Managing Your Credit


Rising rents are forcing renters to outspend home owners on housing costs, according to a new study.

Since 2005, home owners’ housing expenses have climbed from 31.9 percent of their household budget to 33.2 percent. On the other hand, in that same time period, renters’ expenses have jumped from 35.6 percent to 38.4 percent, according to the October CoreLogic U.S. Housing and Mortgage Trends.

In the last 26 years, home owners have increased the amount they spend on household expenses by 12 percent while renters have increased it by 22 percent, according to the study.

Earlier this month, Capital Economics economists noted that for the first time in 30 years the median monthly mortgage payment is about the same — or less — than the median rental payment.

Yet, with the bleak job market, home ownership rates continue to fall in many parts of the country, particularly among younger generations. CoreLogic found in its report that the home ownership rate for the 25-to-34 age group dropped from 51.6 percent in 1980 to 42 percent in 2010. For the 35-to-44 age group, home ownership rates fell from 71.2 percent to 62.3 percent over that period.

Source: “Renters Outspend Owners on Housing,” RISMedia (Oct. 25, 2011) and Capital Economics

Read More:

Bargains Abound: What Are Buyers Waiting for?

Commodity prices

Good news bears

Aug 8th 2011, 13:39 by The Economist online

A fall in commodity prices offers some cheer among the market gloom

THE equity markets may be suffering again as investors worry about sovereign debts and a slowing global economy. But the sell-off has also extended into the commodity market, particularly in oil: West Texas intermediate is trading at around $84 a barrel. This is a bearish story that is good news for western consumers. High raw-materials prices acted as a tax rise in the first half of the year; now they are falling the effect will be akin to a tax cut. There is just one caveat. The working assumption is that the recent sharp fall in the oil prices is caused by concerns about a slowing US economy; if it is really due to a sharp slowdown in emerging markets as well, equity markets will really have cause to worry.

Readers’ comments

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Welcome back to Earth !

BRL, you better find a parachute for you…

Deflation, your time has finally come, after 2.5 years of delay

We called it:
http://seekingalpha.com/article/285619-the-debt-downgrade-and-the-summer…

We’re outperforming today as we did all of last week.

I remember in 2008 petroleum peaked in May for their highest price in history. The cause was never explained.

This price exceeded 2004 levels when the Gulf refineries were smashed by a series of Hurricanes notable Katrina and Rita. The prices exceeded the outbreaks of Gulf War 1 and 2 with Iraq and even the 9/11 attacks. The price of oil exceeded Supertankers being attacked by terrorist teams, Iran mining the critical choke point of the Strait of Hormuz where 40% of World travels, Putin’s energy cut offs, or raging piracy off the Somalian coasts.

I want to propose an actor and a plot. Follow the Money. Who has the Wealth and Power and the Means and Motive? The world’s largest exporter of oil is Saudi Arabia.

And in 2008 they saw an opportunity to influence the election of the most powerful office in the world. The Saudis grew tired of Bush and the Republicans. And the Republican Presidential Candidate McCain seem to want to open up a third war front on Iran. The other candidate was named Hussein and may prove to be a tribal brother.

And when your only tool is a hammer, every thing looks like a nail. By reducing oil imports by 5%, the Saudis can affect oil prices world wide instantly and to astonishing effect. The Saudis used their control over oil supply to jigger a shortage, which lead to price spikes 6 months before the election and precipitated the American Great Recession of 2008. John McCain argued their was no recession under Republican leadership and was soundly trounced in the election.

But this Recession snowballed into the Nov 2008 banking crisis, Lehman Bros downfall, the mortgage crisis, AIG insurance crisis, Automaker bankruptcy and the unemployment morass. All because of oil spikes.

An incumbent President’s greatest opponent is the state of the economy in an election year. And the Saudis are again using their hammer this time to LOWER the price of oil to brighten the American economy and re-elect President Obama. We are puppets on a string.

Unfortunately, the law of unintended consequence, the Recession they brought on in 2008 is still around and may be into a double dip. The Saudis are at it again doing their best to suppress the price of oil to promote a recovery.

Surprise, Money is Power! And Economic issues can influence Politics. Strange things happen in election years. Yes, even foreign actors can also pull some stringshmTzic3YT/

Your assertion that the Saudis influenced oil price to rout the Republicans in American presidential election is clever, but simply UNTRUE. The Saudis, or more accurately King Abdullah and the House of Saud, most likely WANTED warmongering hawks in the White House again, so that the US could wipe Iran and its nuclear programmes off the map. Wikileaks showed that King Abdullah, while posturing as an Islamic patriot who wanted the US to moderate its Mideast policies, privately encouraged GWB to attack Iran. This explains the confusion and the disorderliness with which the Saudi diplomatic corps to Washington D.C. have been conducting themselves vis-a-vis the Iranian issue.

