MONEY buying a home

7 Ways to Get Your Kid Out of Your Basement

College students slacking off and living in parents' basement
Adam Crowley—Getty Images

If your child is one of the 14% of millennials who have moved back in with their parents, here are some tips to nudge him (or her) out the door.

For most of us, leaving the nest was a rite of passage. We went to college, and then proudly headed out into the world to make our own way, while our parents turned our old room into another guest bedroom.

However, for a significant percentage of young adults, that rite of passage is now all about returning to the roost rather than flying solo. According to Gallup research, 14% of millennials (24-to-34-year-olds) have moved back in with their parents. The homeownership rate for those under age 35 was 36.2% in the first quarter of 2014, down from a historical high of 43.1% at the end of 2005, according to Census data. According to numerous economic reports on millennials, this is attributed to a weak job market, high cost of living, significant college debt, and other factors.

These kids, as well as any adult children who have decided to move back in with mom and pop are lovingly referred to as “boomerang kids.” Clearly the analogy is obvious.

For Mom and Dad, who would love to have the ‘kids across the hall’ become the ‘kids across town,’ here are seven pointers you might want to consider:

Start Charging Rent

Cut off the free ride. Yes, it sounds harsh, but you may be doing both you and your kid a favor. Managing money and a monthly budget is something that is not learned in school, and it is certainly not learned hanging out in your parent’s converted attic for free. Give your boomerang kids a real estate reality check. If the free ride comes to a screeching halt and they are paying rent, they will probably want to do it in their own apartment, closer to (or with) their friends, near downtown or a closer drive to their office. Charge rent and enforce it. Once they start getting that first-of-the-month monetary wake up call, it might shock their system enough to have them consider alternative arrangements. If they’re going to have a landlord no matter what, they’re likely to consider a new, more independent situation.

Collect Monthly Payments

Here’s another way to give them a foot out the door – but still a leg up. Start charging them monthly payments now. Let them know that they will have to come up with the monthly equivalent to local rents each month for the next six months. At the end of the six months, you will give them back all the money when they move out. That does three things: You teach them budgeting skills, you incentivize them to move, and you give them a financial helping hand on move-out day.

Be A Strict Landlord

No parties, no loud music, no guests after 10:00 pm. Keep the house rules strict. At some point, your kid is going to want to have a little independence, and some fun too. Living with a strict landlord may just be the incentive he or she needs to find a place of their own.

Set A Deadline…and Stick To It

If you can sense that your boomerang kid is riding out his or her free meal ticket under your roof as long as they can, help them visualize when that ride will end. Create a deadline for them to move out and stick to it, no matter what. It’s likely you never intended to have kids under your roof for more than two decades, so your children need to respect that…and they need to get on with their own lives. Even in a world where millennials are underemployed compared to their Gen X, Y and Baby Boomer counterparts, there are still plenty of ways for them to make a living that enables them to live with a roommate or two or three…elsewhere.

Help Them Get Organized and Overcome The Mental Hurdle

After all the financial aspects are considered, one of the biggest hurdles to making a big move is mental: it just feels overwhelming. So many things to do, buy and organize before it can actually happen. Your child may just need the expertise of someone who’s moved multiple times in their lives to talk them down off the “I’m too overwhelmed and can’t do this” ledge. Map out all the necessities and then make a list of the “nice to haves down the road” so they can see what’s an immediate need, and what can be done over the coming weeks and months.

Gift or Loan Them The Down Payment

Trulia’s latest survey showed that 50% of millennials surveyed plan go to their parents for help with the hefty down payment that’s required to purchase a home in today’s housing market. If you want your adult child up and out of your basement, consider giving them the financial head start now they need to form their own household and be independent.

Buy A Multi-Unit Investment Property

I am a huge proponent of purchasing multiunit properties, such as a duplex or triplex, because they are great investments. In the case of your “failure to launch” millennial, slot them into one of the units of your new property and rent out the others. The rental income is likely to cover much of the costs of ownership, and you’ll have a built-in property manager in the building to keep an eye on things. Plus, your boomerang kid is learning valuable management skills at the same time. It can be an investment property for you, and solve the “son or daughter is still in my basement” problem, all at the same time.

 

More on Financial Independence

4 Ways to Lighten Your Kid’s Debt Load

Is Living with Mom and Dad Starting to Cramp Your Style? Take These Steps to Independence

Taking Five Years to Earn a B.A. is Common—And Costly. Here’s How To Get Out in Four

MONEY Housing Market

Housing Market Recovery Moving Forward, Except for This One Thing

For the first time during the housing recovery, four out of five of Trulia's Housing Barometer measures are at least halfway back to normal. But young adults are still struggling to get jobs.

