Real Property Issues

The Federal Reserve Bank of Boston published a research paper regarding the foreclosure crisis and credit crunch in the United States. The report differentiates between borrowers who used subprime mortgages to finance an initial housing purchase and those who used subprimes to refinance pre-existing mortgages. Data was analyzed over the period from 1989-2007.

Key Findings:

Negative house price appreciation is the main determinant of foreclosures.  Borrowers who financed a purchase with a subprime morgage in 1998 benefited from the states historic run-up in house prices through 2005. Subprime borrowers who took out purchase loans in 2005 were disproportionately vulnerable to declining property values and hence to default.

Much of the dramatic rise in Massachusetts foreclosures during 2006 and 2007 is attributable to a decline in house price appreciation that began in mid-2005. Approximately 30% of foreclosures that took place in 2006 and 2007 were traced to borrowers who used a subprime mortgage to purchase their house, up from 10% in 2003 and 2004. However, almost 44% of the 2006-2007 foreclosures were tied to borrowers whose most recent mortgage was issured by a subprime lender; of this group, almost 60% had initially financed their residential purchase with a mortgage from a prime lender. The subprime mortgage market has played an important role in the foreclosure crisis by creating a class of homeowners who were vulnerable to declining house prices. As a group they had higher LTV ratios and thus a smaller financial cushion against negative appreciation.

The National Association of Home Builders study found the life expectancy of a typical appliance depends to a great extent on the use it receives. Moreover, appliances are often replaced long before they are worn out because changes in styling, technology and consumer preferences make newer products more desirable. Of the major appliances in a home, gas ranges have the longest life expectancy: 15 years. Dryers and refrigerators last about 13 years. Some of the appliances with the shortest lifespan are: compactors (6 years), dishwashers (9 years) and microwave ovens (9 years).

Kitchen sinks made of modified acrylic will last 50 years, while kitchen faucets will work properly for about 15 years. Bath cabinets and toilets have an unlimited lifespan, but the components inside the toilet tank do require some maintenance. Whirlpool tubs will function properly for 20 to 50 years, depending on use.

All natural wood floorings have a life expectancy of 100 years or more. Marble, slate, and granite are also expected to last for about 100 years. Vinyl floors last up to 50 years, linoleum about 25 years, and carpet between 8 and 10 years.

Heating, ventilation, and air conditioning systems require proper and regular maintenance in order to work efficiently, but even in the best case scenarios most components of such systems only last 15 to 25 years. Furnaces on average last 15-20 years, heat pumps 16 years, and air conditioning units 10-15 years. Tankless water heaters last more than 20 years, while an electric or gas water heater has a life expectancy of about 10 years. thermostats usually are replaced before the end of their 35-year lifespan due to technological improvements.

The life of a roof depends on local weather conditions, proper buildings and design, material quality, and adequate maintenance. Slate, copper, and clay/concrete roofs have the longest life expectancy- over 50 years. Roofs made of asphalt shingles last for about 20 years while roofs made of fiber cement shingles have a life expectancy of about 25 years, and roofs made of wood shakes can be expected to last for about 30 years.