And in this day and age, it is unwise to assume that the power to set the price of oil is centralized in Riyadh, Caracas or whatever. Thousands of traders tinker with the price of crude, and other governments can simply flood the market with their strategic oil reserves to drive the price down.

On this blog we publish a new chart or map every working day, highlight our interactive-data features and provide links to interesting sources of data around the we

 

  • AUGUST 5, 2011, 12:07 P.M. ET

 

Buyer’s Remorse? How to Undo Big-Ticket Buys

Market moves have consumers rethinking big-ticket purchases. How to back out without losing your shirt

 

 Uh-oh. Did you keep your receipt?

This week’s unnerving market moves haven’t just shaken everyday investors and portfolio hawks. They also have the potential to unsettle another important group: American consumers.

Analysts worry that the fresh wave of economic uncertainty could prompt consumers to postpone or cancel major purchases, whether a last-minute summer vacation, a car for a college student, or a bargain vacation home. Already made a recent big buy? That’s where buyers’ remorse could start kick in, analysts say, for every point the Dow falls.

For some consumers it already has. Some recent retailer surveys suggest that shoppers have been spending more time at the returns counter since the fourth quarter of 2008, says Deborah Mitchell, executive director for the Center of Brand and Product Management at the University of Wisconsin-Madison’s Wisconsin School of Business. “After the purchase is made, they’re still thinking, ‘Should I have bought that,'” she says.

There are some options for nervous buyers who are still planning a big splurge — while wondering if the market is poised to fall further. Some industries have noticed, and are capitalizing on, the current wave of buyer’s remorse by offering pricey and profitable buyer protection plans. Below, a guide for consumers planning to buy and options for those who’ve already put down their plastic:

Big-ticket retail goods

When it comes to refunds, the big box stores tend to be fairly generous. Wal-Mart and Target, for example, accept returns for up to 90 days. But consumers may face restocking fees of up to 25% on items like electronics and appliances, special orders and boxes already opened, says Edgar Dworsky, found of advocacy site ConsumerWorld. And customized products, like furniture, may not be eligible for cancellation, he says.

Consumers who paid with a credit card might find a little extra leniency. Select cards, including many from American Express and Visa, include so-called return protection, which offers a refund of up to $250 on purchases made within 90 days (and which the retailer won’t take back). Not everything qualifies — the item must be in brand-new, working condition, for example — and issuers typically limit cardholders to $1,000-worth of claims per calendar year.

Another modest recourse: buy-back programs from stores like Best Buy, which offer a guaranteed sell-back rate for gadgets if you purchase the protection when you buy the item. They’re not a great deal in most situations, but might be the only option on a non-returnable product.

Cars

Once you’ve driven a new leased or purchased vehicle off the lot, your choices are limited, says Alec Gutierrez, the manager of vehicle valuation for Kelley Blue Book. Returns are typically permitted only if the car turns out to be a lemon. Barring that, what can you do? One option is to sell or lease the vehicle to someone else, though that may not be the best financial move, says Jesse Toprak, the vice president of industry trends and insights for TrueCar.com: “A lot of times, getting rid of a vehicle in a panic is a worse financial decision than keeping it.” Losses can easily total more than $1,000 once you factor in the car’s already depreciated value, title fees, taxes and any interest on a lease — often enough to offset the likely savings on a cheaper or more fuel-efficient vehicle.

Even would-be buyers having second thoughts aren’t completely off the hook. People on a waiting list or with a vehicle on order may lose some money if they change their minds, says Alec Gutierrez, since dealerships may declare the deposit (which can total as much as $500) nonrefundable. But at least you won’t be responsible for the rest. “Until you sign on the dotted line, take delivery of the vehicle and drive it off the lot, you are not obligated the buy that car,” he says.

Travel

The options for bailing on an upcoming trip vary dramatically, depending your departure date and travel provider, says Ed Perkins, a contributing editor for SmarterTravel.com. Some fare classes of airline tickets are refundable, but most people who buy tickets online end up with the cheapest options, which aren’t. The big U.S. carriers will allow you to use that ticket value toward another flight, plus a change fee of up to $150 on domestic flights, or up to $250 on international flights. (Southwest is the only airline that does not charge a change fee.)

