i'll be back at the top of the hour with more live news. now i need to hand it over to your bottom line. the housing market has changed. so have you. what you need to know if you own a home, want to buy one or rent. plus is it ever okay to walk away from that mortgage even if you can afford to pay? let's start with the american dream of owning a home. you're a buyer it's a dream market but only if you can get the loan. with the end of the nation's largest mortgage lenders denying 27% of loan applications last year, that's up from 23.5% in 2009. this is according to "wall street journal" analysis. if you're a seller it's a nightmare. home prices rose slightly for the first time in eight months. according to the most recent s&p kay schiller index. prices are down 32% from their

peak in 2006. home ownership is at the lowest level now since 1998. chris meyer is here. is the worst behind us here? >> depends where you live. i think in some of the coastal markets in coastal california, the northeast, i think we really are starting to see things turn around, and, you know, places like atlanta. but if you're in florida, if you're in nevada, if you're in parts of california, you know, arizona, it's hard to say that the worst is behind us. >> all real estate is local. you're absolutely right. taking the average home price in america is like taking the average temperature in america. it's different depending on where you live. i get that. when we look at the way home ownership has declined to 1998 levels, not necessarily bad news, really, because maybe home ownership was bumped up too high

for false reasons. >> yeah. i think we now understand what i think we didn't understand for a long time which is not everybody should be a homeowner, and, you know, eventual between 80% and 90% of americans will own a home. many of us in our 20s either we move around a lot. we took on too much debt, student loans, other things, aren't in a position to own a home. we shouldn't put some of those people into homes that they are owning. we should find ways for them to rent. >> we're looking at a chart that shows rent recessions and how home ownership has fared. for 10, 20, 30 years no matter what home ownership peaked. do you think more people are going to continue to shy away from buying a house either because they can't get a loan or because they've changed they're view of the american dream? >> i think that one of the interesting facts is if you look at people who went through the

great depression and owned stocks, people who owned stocks in the great depression and lost all their savings, invested less in stocks for the rest of their lives. so there is a little bit of, you know, risk i think that some of the people that have been really burned in housing will sort of think they just don't want to own a home for a long time. there's a big but there, which is at the same time, you know, owning a home is really a sign of financial stability. if you're able to do it. so, i don't think it's going to be as bad as, you know, the great depression evidence of people who just never invested in the stock market again. but hopefully people will be more responsible about that decision. >> we can only hope. jim carr, communities need the housing market to recover. state and local government, they are expected to shed more than 100,000 jobs in the third quarter. without those property tax revenues they can't fund operations. communities are facing an uphill

battle if people can't buy homes, jim. >> right. you're absolutely right. the problem is not as if somehow things are leveling out. we're en route to another 2 million foreclosures and another 2 million in the pipeline on top of that. despite the good news that you talked about earlier at the top shot the reality of it is that more likelihood is that home prices will continue to slide through the end of this year, one good note is nice but it doesn't make a song. and so i think there's real trouble in the housing market in the years to come. >> margaret kelly you're the ceo for remax. do you think we're reaching a bottom here? >> i think we're reaching a bottom. right now we call it kind of a soft recovery. up and down. unlike the kay schiller report, remax does a housing report and kay schiller is a three month average, the data we're looking

from them is for april. remax looks at current data and what eve seen is the last three months that we've seen an increase in prices in three of the last four months increase in transaction. that's great signs. >> jim, chris and margaret stick with us because we have so much to talk about about house, the big question is do you rent or do you buy? what to do and which makes sense for you and your family. that's next. ucerna shakes. they have slowly digestible carbs to help minimize blood sugar spikes, which can help lower a1c. [ male announcer ] glucerna. helping people with diabetes find balance. [ male announcer ] glucerna. somewhere in america, a city comes to life. it moves effortlessly, breathes easily. it flows with clean water. it makes its skyline greener and its population healthier. all to become the kind of city people want to live and work in. somewhere in america, we've already answered some of the nation's toughest questions.

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can a home be a man's or woman's castle even if he or she done own it. yes if the latest wave of renters is an occasion. even though who can afford to buy are opting out and renting instead. >> if i owned my own home i wouldn't have any of these amen egypts. >> like a full service building and an outside pool. >> but he's at an age when people consider buying their own homes. >> thought about investing in purchasing a home. my father purchase ad home when he was my age. so when i knew i was going to move to baltimore i looked at properties, but i just knew in my line of work i would need to be relocatable. >> and his friends who own homes he sees them struggling.

>> been on the market for a year. they are not getting the price they are asking for. that's scary. >> the numbers tell the story. home ownership has dropped from 69% in 2004 to just above 66%. home ownership is at the level it was in 1998. but even those who have the money and can with stand the tougher credit checks are opting not buy but to rent instead. chris meyer researches housing for columbia business school. >> a lot of people are looking and saying even if i can make the down payment, even if i have the income and credit, is this really the best time to jump into the market? >> doug beebee is part of the national housing council. >> we're seeing some opting not to buy because they are betting on housing prices falling further. there are others who are betting on the ability to change.

