Prof. Norm Miller Discusses Mortgage Debt with WalletHub

Friday, April 20, 2018TOPICS: Alumni

Prof Norm Miller discusses mortgage debt and advices on both buying and owning a home with WalletHub.

Is this a good time to buy a home?

We are in equilibrium and nowherenear a bubble, so yes, it is as good as most times. A few markets might be frothy, but the vast majority are affordable and reasonable. See a working paper on this under research.

What are the most common financial mistakes people make when buying a home and which are most costly in the long term?

Not researching the true expense of operating a home, property taxes especially, maintenance and repair costs, HOA fees, the HOA budget and likely increases, the HOA management (some are formerly KGB or act like it), and teaser rate mortgages (less common today). Assuming prices always go up. 

If someone is currently overleveraged and has trouble affording their mortgage payments, what steps should they take? 

Talk to your lender as soon as possible and tell them. Most will work with you if this is a temporary problem, otherwise put the home up for sale and get out as soon as possible. Don't default, as this will mess up your credit for at least three years or more.

Is there any way for an individual to know if their local housing market is overpriced?

See our paper on affordability, but most markets are not overpriced right now. Some that may be vulnerable are the tech-dominated markets like San Francisco. If the tech stocks pop, so will some of the housing submarkets near these companies. 

Are there certain housing markets or circumstances where it is understandable to be overleveraged in mortgage debt? If so, how much is too much?

No, not unless you have certainty that prices will go up more than expected, and no one has that crystal ball. Don't treat a home as an investment. Treat it first as a consumer item that provides a service you want and secondly, try and buy wisely so that you don't lose money. Right now, with the new tax law changes, those with fewer than $24,000 in deductions, including mortgage interest and property taxes (limited in some cases by SALT limits) may find renting is just as cheap as buying, especially in the lower-third tier in California markets, where SALT limits really constrain deductions.