Cruises may offer penalty-free cancellation depending on how far in advance of the departure date you’re cancelling. Princess Cruises, for example, lets you cancel at no charge up to 80 days before. At 79 to 60 days out, it will keep your deposit, and the fees continue to escalate from there. And on some lines, villas and specialty suites would require even greater notice to avoid penalties.

Hotels vary widely, Perkins says. Many allow penalty-free cancellation up to 24 hours in advance of the reservation, though others are non-refundable or keep the first night’s fee as a penalty but refund the rest.

Travel insurance, now pitched by everyone from tour operators to airline booking sites, is the surest bet for refunds — but only if travelers opt for a policy that allows them to cancel for any reason. Of course, this option isn’t cheap: they typically cost 35% to 50% more than a standard policy. And in some cases, the actual refund may be just 75% of the total cost, says Chris Buggy, director of marketing for Travelers Insurance Service.

Monthly commitments

Most states offer a three business-day right to cancel purchases like health clubs and dating services, says consumer advocate Dworsky. Some of these monthly services also offer money-back guarantees or free-trial periods, though experts warn that consumers who miss that trial period — sometime even for a single day — risk getting wrapped into a lengthy contract or membership.

Cancelling your monthly cell phone service could trigger an early termination fee of several hundred dollars; at AT&T, for example, that’s up to $325. But consumers who want to simply scale back cell (or cable) bills can typically downgrade their plans without a penalty.

 

 
 
 
 
 

 

 
 
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Deficits

There never was a surplus

Jul 27th 2011

YESTERDAY the White House published a chart that explains how we got from the Clinton administration projection that the government would pay off its entire debt and then build up $2.3 trillion in savings by 2011, to the $10.4 trillion in debt we actually wound up with. Of that $12.7 trillion shift, the Bush tax cuts account for $3 trillion. James Fallows explains: “As the figures demonstrated, the Bush-era tax cuts, extended last year under Obama, were the biggest single policy source of deficit increase over the past ten years. Therefore you can be for reducing deficits, or you can be for preserving the tax cuts, but you cannot rationally be for both.”

I think there’s something else we need to look at in this chart. It’s the very first item at the top of the chart’s right-hand column: the shift in the debt profile that resulted from no policy change at all, but from “Economic and technical changes (eg, lower tax revenues due to recession)”. It’s $3.6 trillion.

In other words, that massive surplus pile of government savings, or sovereign wealth, or whatever you want to call it, simply never existed.* The Clinton administration’s calculations in 2000 that the government would pay off its debt and accumulate savings of $2.3 trillion over the following ten years were wrong. And they were wrong not because of any stupid error or dramatically incorrect theory about the economic world, but simply because they failed to predict that the American economy would experience a financial crisis in 2008, followed by the worst recession since the Great Depression and a historically anaemic recovery. (I assume they failed to predict the 2001 tech-crash recession as well.) The Clinton administration delivered a couple of years of real verifiable budget surpluses in the late 1990s, and if Clintonian levels of taxation and spending had continued, they likely would have generated annual surpluses that would have shrunk the debt by over $2 billion over the decade thereafter. But the forecast that they would have eliminated the debt entirely and replaced it with trillions of dollars in sovereign wealth was a mirage.

This isn’t particularly surprising; we simply don’t know how to make long-term projections about the economy or government revenues that don’t have trillions of dollars worth of error margin on either side. Which is why we need to be careful about budgeting and get our tax rates and our spending more or less in balance over the long term, running surpluses in good years and deficits in bad ones. The Bush tax cuts did the opposite: $3 trillion worth of tax cuts were predicated on the premise that we were returning the people “their” money. As it turned out, the money wasn’t there to return. Even without the tax cuts, the wars, or anything else, the government would have entered 2011 with $1.3 trillion in debt, not $2.3 trillion in savings. Basically, in the grip of careless enthusiasm about the economic future, we borrowed $3 trillion from bond markets and handed it out to citizens in rough proportion to how rich they already were. In the middle of a recovery. This is not a useful thing for the government to do.