How We Track This Uneven Recovery
Since February 2012, Trulia’s Housing Barometer has charted how quickly the housing market is moving back to “normal” based on multiple indicators. Because the recovery is uneven, with some housing activities improving faster than others, our Barometer highlights five measures:

  1. Home-price levels relative to fundamentals (Trulia Bubble Watch)
  2. Delinquency + foreclosure rate (Black Knight, formerly LPS)
  3. Existing home sales, excluding distressed sales (National Association of Realtors, NAR)
  4. New construction starts (Census)
  5. The employment rate for 25-34 year-olds, a key age group for household formation and first-time homeownership (Bureau of Labor Statistics, BLS)

The first measure, home prices from our Bubble Watch, is a quarterly report. The other four measures are reported monthly; to reduce volatility, however, we use three-month moving averages for these measures. For each indicator, we compare the latest available data to (1) its worst reading for that indicator during the housing bust and (2) its pre-bubble “normal” level.

4 Out of 5 Measures Improve and Are At Least Halfway Home
All but one of the Housing Barometer’s five indicators have improved since last quarter, and all five have improved or remained steady since last year. Prices and the delinquency + foreclosure rate made the biggest strides:

Housing Indicators: How Far Back to Normal?
Now One quarter ago One year ago
Home price level 79% 68% 44%
Delinquency + foreclosure rate 74% 63% 53%
Existing home sales, excl. distressed 64% 61% 64%
New construction starts 50% 45% 41%
Employment rate, 25-34 year-olds 35% 39% 30%
For each indicator, we compare the latest available data to (1) its worst reading for that indicator during the housing bust and (2) its pre-bubble “normal” level.
  • Home prices continue to climb, though at a slower rate. Trulia’s Bubble Watch shows prices were 3% undervalued in 2014 Q2, compared with 15% at the worst of the housing bust; that means prices are nearly four-fifths (79%) of the way back to their “normal” level of being neither over- nor under-valued. Even better, as prices approach normal, price gains are slowing down and becoming more sustainable: for the first time in almost two years, no local market has had price gains of more than 20% year-over-year.
  • The delinquency + foreclosure rate was 74% back to normal in May, up from 63% one quarter ago. While fewer foreclosures means fewer discounted homes for sale, delinquencies and foreclosures have caused great pain for millions of households and the financial system. For the foreclosure crisis, the light at the end of the tunnel is getting brighter.
  • Existing home sales (excluding distressed) were 64% back to normal in May, up from 61% one quarter earlier. Distressed sales have plummeted as the foreclosure inventory has dried up. Non-distressed sales also stumbled from their peak last summer as higher home prices and mortgage rates reduced affordability, but in the past quarter non-distressed sales have resumed their climb.
  • New construction starts are 50% back to normal, up from 45% one quarter ago and 41% one year ago. Multi-unit starts — mostly apartment buildings — are leading the recovery: in 2014 so far, multi-unit starts accounted for 35% of all new home starts, the highest annual level in 40 years. This apartment boom started last year, and last year’s starts are now being completed, which is increasing the supply of apartments for rent.
  • Employment for young adults, however, took a step back. May’s three-month moving average shows that 75.6% of adults age 25-34 are employed, which is just 35% of the way back to normal. That’s down from 39% one quarter ago, though still an improvement from one year ago. Because young adults need jobs in order to move out of their parents’ homes, form their own households, and eventually become homeowners, the housing recovery depends on Millennials getting jobs.

What’s Missing from the Housing Recovery

First-time homebuyers are still missing from the housing recovery, making up just 27% of existing-home buyers according to NAR’s May report. That’s down a bit both from last month and from last year.

How has the recovery gotten this far without first-time buyers? Investors and other bargain-hunters bought homes near the bottom of the market, in late 2011, which boosted sales and home prices. Now that prices are near long-term norms – just 3% undervalued – the bargain-hunting engine is sputtering. Repeat buyers, who are trading in one home for another, are taking more of the market.

Would-be first-time homebuyers are stuck: rising prices and mortgage rates have reduced affordability before young adults have been able to recover from the jobs recession. A full recovery that includes first-time homebuyers is still years away; many young adults still need to find jobs and keep them long enough to save for a down payment and qualify for a mortgage. Until that happens, the clearest signs of recovery will be apartment construction and renter household formation, not first-time home buying, as young adults move from their parents’ homes into their own rental units.

NOTE: Trulia’s Housing Barometer tracks five measures: existing home sales excluding distressed (NAR), home prices (Trulia Bubble Watch), delinquency + foreclosure rate (Black Knight), new home starts (Census), and the employment rate for 25-34 year-olds (BLS). Also, our estimate of the “normal” share of sales that are distressed is 5%; Black Knight reports that the share was in the 3-5% range during the bubble. For each measure, we compare the latest available data to (1) the worst reading for that indicator during the housing bust and (2) its pre-bubble “normal” level. We use a three-month average to smooth volatility for the four indicators that are reported monthly (all but home prices). The latest published data are May data for the employment rate, existing home sales, new construction starts, and the delinquency + foreclosure rate; and Q2 for home prices.

See the original article, with more charts, here.

Jed Kolko is the chief economist of Trulia.

MONEY Housing Market

The Cities Where Zombies (Foreclosures, That Is) Are Still Lurking

140626_REA_zombies_1
Everett Collection

They’re the housing market menace that won’t seem to go away – homes abandoned by their owners, not yet taken over by the banks. Even now, well into a two-year recovery in home prices, there remain 141,406 “zombie foreclosures,” according to data firm RealtyTrac.

