heavily front-loaded and you only keep the house for 5 years, your actual APR would be very different. The APR for adjustable rate mortgages (ARMs) are based on the future index rates being the same as they are now, which are still near historically lows.

In the end, it seems that both are useful to note, but neither should be used alone to compare mortgage loan offers.

A good source for population, housing, and economic data for your area is FactFinder.Census.gov. From the 2005 data provided, I decided to compare the median value of housing to the median household incomes for various cities (with a West Coast bias). I then calculated the ratio of housing price to income and plotted them:

Here’s the actual data:
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I was chatting with my local Bank of America banker about mortgages, and she mentioned that they have a Best Mortgage Value Guarantee where if you apply for a mortgage with them, but end up going with another lender, they will give you a check for $250. So if you’re shopping for mortgages, it can’t hurt to include them in your search.

Although I try to keep this blog pretty geographically neutral, many of you know that I currently reside in the Portland, Oregon area. Although we aren’t planning to stay here that much longer, it’s a great place to live and we almost hate to leave. But we have made personal commitments to move closer to our family. In the meantime, my new hobby is going to be learning more about the local Portland real estate market. Hopefully I can better understand which cheaper neighborhoods are on the upswing and also look for houses for potential rentals. It also gives me something to do before we find new jobs and can therefore start looking for houses for ourselves. 😉

Besides comparing mortgage payments and the market rates for rent, I also need to figure out:

1. Local property tax rates
2. Average home insurance costs
3. Average Vacancy rates
4. Home warranty costs
5. How to find foreclosure listings and auctions
6. Property manager recommendations and rates
7. (anything I’m missing?)

I’m probably not going to contact any real estate agents or mortgage brokers just yet, as I don’t want to waste their time. I’m going to hit the Open House circuit on weekends and maybe talk to For Sale By Owner houses. Pretty much keep it low key, but hopefully educational too. Also, I’ve discovered that while people tend not to like talking about money and salaries, they are much more willing to talk about houses!

Traditionally, if you couldn’t afford a 20% down payment on a house, you had to pay private mortgage insurance, or PMI. To avoid this, many people now take out “piggyback” or second mortgages, which carry higher (but tax-deductible) interest payments. But Congress just passed a provision allowing taxpayers with adjusted gross income of $100,000 or less to fully deduct (if they itemize) the cost of private or government mortgage insurance. The mortgage insurance contract must be issued in 2007, and currently only 2007, unless they extend it. More information can be found in this MSNBC article “Homeowners’ Lucky Day”.

This is potentially good news if you’re currently trying to buy a house with less than 20% down, but doesn’t really help the people who are already paying PMI.

I was reading the Wikipedia entry for US Housing Bubble, and came across this troubling graph from the book Irrational Exuberance. I’m trying to find some rebuttal articles to this graph.