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Several recent indicators for the real estate industry are pointing to a market that is on the mend and entering recovery mode.
Housing experts’ predictions for the new year tend to center around a market stabilizing before entering a gradual, albeit very slow, recovery. However, the tone is more upbeat than it has been in years for the housing market.
Here are a few of the signs that are showing the market moving in a more positive direction:
Home sales: Existing home sales are expected to increase 12 percent this year, following a 2 percent jump last year, Moody’s Analytics predicts. The signs are already showing: In November, pending home sales — a gauge for future home buying — reached its highest level in 19 months, the National Association of REALTORS® reported. (Read more.)
New-home market: Coming off of what could be considered the worst year for new-home building ever recorded, the sector is expected to bounce back this year. New-home sales and starts were already showing a rebound in the last few months of 2011. Moody’s is predicting that single-family housing starts will increase 37 percent this year, and new-home sales will soar 74 percent.
Housing stocks: Investors are starting to get optimistic about the possibility of a rebound too, and are turning to home builder stocks. These equities have recently outperformed the broader stock market and the S&P 1500 homebuilding index has increased 38 percent since mid-October, USA Today reports.
Consumer confidence: With mortgage rates at record lows and housing affordability high, about 71 percent of Americans say now is a good time to purchase a home. Also, more Americans are optimistic that home prices will rise over the next year — about 26 percent say prices will rise in 2012, an increase of 4 percent over the last survey, according to Fannie Mae’s December National Housing Survey
by Justine Rivero
Monday, August 29, 2011
If you only read one article about credit scores this year, read this
one.
The average credit score nationwide is 666, according to CreditKarma.com.
That’s not only an ominous number, but can be a costly one.
Based on CreditKarma.com’s data, the trend amongst lenders shows that a 660
credit score is the threshold to be approved for a mortgage, auto loan and
unsecured credit card. Digging deeper into consumers’ credit health, nearly 40%
of consumers have a credit score below 660. That means 4 out of 10 Americans
would likely be denied for a mortgage and auto loan, charged sky-high interest
rates, and only qualify for a secured credit card.
With credit scores controlling consumers’ access to credit and the prices
they pay for lending products, Americans must take control of their credit
health.
In the fine line between approval and denial in lending, consumers deserve to
know more so they can do more about their credit health. While recent federal
regulations have nudged open the door on consumers’ access to credit, it’s not
enough. Consumers must be empowered to actively manage their credit, not just
when they are transacting but also in their daily financial life.
As legislation and economic changes evolve the credit industry, consumers’
access to credit scores must be broadened. Here’s what you need to know about
credit now.
1. It’s your consumer right to get a free credit score! Thanks to a
recent federal regulation, consumers who are denied on a credit application or
receive higher interests due to their credit profile are entitled to see their
credit score for free. This only applies to declined consumers, so it begs the
question: why aren’t all consumers getting their credit score for free? With
such significant impact on accessing and pricing of financial products, free
credit score access should be a right of all consumers. We may see government
efforts to provide free credit score access on the horizon. Once a mysterious
and proprietary secret of the credit industry, credit scores are becoming a
powerful tool in the hands of consumers.
2. Standards for accessing credit are always in motion. Once upon a
time, the general “good” credit score standard was 660. During the recession’s
credit crunch, the standard jumped to 720. It appears some credit card issuers
are again expanding their credit standards and approving lower credit tiers.
Some mortgage lenders say a 720 credit score is needed to get the best mortgage
rate, while others say 750 is the new standard. Additionally, lenders are
increasingly focusing on other credit details aside from your three digit score.
For example, a consumer can have a 780 credit score, considered in the excellent
range, and be denied on a credit card application because their credit history
is simply not long enough. It’ll take time and economic stability till lenders
comfortably agree on credit score standards; hopefully that keeps you on your
toes and improving credit health everyday.
3. It’s not enough to check your credit score. One drawback of the
federal regulation is its limitations. Giving consumers access to their credit
after being denied is too little, too late. Credit scores can fluctuate
suddenly, so a single snapshot isn’t enough. What’s necessary is for consumers
to monitor their credit. Whether you have a 550 or an 800, tracking trends in
your credit use and credit score helps identify areas to improve, habits to
avoid, and most importantly, makes you conscious of how day-to-day financial
decisions impacts your credit health. You might need several months’ cushion to
polish up your score, so begin monitoring your credit as soon as you plan to buy
a home or car, or apply for a loan or credit card. If you aren’t applying for
credit but currently have a credit card, it’s still imperative to stay on top of
your credit health. Issuers periodically do an account review, and if any new
credit blemishes appear, it could affect your card terms. Proactively use credit
score monitoring services so you, and not lenders, are the first to know about
recent changes on your credit.
4. Expect credit score differences. The federal regulation also shined
light on the fact that there are dozens of credit score models in use.
While many consumers consider FICO to be the “real” score and everything else to
be a “FAKO”, the truth is that every lender chooses differently: there are the
credit bureau-specific models, the VantageScore, the FICO score, scores specific
to lender type like mortgage, auto and credit card issuers, and even models
particular to certain banks. If your TransUnion score and VantageScore have a 40
point difference, there isn’t a “more accurate” score. It’s similar to weighing
yourself at home versus the gym or the doctor’s office; the scales show
different numbers because they’re calibrated differently, but ultimately, they
all measure your weight. Rather than obsessing over the three-digit score, focus
on the risk factors involved such as your debt, number of accounts, and credit
use. Just like diet and exercise will reflect in your weight across all scales,
taking action to holistically improve your credit health will reflect across the
broad spectrum of credit score models.