That’s down 16% from a year ago nationwide, which sounds pretty good. Still, zombie foreclosures increased this quarter in 10 states plus D.C. The problem is particularly persistent in some regions—Florida accounts for more than one-third of all zombies—where upwards of 30% and even 40% of foreclosures are vacant.

Metropolitan areas (keep in mind, these are generally much larger regions than cities themselves) with the highest percentage of vacant foreclosures, reports RealtyTrac:

Metro Area %Vacant
Homosassa Springs, Fla. 43%
Portland 37%
Birmingham 37%
Ocala, Fla. 36%
Destin, Fla. 35%
St. Louis 34%
Worcester, Mass. 33%
Port St. Lucie, Fla. 33%
Punta Gorda, Fla. 33%
Binghamton, N.Y. 33%
Las Vegas 32%
Melbourne, Fla. 32%
Daytona Beach, Fla. 32%
Gainesville, Fla. 31%
Fort Wayne, Ind. 31%

 

Vacant foreclosures were a downright plague during the worst of the housing crisis—homes overgrown with weeds, windows boarded up dragged down property values and in some cases deteriorated into hotbeds of crimes. From a 2008 U.S. Conference of Mayors report: “These properties are a drain on city budgets. They detract from the quality of life, as well as the economic opportunities, of those living around them. They are an impediment to individual neighborhood redevelopment and, ultimately, to achievement of city-wide economic development goals.”

Five years later, a swarm of local and national initiatives and streamlined foreclosure procedures have helped; so has a flood of investor buying. Rising home prices and an improving economy have kept fewer homes out of foreclosure in the first place.

Still, real estate analysts and community advocates fear that the last batch of zombies are going to be the hardest to kill—they may be in the worst shape and in the least desirable neighborhoods. Investors don’t want them, and the properties require way too much work for traditional buyers.

And, community redevelopment types fear, banks are taking their sweet time foreclosing on them at all, putting off the moment when they have to pay all the back taxes, code enforcement fees and other liens that have amassed over the years.

“The banks are hoping the market will keep turning around, or they’re looking for alternatives that lessen the red ink on their portfolio,” says John Taylor, CEO of the National Community Reinvestment Coalition. “There was a time the banks were just giving away these properties trying to get them off the books. Now, they don’t want to add to that.”

Not surprisingly, the longer the foreclosure process lasts, the more likely the owners are to abandon the homes. And where are foreclosures taking the longest? New York and Florida, a 418 and 411 days on average, respectively, followed by New Jersey (378 days), Illinois (272) and Hawaii (249).

Zombie Foreclosures in the Largest 20 Cities

Metro Area %Vacant
New York City 13%
Los Angeles 8%
Chicago 19%
Dallas 25%
Philadelphia 22%
Houston 12%
Washington D.C. 18%
Miami 18%
Atlanta 30%
Boston 20%
San Francisco 8%
Detroit 28%
Riverside, Calif. 6%
Phoenix 25%
Seattle 29%
Minneapolis 22%
San Diego 4%
St. Louis 34%
Tampa 30%
Baltimore 28%
MONEY Housing Market

The Housing Market Won’t Be Undervalued Much Longer

Trulia's latest analysis shows homes in three-fourths of major U.S. cities are still undervalued, while seven are more than 10% overvalued (most in California). Even there, prices are no where near boom frothiness.

Trulia’s Bubble Watch reveals whether home prices are overvalued or undervalued relative to their fundamental value by comparing prices today with historical prices, incomes, and rents. The more prices are overvalued relative to fundamentals, the closer we are to a housing bubble – and the bigger the risk of a future price crash.

Sharply rising prices aren’t necessarily a sign of a bubble; a bubble is when prices look high relative to fundamentals. Bubble watching is as much an art as it is a science because there’s no definitive measure of fundamental value. To try to put numbers on it, we look at the price-to-income ratio, the price-to-rent ratio, and prices relative to their long-term trends using multiple data sources, including the Trulia Price Monitor as a leading indicator of where home prices are heading. We then combine these various measures of fundamental value rather than relying on a single factor, because no one measure is perfect. Trulia’s first Bubble Watch report, from May 2013, explains our methodology in detail. Here’s what we found.

Home Prices are 3% Undervalued Nationally We estimate that home prices nationally are 3% undervalued in the second quarter of 2014 (2014 Q2), which is far from bubble territory. During last decade’s housing bubble, home prices soared to a level that was 39% overvalued in 2006 Q1, then dropped to being 15% undervalued in 2011 Q4. One quarter ago (2014 Q1), prices looked 5% undervalued, and one year ago (2013 Q2) prices looked 8% undervalued. This chart shows how far current prices are from a bubble:

At this pace, home prices nationally should be in line with long-term fundamentals – i.e., neither over- or undervalued – by the last quarter of 2014 or the first quarter of 2015. The good news for bubblephobes is that price gains are now slowing down while prices still look (slightly) undervalued. We’d be at greater risk of heading toward a bubble if price gains were still accelerating, but they’re not.