>> with the jobless rate at 9.1%, being able to pick up and go where the jobs are is critical. >> i prefer to rent. i like the flexibility that come along with renting. >> the face avenue generation of renters and perhaps future of home dwelling in general. >> there's a lot of evidence that people need to have down payments so we should have viable options for people who are not in a position in their lives not to be owners. hopefully we'll start to eliminate the stigma so when people buy they will buy for good reasons. >> he works in human resources. if he gets a promotion he wants to be able to take it and move cross country. so which is your american treatment? all those amenities or flexibility. chris, in the piece we just watched you said renting is a

viable option. the numbers prove it. renter growth has out paced household growth. new household creation for four years in a row. looking at the long term effects economically if we become a nation of renters or a larger percentage of renters? >> you know, home ownership is a great thing in terms of if you're in a stable place to do it. but there's no evidence to suggest that well run rental community, well run rental properties are bad for locations. in general. i think we are going to see -- i was just down in atlanta at the beginning of this week and, you know, a lot of sales are going to people who, investors who are looking to rent single family homes out. >> the numbers are showing a third of home sales are almost a third are investors and sometimes professional investors not like you or me or me getting in and buy agnew home. margaret, you run a real estate company.

we've heard for so long for people who make their money selling real estate that it won't get any worse. the bottom is almost around the concern. what does it feel like or what do you think about this new talk that renting is a better option for people. they they'd to buy their cash cushion and the housing market isn't good for them? >> there's quite a few thing. one is the confidence in your income, employment and so on. renting versus buy is a very personal decision based upon your personal situation. it's still the american dream and many people want it. you're right there are about 20% to 30% investors out there who are buying homes and a lot of them are someone buying one home in their neighborhood and keep it and rent it. if you look at the number of families that have been foreclosed upon, they can't buy homes now. they need the rental properties. that's why you see an increase in the rental market. . >> most of the country, the home ownership rate is declining, parts of the midwest, new york state, some other places you see it going up. do you believe, jim, owning a

home, the classic american dream is still the better way to go and that we do need to ditch the idea that houses never go down in value. is home ownership good for communities? >> absolutely. there have been a number of studies that show there are significant differences in the behavior of owners versus renters. first of all, just starting with improving their own properties as well as making sure that the neighborhoods remain really viable, they have the right amenities. even going beyond that. there's nothing wrong with being a renter. it's unfortunate if, in fact, we move forward with public policies that really didn't promote home ownership because it's important to remember that for more than 50 years the american home was not only sort of the centerpiece of where one lives, but owning a home was the number one source of wealth accumulation for the typical american household and if that's lost the question is what fills that gap. >> chris meyer thanks for joining us. more than a million homeowners

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the mortgage bankers association says nearly 13% of all homeowners with mortgages are either behind on their payments or already in foreclosure. the stress of mortgages gone bad is leading to a new trend called strategic defaults. these are people who can pay their mortgage but they stopped because the value of the mommy is worth less than the loan. who are these people? you might be surprised. the credit bureau experience tells us the average strategic defaulter has multiple mortgages, has higher origination balances, a third of them almost live in california, and they have higher incomes, higher credit scores and higher financial literacy. is it okay to walk away from the mortgage? david flores joins me now. david, help me understand the

two reasons why you say people do this? >> well, the two reasons are this. one, to try and leverage with the bank, network with them on a modification. >> say i'm walking away unless you can work with me. >> right. the other reason is simply because they want to take advantage of the slow drawn out foreclosure process, live in a home -- >> for free. >> in some cases people own a different home, renting out the other home that they aren't paying the bills on and collecting the rent. one thing i found interesting is that these are people with higher credit scores, higher incomes, they would have better financial literacy. >> there's a lot more information out there regarding what the banks -- what you need to do in order to qualify for a loan modification and so there are a lot of attorneys out

there, organizations who are feeding that information. >> there's a cottage industry we'll take your money to help you strategically default. margaret kelly, you're also on the front lines. what do you think has to be done to keep people who want to stay in their homes, in their homes, paying their bills, and not strategically defaulting. or is it ever okay to walk away from your financial obligations to the bank if there's no hope -- you're so underwater, there's no hope you'll ever get out of it? >> that's a moral and ethical question that i think each person has to address. but what we need to do is loosen up the jumbo mortgages and allow the higher-end mortgagees to be able to adjust their mortgage. it's kind of interesting. you talked about, it's the higher end. for those people with mortgages of $50,000 or below, only 6% strategically default. if you are over $1 million on your mortgage, 33% are strategically defaulting. >> why is that? >> because more than likely, they paid way too much for their

home. they don't see that they're ever going to get out of a negative equity position. and they have, as you said, it is strategic. they have thought about it and said, it is better to talk away than to sit here and continue to make payments because i will never get the money out of this home. >> you know, jim karr, i want to bring you back into the conversation. one of the things here, subprime borr borrowers, many have already been blown out and foreclosed in the past few years. it's ironic now that the people who are still living in their homes and not paying any bills are people who have high credit scores and higher financial literacy. >> right. it's very interesting. and i think the term "strategic" is really key here. because a lot of people really, you know, have a perception that maybe those are lower income households. but really, it's higher income households. and probably one of the reasons they do it in addition to those reasons that have already been given is that they have other wealth that they can rely on to continue to function in the economy, even though they have this serious ding against their credit score. because a strategic default is going to hurt you with respect to your credit score.

