Boomer Wealth Dented by Mortgages Poses U.S. Risk – Bloomberg 08-28-14

Salient to Investors:

  • The Consumer Financial Protection Bureau reports the share of Americans 65 and older with mortgage debt rose to 30% in 2011 with a median debt adjusted for inflation of $79,000,  from 22% in 2001 with a median debt of $43,400.
  • The increase in mortgage debt makes these households more susceptible to economic swings, increasing the risk of inability to recoup losses.
  • John Gist at George Washington University said reasons include the surge in refinancing in the early 2000s and in the post-recession years, the ability to buy with smaller down payments during the housing boom, and the acquisition of vacation homes. Gist said the highest rates of refinancing occurred among boomers – over half in 2004 and 2007.
  • The median duration of joblessness for adults 65 years and older was 17.8 weeks in July, versus 13.5 weeks for those 25 to 34.
  • Julia Coronado at Graham Capital Mgmt said a mortgage is a source of risk for older households, particularly given the labor market experience.
  • Barbara Butrica and Nadia Karamcheva at Urban Institute said 65% of homeowners with mortgages are still working at age 64, versus 54% of those without housing debt.
  • Greg Frost at Frost Mortgage Banking said boomers will be the first generation to take advantage of reverse mortgages on a large-scale.
  • Donald Frommeyer at the National Association of Mortgage Brokers said boomers do not have the same desire to pay off mortgages as the WWII generation.
  • Sam Khater at CoreLogic said as millennials delay buying homes, they may prolong the trend.
  • Homeownership for Americans 35 years old and younger fell to 35.9% in Q2, 2014, the lowest quarterly level since 1994, and versus the high of 43.6% in 2004.

 

Read the full article at http://www.bloomberg.com/news/2014-08-28/boomer-wealth-depressed-by-mortgages-poses-u-s-spending-risk.html

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Five Reasons Why You’ll Never Be Rich And One Reason Why You Already Are – Personal Capital May 2014

Salient to Investors:

5 habits that prevent you from becoming wealthy:

  1. Being a “C” student who thinks they deserve an “A” lifestyle
  2. Inability to delay gratification by taking on debt. Credit card interest at 15%+ leads to financial failure –  even Warren Buffet has not returned greater than a 15% annual compound return on his investments.
  3. Spending too much on a car.
  4. Unwillingness to go the extra mile at work. Never take your work for granted – come in early, leave late, frequently ask colleagues if they need help, and be proactive with new responsibilities.
  5. Saving as if Social Security or a pension will support you. In its current state, Social Security can only provide 70% of benefits in the next couple of decades, while pensions are disappearing fast. Max out your 401(k), or save at least 20% of your after tax income.
  6. Not building enough passive income; like from dividend yielding stocks, REITs, rental properties, tutoring, starting a sideline business, earning royalties, and building a CD ladder.

If you have a net annual salary of $30,000 a year then you are in the top 1.23% of richest people in the world.

Read the full article at https://blog.personalcapital.com/financial-planning-2/reasons-why-youll-never-be-rich-and-one-reason-why-you-already-are/?utm_source=Dianomi&utm_medium=CPC&utm_campaign=five_reasons_why_you%27ll_never_be_rich&utm_creative=320x400_pc_dianomi_wm

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Diminished Housing Wealth Effect Keeps Pressure on Fed – Bloomberg 05-05-13

Salient to Investors:

The wealth effect from rising house prices may no longer be as effective in spurring the US economy as homeowners increasingly pay down mortgage principal and shorten maturities. Freddie Mac said cash-in refinancings outnumbered cash-outs by more than 2-to-1 in Q4 2012.

Amir Sufi at the University of Chicago said the wealth effect is much smaller and estimates each dollar increase in housing wealth may yield as little as an extra cent in spending – versus 3-to-5-cent estimate by economists prior to the recession. Sufi said homeowners with low credit scores were most prone to pulling money out of their properties during the housing boom.

In Q1 2013, 65 percent of Americans owned their own dwelling, the lowest in almost 18 years and versus more than 69 percent in 2004.

Many homeowners cannot refinance their mortgages because banks have tightened credit conditions so much.

Rob Nunziata at FBC Mortgage is seeing few cash-out refis and more shortening of mortgage terms.

Homeowner equity was $8.2 trillion in Q4 2012, $6.2 trillion in Q1 2009 and $13.5 trillion in 2006.

The S&P/Case-Shiller index of property values in 20 cities rose 9.3 percent in February from a year earlier, the biggest year-to-year advance since May 2006.

Karl Case and Robert Shiller found that changes in housing wealth have a much bigger impact on spending than do variations in financial wealth – due to volatility of stock prices and equity holdings that are concentrated among the rich.

John Stoltzfus at Oppenheimer said Fed easy-money is helping the stock market and is very positive on equities.

David Stevens at Mortgage Bankers Assn said credit will get tighter before it gets easier as Dodd-Frank is just starting to take effect, and lenders await even more regulations before the end of 2013.

Frank Nothaft at Freddie Mac said 10 million homeowners cannot get cash out of their properties through home-equity loans because they are under water.

Neal Soss and Henry Mo at Credit Suisse found that the wealth effect from housing has fallen to just over 3 cents on the dollar from 5 cents, while the effect on consumption from rising stock prices has dropped to just over 1 cent from 1.5 cents. Soss says we need an even bigger bull market, means Fed easing for longer.

Read the full article at http://www.bloomberg.com/news/2013-05-05/diminished-housing-wealth-effect-keeps-pressure-on-fed.html

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The Suze Orman Show 03-27-11 – CNBC

Salient to Investors:

Suze Orman says:

  • There is only one way to pay down credit card debt, from the highest interest rate down and pay the minimum on every card. Asking banks to lower the interest rate doesn’t work anymore. If you have a good FICO score then do a balance transfer to a credit union credit card – if federally chartered the maximum rate they can charge is 18 percent.
  • Avoid immediate annuities under most circumstances because they are calculated using current interest rates which are at record lows, so wait a few years for rates to rise . Most Financial advisors earn at least 4% commission when they sell you an immediate annuity.  The only way an immediate annuity makes sense is if you live to 100 or 150 or 120. You can easily get an 8-9 percent return yourself.
  • You can’t be happily married if you argue over money. All that matters is how you feel on the inside.

View the full episode at http://video.cnbc.com/gallery/?video=1859984454&play=1

The Suzie Orman Show 06-30-12 – CNBC

Salient to Investors:

Suze Orman says:

  • There is nothing more important in your life than financial independence
  • Every state has a statute of limitations after which creditors cannot chase you – for example 6 years in New York. Collectors often accelerate calling just before the statute of limitations is up.  If you promise to pay you will start the staute of limitations all over again.
  • Look in the mirror to find your best financial advisor. Start investing on your own and see how well you do.
  • You should only pay 1 percent fee to an advisor on the growth part of your managed portfolio, a lower percent on money in CDs and/or bonds.

View the full episode at http://www.cnbc.com/id/41152126/