Even in the Bubbliest Markets, It’s Not 2006 All Over Again Eight of the 10 most overvalued housing markets are in California, with Orange County, Los Angeles, and Riverside-San Bernardino in the top four. However, they are not seeing the return of last decade’s bubble. These California markets are much less overvalued than they were at the height of the bubble. Orange County, today’s frothiest market, is just 17% overvalued now versus being 71% overvalued in 2006 Q1. Among the most overvalued markets today, only Austin looks more overvalued now (13%) than in 2006 Q1 (8%) – and that’s because Austin (and Texas generally) avoided the worst of last decade’s bubble and bust.

Top 10 Metros Where Home Prices Are Most Overvalued
# U.S. Metro Home prices relative to fundamentals, 2014 Q2 Home prices relative to fundamentals, 2006 Q1 Year-over-year change in asking prices, May 2014
1 Orange County, CA +17% +71% 9.6%
2 Honolulu, HI +15% +41% 5.3%
3 Los Angeles, CA +15% +79% 12.7%
4 Riverside-San Bernardino, CA +13% +92% 18.8%
5 Austin, TX +13% +8% 9.7%
6 San Jose, CA +11% +58% 10.4%
7 Oakland, CA +10% +72% 14.8%
8 Ventura County, CA +9% +73% 12.6%
9 San Diego, CA +7% +69% 11.2%
10 San Francisco, CA +6% +51% 11.6%
Note: positive numbers indicate overvalued prices; negative numbers indicate undervalued, among the 100 largest metros. Click here to see the price valuation for all 100 metros: Excel or PDF.

 

Only in Akron and Cleveland are prices undervalued by more than 20%. Furthermore, in those two markets, home prices are rising below the national average of 8.0%. But in several of the most undervalued markets, including Detroit and Chicago, prices are now rising year-over-year in the double digits. But those markets are unlikely to stay on the most-undervalued list for many more quarters.

Top 10 Metros Where Home Prices Are Most Undervalued
# U.S. Metro Home prices relative to fundamentals, 2014 Q2 Home prices relative to fundamentals, 2006 Q1 Year-over-year change in asking prices, May 2014
1 Akron, OH -21% +18% 4.7%
2 Cleveland, OH -21% +18% 6.3%
3 Detroit, MI -19% +38% 15.2%
4 Dayton, OH -16% +13% 12.1%
5 Worcester, MA -15% +43% 4.4%
6 Memphis, TN-MS-AR -14% +11% 3.2%
7 Toledo, OH -14% +22% 10.0%
8 Chicago, IL -14% +36% 13.5%
9 Lakeland-Winter Haven, FL -14% +54% 3.8%
10 Providence, RI-MA -14% +52% 2.9%
Note: positive numbers indicate overvalued prices; negative numbers indicate undervalued, among the 100 largest metros. Click here to see the price valuation for all 100 metros: Excel or PDF.

 

Three-Fourths of Markets Still Undervalued Of the 100 largest metros, home prices in 76 of them look undervalued. But the number of overvalued markets – 24 – has climbed up from 19 last quarter (2014 Q1) and just 5 last year (2013 Q2). Most of the 24 overvalued markets are overvalued just a bit, with 17 overvalued by less than 10% and 7 overvalued by more than 10%. While the number of overvalued markets is rising, there remains little reason to worry about a new, widespread bubble forming. The last two years of strong price gains have been from a relatively low level and still haven’t pushed home prices nationally above our best guess of their long-term fundamental value.

See the original article with complete charts here.

Jed Kolko is the chief economist of Trulia.

MONEY Housing Market

Why Median Home Prices Are Rising: It’s More Than Just the Values

Home prices keep rising, but not just because they're worth more. Sales of higher-end homes are skewing that median home price figure upward.

The median home price rose 5.1% to $213,400 from a year ago, the National Association of Realtors announced yesterday.

RealtyTrac’s numbers out today, which include foreclosures sales not covered by the NAR report, have median prices up 13% year-over-year.

So does that mean your home value rose 13%?

Of course not, and not just because those figures cover the entire United States. Clearly home values vary widely based on the characteristics of your local market – employment growth, the pace of new construction, incomes, type of home, all sorts of things.

The median home price is shaped by other factors having nothing to do with any particular home or market but, rather, the specific mix of homes sold in that month.

One of the trends we’ve been seeing for a while now is that more higher-priced homes are selling than lower-priced homes. That’s for two reasons:

First, the volume of bargain-priced foreclosures continues to shrink. RealtyTrac’s report says foreclosures and short sales accounted for 14.3% of home sales in May, down from 15.9% a year ago. Consider that the median price of distressed homes was $120,000 versus $190,000 for non-distressed and you can see how simply having fewer troubled properties in the mix would be a powerful pricing boost.

Second, move-up buyers, the ones buying the $500,000-plus homes, are in better financial shape. They have the credit scores to qualify for a mortgage. They also have, more than likely, equity in their current home they can use for a new down payment as well as investments.

