Foreclosure filings rose 47 percent from a year ago last month. There’s now one foreclosure for every 775 households. In Clark County, Nevada, one out of every 30 homes began the foreclosure process last year!
What’s that about? Generally, three things: people buying much more home than they can afford, “flippers” with bad timing, and homeowners facing crises.
Let’s look at them in reverse order. Homeowners with mortgages they can afford usually do well, make their payments and, eventually, own their home. Crises happen, though. People lose jobs, spouses die, costly medical procedures are required. Financial crises can knock a stable homeowner for a financial loop. While this is not the primary reason so many homes are entering foreclosure proceedings, it is a factor for some.
The second group is comprised of “flippers” with bad timing. Flipping real estate has always been risky. But when the market hits its peak, the risk increases quickly. If you buy at the top hoping to resell higher, you lose. Many have been caught at the top in many regions of the US. Whether or not you consider flipping a form of investing or a type of gambling, there is always risk involved when you pay a lot of money expecting a bigger return.
The third significant group facing foreclosure are those caught buying more home than they can afford. You can read their stories nearly everywhere. These are people who buy homes costing more than 3x their annual income. Or they are couples who have mortgages that require both partners to remain employed. Or they are first time home buyers who have no concept of what “starter home” means.
Given that these three groups facing foreclosure have always existed in some form, why the sudden increase in foreclosures? Because money has been so cheap lately, lending standards have plummeted (remember qualifying ratios?), and home prices rose too quickly compared to incomes.
If you’re in the market for a home here are a few tips to consider:
Because prices in some regions are still high relative to value, it may be best to continue renting until home prices bottom a bit.
Never buy more home than you can afford.
Avoid funny money loans if you can. A fixed rate mortgage is “ol’ reliable”, especially now while mortgage interest rates are low. Unlike ARMs, IO, NegAms, a fixed rate mortgage gives you an assurance of stability. You’ll know what your monthly payment will be and it won’t change; it’s fixed.
Consider all the costs involved. Of course, there’s the principal, interest, taxes and insurance. But don’t forget the costs associated with maintenance and repairs.
If you’re hearing about the housing bubble on the nightly news and wondering what it’s really all about, let me refer you to the best summary of the housing bubble issues I’ve read yet. It’s on the Dissident Voice web site and was written by Mike Whitney. Posted April 26th, it’s at Housing Bubble Boondoggle.
These are interesting times. The markets rise while consumer confidence slips. Mortgage interest rates have been low for some time, but adjustable rate mortgages have become popular. Today the DJIA passed 13,000 … but home sales have plummeted this quarter.
I’ve noticed a phrase in a few financial articles lately; “not since the Great Depression”.
If you do a Google search for the phrase “not since the Great Depression” you’ll get about 2,600 results. They’re interesting. (But, remember, this is the Internet and there are no guarantees of veracity.)
You can do the search yourself, but here are just a few of the things that seem not to have happened since the Great Depression:
“Not since the Great Depression have we saved so little of our disposable income.”
NSTGD have so many felt such economic insecurity.
NSTGD has so much of the world faced widespread banking problems.
NSTGD are so many Americans losing faith in traditional capitalism.
NSTGD has there been this wide a gap between the rich and the poor.
NSTGD have we heard such upbeat predictions from our national leaders.
NSTGD has corporate America’s credibility been so strained.
NSTGD have markets responded together to the degree they move today.
NSTGD have the problems of hunger and homelessness been so severe in our country.
NSTGD has there been such a gap between rents and mortgages.
NSTGD has whole milk consumption made up a smaller portion of the diet than it does today.
NSTGD has so much corporate debt been of such poor quality.
NSTGD have so few people controlled most of the country’s wealth.
NSTGD have Personal Outlays exceeded Disposable Personal income.
NSTGD have Canadians saved so little for their futures.
NSTGD has a greater number of retirees migrated from the south to the north.
NSTGD have so many Canadians been so pessimistic about their own futures and the future of the nation.
NSTGD has the U.S. Open returned so quickly to a golf course.
NSTGD were interest rates been held so low.
NSTGD have companies been paying less.
NSTGD have so many single men lived at home with their parents.
NSTGD have more young adults had to experience a migration back to their parents’ nest to make ends meet.
NSTGD have citizens of the US held the CEO’s of major corporations in such disrepute.
NSTGD have there been so many companies experiencing as much financial stress.
NSTGD has homeownership been so tenuous.
NSTGD has America been so broke.
NSTGD have so many families, women and children been homeless.
Probably NSTGD have so many things been as they were circa the Great Depression
It looks like the Social Security Trust Funds will be available for a year longer than was expected. The Social Security Board of Trustees released its annual report on the Social Security Trust Funds this week. The full details are available on the Social Security web site in a press release titled, “Social Security Board of Trustees Issues Annual Report: Long-range Financing Challenges Continue”.
The bottom line on when the well runs dry? “The projected point at which the Trust Funds will be exhausted comes in 2041 — one year later than the projection in last year’s report.” However, the estimated point at which tax revenues are exceeded by program costs comes in 2017, as was estimated in last year’s report.
If you’re generally interested in the Social Security Administration, a quick source of information is available in the SSA’s Press Office Facts and Figures.
Finally, if you don’t expect Social Security benefits to be a big part of your retirement income (and you really shouldn’t), you may be interested in trying the Future Value of Savings Calculator to see how large your own personal nest egg may grow between now and the day you retire. It quickly calculates results for 77 different savings plans at once. One of its nicest features is that it displays in one easy-to-see location the effects of different interest rates. It’s available as a free download with a 20 use trial at Future Value of Savings Calculator.
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