but as you know, you need a credit score for practically everything these days. you can't afford to lose more than 100 points and continue unless you've got a fair amount of assets that you can rely on. >> go ahead. >> the other thing, it's important to recognize that in many markets, consumers are upside down not by 5% or 10%, because that's not really where the problem is. it's in those markets where consumers are upside down in their loans by 25% or even 50%. and in those cases, many people are walking away simply because they can't estimate the day at which their home will ever be worth what they paid. so, again, it is a moral issue. it's also a legal issue. but the reality of it is, if you owe 50% more on your mortgage than the home is worth, a lot of folks are saying, well, this is clearly just a dead loss. i might as well take the ding on the credit score and go forward from there. >> especially if you have multiple mortgages, which is what the experian data found. if your credit score is going to take a hit, you're already living in one home. it's not like you're looking for another mortgage to live in your

house. you're already living in one house. and also, they found that 90% of these people were paying all of their other bills. all of them. so from the credit rating point of view, your score falls, but with an asterisk, because you're paying all the other bills. that makes you still a good candidate for all the products the banks are trying to sell you, jim. >> not necessarily. you're still -- strategic default means you intended to do it. you could have paid that bill. so you're going to be treated a lot less favorably by the credit scores than you would if you defaulted because you literally had hard times. you know, you lost your job. the other thing i think it's important to recognize is that depending on whose numbers you're using, the number of households that are upside down range from between 23% to 28%. that's a huge number. further drops in house prices, the conversation we were having earlier, if that happens, the potential for more strategic defaults is -- could, in fact, grow. >> okay. guys, stick with me for a minute, there's so much more to talk about. jim, margaret, david, stay with

me. what will it take to fix the housing market, to get home prices stable and rising again, and when will we see a real recovery? real answers, next. there's a nurse who can access in an instant every patient's past. and because the whole hospital's working together, there's a family who can breathe easy, right now. somewhere in america, we've already answered some of the nation's toughest healthcare questions. and the over 60,000 people of siemens are ready to do it again. siemens. answers. i don't always have time to eat like i should. that's why i like glucerna shakes. they have slowly digestible carbs to help minimize blood sugar spikes, which can help lower a1c. [ male announcer ] glucerna. helping people with diabetes find balance. t the motorola expert from sprint. its powerful tools help you work faster and smarter so you can get back to playing "angry birds." it lets you access business forms on the go,

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15% of americans think the housing market will recover next year. that's 15%. 24% say 2013. and you can see from this pie chart that most of them, 54%

think the housing market won't recover before 2014. jim kacarr, can the government, should the government, fix the housing mess? >> yeah, so there are three components of this housing market problems. the first is the foreclosure crisis that continues, the federal interventions so far have just been woefully inadequate, and there's a lot more that can and should be done. in fact, going back to our conversation on strategic default, the failure of a lot of these loan modification programs is a lot of the reasons why people are going for it with strategic defaults. the second is that we need to repair the housing market, meaning put new rules in place that make sure rules are sustainable. but we need to make sure we don't put rules into place that are so onerous that they dampen the market, because that will simply slow the housing market's recovery. and the third piece is unemployment. unemployment has been the largest driver of foreclosures for the last two or three years now. so failing to get america back

to work is going to be harmful to the housing market going forward. >> you know, margaret, we know the solution to the housing crisis, it's confidence. although we don't know what it will take to get the confidence back. maybe knowledge or financial literacy is part of it. take a look at this. these are two prototypes of a simple two-page mortgage form. that replaces the existing, lengthy, often confusing disclosure documents. margaret, is this the clarity we needed for borrowers five years ago, i guess? and does this go toward helping us get some health in the housing market again today? >> well, unfortunately, years ago, the lending practices were way too loose. you could get a mortgage without anything down, without proving income. i think the pendulum has swung too far the other way, with where lending practices now are way too tight. we have to get back to common sense, good lending standards. we have to increase confidence and the best way to do that, let's get private sector jobs. let's get people employed again. people who have jobs, they buy

homes and they stay in homes. and third is this whole distressed property glut that we have or shadow inventory, it is going to take a few years to work through the system, but once those are gone, we are back to a normal housing market. >> you know, david flores, you counsel people who are trying to get out of debt. and they're trying to triage all of these bills and decide what to do and whether they should rent or buy and if prices are going up or down. david, is it jobs, the thing that we need to really help this situation? >> well, i think it's a combination of jobs and as you said, with financial literacy. i think a lot of consumers got into mortgages that they simply could not afford, but didn't understand that they couldn't afford them. >> do you like that two-page document? >> i do like it. i would like, obviously, as a financial counselor, for the lender not to be the one to go over -- or only the lender go over that information. but a third party who is, you