See what’s happening at RealtyTrac’s chart of home sales by price tier:

Price Range Share of Sales YoY Change
$50k-$100k 13% -22%
$100k-$200k 33% -5%
$200k-$300k 20% 6%
$300k-$400k 12% 11%
$400k-$500k 7% 17%
$500k-$750k 7% 15%
$750k-$1M 2% 23%
$1M-$2M 2% 24%

Other highlights from RealtyTrac’s report:

Metropolitan areas with sales declines from a year ago include Boston (-23%), Fresno (-22%), Orlando (-18%), Los Angeles (-16%) and Phoenix (-13%).

Areas with the highest share of foreclosures and short sales were Las Vegas (27%), Lakeland, Fla. (33%), Modesto, Calif. (32%), Jacksonville, Fla. (32%) and the Riverside region of southern California (29%).

MONEY Housing Market

The Housing Number That Really Matters: 2.28 Million

140623_REA_LatestinHomeSales_1
Wiskerke / Alamy

The number of homes on the market increased enough to slow down surging price gains and make it a little bit easier for buyers. Bidding wars aren't going away, though.

Home buyers worried they will be stuck in bidding wars for a scarce number of homes can relax a little bit. The number of homes for sale in May is up 6% over last year, to 2.28 million, reported the National Association of Realtors.

At the current pace, it would take 5.6 months to sell all the homes on the market. Six months is considered a healthy balance between buyers and sellers. The 5.6 number means it’s still, on average, more of a sellers’ market, but far better than late 2012 and early 2013, when there was less than a five-month supply of homes.

For May, sales continued to strengthen after a “lackluster” first quarter, said NAR economist Lawrence Yun. The median price of existing homes for the country, which includes condos, was $213,400, up 5.1% over a year ago.

But let’s get back to inventory, which has been driving much of what’s been happening in housing.

Around late 2011, buyers began tiptoeing back into the market, eating into the oversupply of distressed properties that had swelled post-bust. A year later, more confident buyers and an investor boom pushed the pendulum toward housing shortage. This chart shows that trend and how it’s been easing so far this year.

 

Source: National Association of Realtors

This is great news, because in some cities buyers have become so frustrated by the scarce choices that they’ve given up. Especially in hot cities (Denver, all the big cities in Texas, southern California) and in the best neighborhoods in most cities, buying a home has become about how to win a bidding war.

Even now, homes are still selling relatively quickly—the median number of days a home spent on the market in May was 47. But at least that’s six days more than a year ago, giving buyers some room to breathe.

That in turn means a slowdown in the hefty price gains that have marked the last 18 months or so of the housing recovery, but the market needs more, Yun says. “Rising inventory bodes well for slower price growth and greater affordability,” he said in a statement. But “new home construction is still needed to keep prices and housing supply healthy in the long run.”

New construction is a bit wobbly, however. Yes, builders are building more homes, but they are mostly apartments (the rental market is still going gangbusters). Builders have been slow to commit, worried about the financial health of buyers. Economist Brad Hunter of MetroStudy, which analyzes the new home industry, says consumers are still skittish, but traffic through builders’ showrooms continues to improve. So sales should rise soon, he says.

As with everything real estate, it’s all local. Construction is healthy in southern California, Texas and Florida, while Arizona and Nevada are down, Hunter notes.

And, it matters where you fall on the income spectrum. That’s another key aspect of the current housing market: Pricier homes are selling better, while the market for first-time home buyers is depressed. The percentage of first-time home buyers in the existing-home space fell again in May, to 27%, according to NAR.

In new construction, builders have begun targeting young buyers with lower-priced homes, but Hunter sees too many obstacles: high student loan debt and low employment among millennials.

Another obstacle: lending standards. The credit score needed to get a mortgage has been trending down, but very slowly. Real Estate Economy Watch, writing about an Ellie Mae report, said 32% of closed loans had an average credit score of under 700 in May, compared with 27% a year ago. The median credit score for purchases (not refinances): 755.

The median scores for FHA loans fell to 684 from 695 last year–FHA loans are favored by first-time buyers because of low down payment requirements.

The trend should draw more potential buyers off the fence, says Cameron Findlay, chief economist for Discover Home Loans. “When everyone’s talking about how difficult it is, if you’re a borrower on the cusp, you don’t bother going through the hoops and trying to apply, you just stay back,” he says. “Now they’re saying, ‘Let me see.’”

MONEY Housing Market

How to Stop the Next Housing Bubble

Housing development under construction on farmland, aerial view.
Housing development under construction on farmland, aerial view. Ryan McVay—Getty Images

The financial system is still too risky. Step one toward fixing that: Rethink mortgages.

More than five years after the Lehman Brothers collapse, America still has a bubble problem.