* I’ve changed the wording in this paragraph to avoid any potential reader confusion between annual budget surpluses, which Clinton-style budgets would have generated, versus an overall buildup of sovereign wealth rather than debt, which they wouldn’t have. (Incidentally, the fact that we don’t even have a readily available word for a buildup of sovereign wealth in the vocabulary we normally use to talk about the American government seems kind of worth noting.) Additionally, I realise that if we hadn’t had the Bush tax cuts, the entire economic story of the past decade could be different; perhaps we wouldn’t have had the financial crisis. Or maybe we would have anyway. I don’t know, and I think that takes things too far. What I’m trying to say in this post is that when you get a budget forecast that says, hey, over the next ten years we’re going to pay off our entire debt and then some, you shouldn’t go rushing out to spend the money on massive decade-long multi-trillion-dollar tax cuts. Ten-year economic forecasts are not very accurate. Not to mention the fact that your decade-long tax cut will be very hard to repeal at the end of the decade.

What Happens to Borrowers After Foreclosure?

The after-effects following a foreclosure to a borrower may not be as bad as once thought, according to a new paper by Fed economists. With the wave of foreclosures plaguing the nation, Fed economists sought to find out what happens to households following a foreclosure.

Overall, the study found that post-foreclosure borrowers don’t fare too bad: The majority of these borrowers do not end up in “substantially less desirable neighborhoods or more crowded living conditions.” Also, the study found that from 2006 to 2008, 22 percent of post-foreclosure borrowers moved to a multifamily rental building, while about 75 percent still lived in a single-family structure. What’s more, the places where they moved were not found to have significantly lower median income, median house value, or median rent than their old neighborhood.

“These results suggest that, on average, foreclosure does not impose an economic burden large enough to severely reduce housing consumption,” according to the report.

Source: “Foreclosure Effects Found Not So Bad,” National Mortgage News (July 26, 2011

Strict lending is good for you and the economy

By Tara Tran • Jul 8th, 2011 • Category: July 2011 Journal, real estate newsflash

The ten largest lenders in the nation approved 73% of mortgage loan applications submitted to them in 2010, down from 77% in 2009, according to an analysis by the Wall Street Journal. Loan approvals in California for 2010 were better than the national rate at 76% of total mortgage loan applications.

Lender approval of refinance applications nationally in 2010 were also on the decline. In 2010, 73% of refinance applications were approved, down from 76% the previous year. The results of the study confirm the continuing increase of loan rejections since the banking industry began to correct their boom-time lending policies to reflect the fundamentals required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The analysis found the three most common reasons lenders gave for loan denials were a borrower’s:

  • insufficient property value for collateral;
  • excessive debt-to-income ratios; and
  • low credit scores.

Those making a case for stringent banking argue that though lending has indeed been more conservative compared to Millennium Boom levels, it is still nowhere near as tight as it was in the 1980s and 1990s.

On the other hand, industry insiders repeatedly direct attention towards the weak housing market and slow economic recovery. They argue that while aggressive lending practices created the housing bubble and should certainly be scaled back, this is too much. Potential buyers, they explain, must have easier passageway to finance a mortgage and buy a home.

Some lenders have little control over the approval process since Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA) – government sponsored enterprises (GSEs) which together represent 90% of the loans made by these lenders – are holding back on purchasing and guaranteeing mortgages in order to avoid further losses for the federal treasury. (Fannie Mae alone has already received over $100 billion in relief aid.)

A major reason for mortgage loan denial on all levels is GSE and bond market investor pressure on lenders to repurchase loans that go bad. In defense of the rigid policy as of late, the FHA reports only 0.3% of GSE-backed loans issued in 2009 have recorded three consecutive missed payments.

first tuesday take: Lenders are doing homeowners and the economy a favor. (A cue to gasp, pause, then breathe a sigh of relief.) Current anxious but unqualified homebuyers may raise a stink about having a denied loan application in their hands but tighter home mortgage lending standards are better for the long-term stability of the real estate market place.

Brokers and buyer’s agents play a contributing role in this 25% loan rejection rate. They are obviously not counseling and advising their buyers – at least not 25% of them – about their gross income, 31% income to mortgage payment ratios, their FICO scores and the cash value the appraiser is going to place on the property they are purchasing. If brokers and agents cover all of these bases with a buyer, then that buyer will not be one of the 25% rejected, and that 25% figure will turn into a 100%.

As we envision recovery in California, we are not talking about going back to the unsound bubbly conditions of recent years past. Rather, recovery entails a return to long-term, historical trends, or in other words, a return to traditional lending standards, which is what all the loan denials are about. Fundamentals provide a cushion to make the markets less susceptible to financial crises of a degree akin to that which we just experienced. [For more information about what makes a financial crisis, see the July 2011 first tuesday article, The rocky roads: recession and financial crisis.]