The economy is improving, but the country is still poorer and less busy than it should be this long after the official end of the Great Recession. Here’s where actual GDP lines up against where it might be if the economy had returned to its normal path:

image(25)
SOURCE: St. Louis Fed, Congressional Budget Office

Despite this gap, the Fed last week announced it was continuing to slow down its massive program of bond buying known as “quantitative easing,” which was designed to ease lending and goose the economy. The central bank is keeping short-term interest rates near zero, but many economists and economic pundits still think the Fed should be even more aggressive, rather than slightly less so. The Fed holds back mostly out of fear of inflation (which remains low) but another worry has emerged: Investors are getting cocky. Stocks are way up, bond investors are buying riskier stuff in a “reach for yield,” and yet a gauge of market mood called the “fear” index is registering an unusual lack of anxiety.

The Fed has expressed concern, at least in a keeping-it-on-our-radar way. “There is some evidence of reach-for-yield behavior,” said Janet Yellen on Wednesday in a press conference.

That doesn’t mean we’re in bubble territory. Even if a market drop is coming, there’s a difference between that and a systemic crisis like 2008′s; Yellen said she isn’t seeing a rise in dangerous financial leverage. But that we’re even having this conversation is a sign that there is a lot of unfinished business left over from the crisis. There’s still too much risk built into the financial system.

This story is the first in a series I’ll be writing for Money.com about ways to prevent future bubbles—or at least to limit the damage when they pop. There are numerous pieces to this puzzle. Banking regulations, consumer protections, Fed policies, and broad-based economic growth are all important for a healthy financial system.

But the most obvious place to start is literally close to home: Mortgages. The 2000s saw an enormous build up in household debt, largely driven by home loans.

SOURCE: Federal Reserve

A lot of attention has been paid to how crazy a lot of those mortgages were. There were “NINJA” loans (no income, no job or assets), no- or low-downpayment mortgages, and exploding ARMs that started with low teaser payments. Such loans are impossible or at least very hard to get now. But a pair of fascinating new books make the case that there’s still a basic flaw in how mortgages work, one that Washington had a golden opportunity to fix but failed to. Put simply, home loans are far too difficult to renegotiate when things go badly wrong.

Over the years I’ve read a tall stack of books about the financial crisis. Other People’s Houses, by Vermont Law School professor Jennifer Taub, provides the clearest, beginning-to-end explanation I’ve seen of what went wrong. And Taub’s beginning is a surprise: A 1993 Supreme Court decision about how bankruptcy law applies to mortgages.

A mortgage on your primary residence is different from other kinds of loans–and not in a good way. When a borrower is buried in bills, the bankruptcy process can help discharge many kinds of debt. In the early 1990s, Harriet and Leonard Nobelman found themselves underwater on a condo in Dallas—they owed more than $65,000, but the current market value had fallen to $23,500. As part of a bankruptcy plan, they proposed that the balance of their mortgage be reduced to that $23,500. The bank fought this in court. Ultimately, the Supreme Court decided that the principal value of a mortgage can’t be modified by a judge in the bankruptcy process.

Fast forward to 2008 and the housing crisis, and this technical-sounding decision suddenly mattered a lot. Candidate Barack Obama endorsed changing the bankruptcy law, but ultimately nothing ever came of it. And the administration resisted other proposals—coming from political conservatives as well as liberals—to encourage or push lenders toward principal reductions. (A program to subsidize some principal mods began in 2010.)

“Hang on,” you may be saying, “forcing people into bankruptcy doesn’t sound like much a solution. I know lots of people who went underwater on their home, and they never would have declared bankruptcy.”

That’s true. But Taub tells me that that this law matters even for those who never go to court. “It would have shifted the bargaining power,” she says. “Knowing that would be an option would have brought the lender to the table more quickly and more willingly.”

Of course, many underwater homeowners ultimately did get out from under their debts—by letting the bank take the house, or agreeing to a short sale and moving out. But could a more orderly, less painful principal reduction process have made the housing crisis less damaging?

Economists Atif Mian of Princeton and Amir Sufi of the University of Chicago say yes. Their book House of Debt argues that the Washington’s failure to help more homeowners renegotiate their debt needlessly prolonged the economic slowdown.

When households are weighed down by debt they can’t pay, they spend less, and the effect can spread throughout the entire economy. This seems intuitive, but most economists have preferred to focus on fixing broken banks. Mian and Sufi have found compelling evidence that homeowners’ woes were the real main event. For example, in U.S. counties with the sharpest declines in net worth during the crash, spending fell almost 20%.

Much of this is water under the bridge now. But not all of it. Taub points out that foreclosures are up over last year in some states. In any case, she argues that resetting the rules for how mortgages work could help to prevent the next bubble. “Hopefully, lenders, if they are disciplined by having to take losses, won’t engage in these no-money-down and no-doc mortgages and so on,” she says.

Letting off the hook people who borrowed too much is touchy stuff. (See Rick Santelli’s famous CNBC rant.) But if borrowers should be more cautious, so too should lenders. Although putting more risk on lenders might raise the cost of mortgages somewhat, Taub argues “that’s reasonable insurance to pay to avoid massive foreclosures and abandoned houses and the whole downward spiral.” You didn’t need to have an option ARM on an oversized house to feel the pain of the foreclosure crisis.

Mian and Sufi have another proposal for future mortgages that bypasses these hot-button fairness questions. A new kind of loan, called the “shared responsibility mortgage” could link mortgage payments to an index of local housing prices. If local prices fall, a borrower’s monthly nut would drop too. In return, the bank would get 5% of any capital gains on sale. The idea is both to ease the economic damage housing declines cause, and to give lenders an extra incentive to be careful about lending into frothy markets. (The tax code would likely have to be changed to make such loans popular.)

As Mian and Sufi point out, mortgages looked like a pretty safe investment from the point of view of lenders. That was a big part of the problem. Even if housing prices fell, lenders assumed homeowners would be obligated to make their full payments. But the economy as whole would have been safer if more of the risk was shared.

MONEY selling a home

8 Ways to Screw Up Your Home Sale

With the positive momentum in the housing market, more homeowners are ready to put their homes on the market. Don't mess it up.

If you’ve been paying attention to the news headlines, you’ll know that it’s a “sellers’ market” in many cities right now. But beware – just because prices are up and inventory is down and the market seems prime, don’t become overconfident or careless with your own home. There are plenty of ways you could still sabotage your sale:

  1. Selling A House Via “For Sale by Owner” (FSBO). Trying to sell your home by yourself is sheer madness. Many people think that it’s easily doable because the market is hot and you can save on the commission. Despite the lure of not having to pay an agent a commission, you need the expertise and know-how of a professional, who can help you navigate the stacks of paperwork, provide priceless neighborhood knowledge – and negotiate on your behalf. The numbers also don’t lie: the typical FSBO home sold for $174,900, compared to $215,000 for agent-assisted home sales.
  2. Mispricing Your Home. Overpricing your house is a huge money-losing mistake. Yes, the market is hot. But not hot enough that you can push the envelope and price it for way more that the comps will support. Overpricing your home is dangerous – and you can end up burned in this ‘hot market.’ You run the risk that your home will sit on the market for weeks and months and become the stale listing that every home seller wants to avoid. Know the competition and set the right price – never overprice too high in hopes that someone will unknowingly overpay.
  3. Using Lousy Photos. – 90% of all home shoppers start their home search online, and bad photos can tank your home sale. If you let your agent grab a few fast photos of your house on their cell phone on a rainy day and use those for all your online listings, then you’ll likely get passed over for a home with more flattering photos. You also must showcase your house on its ‘best day.’ When the light is shining through the windows, when the countertops and other spaces are clear of clutter and unnecessary items. It astounds me when any home sellers (and their agents) allow photos of rooms scattered with old clothes and filthy, messy kitchens. Every photo should illicit a “wow!”
  4. Refusing to Make Obvious Repairs Prior to Sale. You will lose money if you don’t take care of repairs before the house goes on the market. Showing the house when there are leaking faucets, cracks in the walls, water stains on the celling, and a busted hot water heater are all ways to turn off potential buyers. When you do find a buyer willing to overlook those necessary repairs, they are going to want discounts or credits worth far more than what it would have cost you to make the repair yourself.
  5. Keeping All Your Clutter and Junk. “Oh the house looks fine” you say to your agent. “It’s going to take too long to pack up and get rid of all our extra stuff” you say to your husband. “Buyer’s will see right past all my boxes and collections of plaster cookie jars and shelves overflowing with nick-knacks” you think to yourself. It may sound like a good idea, but it’s not a smart approach. Believe me, I have seen homes come on the market that obviously could have sold so much faster, had the home owners spent just one weekend depersonalizing and removing all their “stuff” inside the home. Clutter makes your home seem smaller, ultimately eating equity and killing deals. Period. De-clutter immediately! Take inventory of all your possessions and think to yourself: should I save it, store it, sell it, or chuck it?
  6. Ignoring the Backyard – Everybody knows that fantastic front curb appeal sells homes, but don’t forget what’s out back. In the summer and fall months, everyone’s attention turns to the outside spaces, where they dream of warm summer nights and outdoor entertaining. If you don’t maximize and capitalize on your backyard, you are missing a huge component of your warm weather living spaces. That back yard patio is not just for storage of old bikes and broken patio furniture that should have been thrown out years ago. In a buyer’s eyes, it can be the most important ‘room’ in the house. You need to stage your backyard and outdoor entertaining areas as beautifully as you would the interior of your home. Green grass, flowers and trimmed trees should be the same standard as your curb-appealed front.
  7. Hiding Problem Issues From the Buyers. I’ve watched too many home sellers pay out big bucks because they didn’t “reveal it all.” Disclose! Disclose! Disclose! Once you have an accepted offer, sellers are required to fill out disclosure statements. If you did renovations to the house without a permit over the years, disclose. If there was a roof leak that damaged the attic two years ago, disclose. If the electrical blows every time you run the dishwasher and the microwave at the same time, disclose. The buyer’s will find out eventually. And if you knowingly have kept things from them, it sets the tone for an ugly and difficult closing. Not to mention that you are setting yourself up for the liability.
  8. Getting Your Ego Involved When Negotiating. Real estate transactions are business deals. Plain and simple. There is no room for ego here. If an offer comes in low, the mistake is to be insulted and not counter back. Always counter back and keep deals in play. Too many sellers take negotiations personally and lose out on creating a win-win deal. Keep your ego out of the equation and put your head back into it. Remember your end goal: getting your house sold and having a smooth and successful closing.