Only homebuyers capable of putting down a minimum 20% down payment, with jobs to make mortgage payments and carry the property they purchase are truly qualified to receive home loan financing. This was not a practice in the norm during the Millennium Boom when the Federal Reserve (the Fed) flooded the markets with money and Congress eased lending regulations, allowing mortgage lenders to originate risky and imprudent loans. [For more information on the important real estate fundamentals including the 20% down payment principle, see the June 2011 first tuesday article, The 20% solution: personal savings rates and homeownership.]

After some wrist slapping from legislation and the media, the banks, lenders and GSEs are again learning how to make mortgage loans and are now reinstating past discarded standards in their lending policy manuals. This is a positive step toward establishing healthier habits for American financial institutions. [For more information on past and current American housing policies, see the June 2011 first tuesday article, Subsidizing the American dream.]

It seems we have been here before, that déjà vu of some 80 years ago.

RE: “Tighter Lending Crimps Housing” from the Wall Street Journal

– ftCopyright © 2011 by the first tuesday Journal Online – firsttuesdayjournal.com;
P.O. Box 20069, Riverside, CA 92516

Readers are encouraged to reproduce and/or distribute this article.

Copyright © 2011 by first tuesday Realty Publications, Inc. Readers are encouraged to reprint or distribute this information with credit given to the first tuesday Journal Online — P.O. Box 20069, Riverside, CA 92516.

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Tara Tran holds a degree in History from Westmont College and is lead editor for the Landlords, Tenants and Property Management and Real Estate Property Management books.
Email this author | All posts by Tara Tran

One Response »

  1. CF on July 12th, 2011 at 9:52 am:First lets set the record straight….The homeowner did not cause this collapse of the housing market. This whole collapse was brought on by our banks need to feed the “Greed” machine selling mortgage backed securities (MBS) and credit default swaps (CDS). The banks needed more mortgages to leverage 30:1 so they kept bringing out risky loan products. The products were everywhere and were heavily promoted by the banks as the smart move for everyone to own their own home. The removal of risky loan programs and regulation of our banks & wallstreet is enough to solve the problem. Too tight underwriting will only eliminate the low to middle class from making the first step into the housing market. A 20% downpayment does not guarantee (and would have had no effect on this last housing mess) a homeowner is a better risk then someone with a 3.5% downpayment. Look at all the strategic defaults by wealthy homeowners. They can afford to bolt in a losing situation as with the current housing negative equity market. As a matter of fact most of the homeowners fighting for loan modifications are the middle income homeowner who are trying to keep the home. The other underwriting block is credit scores. There again we favor the wealthy as they have the assets to keep things going even in tough times. It is our middle class homeowner who continues to fight with all they got to keep going and in my opinion that cannot be reflected in a credit score. When I had money to pay the bills without much thought I was not necessarily the best with money and yet my score was 780. My friend who had to go through a childs illness managed her money to the penny which meant paying late on some bills. Her scores are considerable lower then mine and she is much better manager of her money then I….but unfortunately that is not reflected in our computer driven credit scores.

Raising Debt Ceiling Critical for Real Estate

In a letter issued to President Obama and members of Congress, a diverse group of national business leaders, including Realogy CEO Richard A. Smith, called on lawmakers to raise the $14.3 trillion U.S. debt ceiling and commit to a deficit reduction plan.

Experts have said that failing to increase the debt ceiling would not only have significant implications on the economy in general, but also real estate. If the government defaulted on its bonds, the government likely would have to raise interest rates dramatically, which would in turn hamper home ownership. (Read more at Speaking of Real Estate.)

“It is critical that the U.S. government not default in any way on its fiscal obligations,” the business leaders wrote in the letter to lawmakers. “Treasury securities influence the cost of financing not just for companies but more importantly for mortgages, auto loans, credit cards, and student debt. A default would risk both disarray in those markets and a host of unintended consequences.”

The letter was signed by several associations and companies, including Realogy, the Business Roundtable, the U.S. Chamber of Commerce, the Financial Services Forum, the National Association of Manufacturers, and others.

Also in the letter, the group called on lawmakers to reduce the nation’s long-term budget deficits. “As businesses make plans to invest and hire, we need confidence that, in the absence of a crisis, our government will not reverse course and return to large deficit spending. … Now is the time for our political leaders to put aside partisan differences and act in the nation’s best interests,” the letter stated. “We believe that our nation’s economic future is reliant upon their actions and urge them to reach an agreement. It is time to pull together rather than pull apart.”

Read more:

‘No’ on Debt Ceiling Would Clobber Real Estate

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