More from Trulia:
Top Reasons Millennials Shouldn’t Buy a Home–Yet
Can Buying an Older Home Ruin Your Marriage?

Michael Corbett is Trulia‘s real estate and lifestyle expert. He hosts NBC’s EXTRA’s Mansions and Millionaires and has authored three books on real estate, including Before You Buy!

MONEY Rentals

Rent Too $@#% High? These 7 Tips Can Get You a Better Deal

Jimmy McMillan, The Rent is Too Damn High guy
There are better ways to lower your rent than running for Governor of New York. David Shankbone

Rents are surging across the nation, but you don't need to join the "Rent is Too Damn High" party to get a discount.

Renters who aren’t leasing space under a rock have probably noticed prices are kind of insane lately. Since last year, rents are up everywhere (in some cities, over 10%), and an average 2-bedroom in a major city could cost as much as $3,550 a month.

Short of running for political office, how can you cut your rent bill from impossible to merely outrageous? We’ve got a couple of tips.

1. Have low realistic expectations

The economy is getting better, more people are going back to work, and most of them are renting. That means there’s a huge clamor for condos, especially in major metropolitan areas, and landlords can set their prices accordingly. Gary Malin, president of the New York City brokerage firm Citi Habitats, warns waiting for an out-of-this-world deal in a hot area is a sure way to end up with no place to live.

Instead of looking for a huge bargain, he suggests, try to negotiate somewhere between $25-100 off your monthly rent. (Talk in dollars, not percentages, so your landlord doesn’t have to break out a calculator.) In San Francisco, 50 bucks off might just be a 1% discount on a typical two-bedroom’s monthly bill, but over a year it works out to $600 in savings. That’s not nothing.

2. Show the landlord how awesome you are

How awesome you are as a tenant, that is. Someone with solid financials who will sign quickly can land a discount even in tight markets, Malin says.

Build a strong application by including all the necessary paperwork and emphasizing your strengths (current employment and great credit can go a long way). Complimenting the apartment doesn’t hurt. Include references from previous landlords: Niccole Schreck of Rent.com says letters from past property owners attesting to your amazingness can win your new lessor’s confidence—and maybe a bargain as well.

Try this: owners of smaller complexes have the most to lose if tenants don’t pay up. If you can show you’re a prize, you might nab a better deal in buildings with fewer units.

3. Go by the numbers

When asking for a discount, approach the landlord “intellectually, not emotionally,” Malin says. Translation: no sob stories. Instead, do your research and show the property manager why you should get a better rate. Schreck advises renters to look up the prices of other units in the neighborhood (use Rent.com and similar sites) and make notes of the amenities other buildings offer, like gyms or laundry rooms. If surrounding real estate rents for less or offers more perks, use that to your advantage.

4. Be flexible about location, location, location

Jason Kaczmarczyk, partner at the Boston-based Encore Realty, says he saves clients thousands by steering them from the sought-after Brookline neighborhood to the more affordable Cleveland Circle. The kicker? Cleveland Circle is just feet from the Brookline town limits—and it has free parking.

To find a cheaper area, use your commute time to create a list of all the neighborhoods where you could feasibly live. At Trulia.com, enter where you work and generate a map of your city, color-coded by shortest travel time. From there, look for lower-priced parts of town.

5. Wait for winter

The summer months are the No. 1 season for new leases, meaning huge competition and high rates. Once temperatures drop, so do prices, as landlords get antsy. Consider subletting for the summer and starting your search in October or November. Malin says landlords who don’t rent a unit by Thanksgiving might cut rent by up to 10% to avoid the risk it will sit empty until January.

Off-season renters are also twice as likely to find “move-in incentives” such as paying brokerage fees, a free month’s rent, or complimentary gym membership. Some landlords prefer these over discounts, and Schreck says they’re typically easier to negotiate.

Keep in mind though: it’s no fun to move in the snow.

6. Read the lease agreement

We know you’re excited, but rushing through your lease can cost you bigtime. As MONEY’s Amanda Gengler writes, a recent Rent.com survey found that 26% of renters lost their entire security deposit. She recommends checking the fine print—painting your apartment or putting holes in the walls might be off limits—and making sure anything the landlord tells you in person (“of COURSE you can have a cat!”) is in writing, attached to the lease if necessary. Check that the utility bills included in your rent match the landlord’s promises.

7. Offer to sign a longer lease

The one thing landlords hate most is vacancies, and signing for longer means your property owner won’t have to worry about filling your apartment for an additional year. This may not work in hot spots like New York City, as landlords prefer to reassess market conditions at the end of every year and decide whether (read: how much) to raise rent.

But in slower markets with more vacancies, a longer lease can earn you some concessions. Rent.com has a list of the 10 fastest growing cities (ie. places people actually want to live) with above average vacancy rates to help you decide if you should use this tactic.

More: Rents Just Won’t Stop Going Up

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