While the recent federal regulation is a positive move for consumers, lenders
have already found loopholes, reports SmartMoney. For example, if the lender
uses its own scoring model, they aren’t required to disclose that credit score
to consumers. Also, insurance companies, which also use a credit score model to
evaluate customers and price premiums, are excluded from this regulation and
aren’t required to disclose credit scores to consumers who are charged a higher
premium.
As the Consumer Financial Protection Bureau stretches its reach and more
financial reform finds its legs, consumers must keep challenging Uncle Sam to
keep the heat on the financial industry when it comes to credit score access.
Consumers must also keep putting in the legwork to build healthy credit and keep
an eye on their credit score.
We’re headed in the right direction when it comes to consumers’ access to
their credit score. But don’t walk away from this topic just yet; we barely have
cour foot in the door.
I found this article very interesting; and although most of us can only dream of a portfolio valued at over ten million, I thought the way of thinking was interesting no matter what range we are in….Like the author says “who wouldn’t want to learn from those who have already made it?”
Financial Advice Gleaned From a Day in the Hot Seat
PAUL SULLIVAN,
On Friday June 24, 2011, 1:03 am EDT
On Friday June 24, 2011, 1:03 am EDT
WHEN I started writing this column almost three years ago, one of my goals
was to figure out what the wealthiest Americans knew and pass along those
lessons to middle- and upper-middle-class readers.
Recently, I put that idea to the test, spending the afternoon in a Manhattan
town house with eight wealthy men who are all members of an investment club
called Tiger 21. I was there to hear an unvarnished critique of how my wife and
I save, spend and think about money.
Each of the 180 members of Tiger 21 has a net worth of at least $10 million,
pays $30,000 in annual membership fees and commits to spending one day a month
with other members. Nearly all of them made their money — they didn’t inherit it
— and most are men.
I had asked to sit in on one of the group’s signature sessions, the portfolio
defense, but a few weeks ago, the members invited me to be in the hot seat. I
jumped at the chance. Beyond looking at how money is invested, the portfolio
defense is intended to force members to discuss their wealth in the broadest
terms.
I had heard horror stories. One member was told he needed to lose a lot of
weight if he was going to get people to invest in his new fund. Another was
chastised for telling his children that he had lost his money in the financial
crash so that he would not have to talk to them about his immense wealth.
Michael Sonnenfeldt, the founder of Tiger 21, used the term “carefrontation”
to describe what happens in a portfolio defense. The assessments are meant to be
direct, unsettling and possibly painful to hear, Mr. Sonnenfeldt told me. But
the goal is to get members to think differently about what they are doing with
their investments and about everything in their lives that is affected by their
wealth, from their family to charities.
“It’s not meant for the faint-hearted,” Mr. Sonnenfeldt said. “This is a
process that some people could clearly find offensive or discomforting.”
What I experienced was rough, but it was also thought-provoking. The value to
me — and to anyone given a similar opportunity — was that the members challenged
everything about my assumptions on saving and spending. Here’s some of what I
took away.
OUR MISTAKES In the week leading up to this, I worked
with Joel Treisman, an executive coach and the chairman of one of Tiger’s 17
groups, to gather up all of our financial reports.
I was confident that the group would think my wife and I were in good
financial shape. We save a good percentage of our income. We don’t have any debt
beyond mortgages and a car payment. We probably spend a bit too much on food and
pet care, but we don’t run up credit card bills to do it.
The members were warm and welcoming as we filled our plates with poached
salmon, grilled asparagus and buffalo mozzarella from the buffet. But as soon as
we were seated, it was all business. And I was immediately on the defensive.
There were two big surprises but also blunt advice and some thoughtful questions
about our portfolio.
First, the surprises. The group agreed that we did not have enough life or
disability insurance. We both have insurance that would cover about three or
four years of earnings if one of us died. This seemed sufficient to get past a
few years of sorting things out. The group disagreed. Going from two incomes to
one would mean a radical rethinking of our life.
We needed more sizable policies to give us the freedom to sort through
things. Though we both carry disability insurance, the policies are old and do
not reflect our current income. They would also cover only 50 to 60 percent of
our old base salaries. The members thought we should buy individual policies to
add to this.
The second surprise was about our savings. We have been saving about 15
percent of our post-tax income. Alan Mantell, a lawyer who made his money in
real estate, development and investment, said the issue was not how much we
saved but how we thought about spending.
“You need to ask, ‘What can I afford to spend versus what do I need to
spend?’ ” he said. We could be saving more money for retirement — or in case
something bad happens — if we cut back on things we did not really need, he
said.
All the members agreed that we should sell our vacation condominium. “You
need to become more liquid,” said Thomas Gallagher, the former vice chairman of
CIBC World Markets. “If something bad happens, it’s easy to get rid of a dog
walker; it’s hard to get rid of a house in Naples.”
Florida real estate is in a sad state, so I asked what they would do with an
offer that was less than our mortgage?
“Take it,” Mr. Gallagher said. “Write the check and be done with it.”
As for our portfolio of stocks and bonds, the questions were more basic.
Leslie C. Quick III, whose money came from Quick & Reilly, the discount
brokerage firm, looked at our investments — 50 percent in equities, 34 percent
in fixed income, 12 percent in commodities and real estate and 4 percent in cash
— and wanted to know how our investment manager had done in the bear market. He
also thought we should ask our adviser how he balances the risks in our jobs
against those in our portfolio.
OUR SOLUTIONS Because I had parachuted into Tiger 21 for
one meeting, I was taken aback by the group’s brutal honesty. I walked out after
three hours in a daze. Over the next couple of days, though, I concluded that
the members had made some great points.
Some solutions were simple. We can increase our term life insurance for
comparatively little money — $1 million of term life costs about $700 a year.
Individual disability policies cost more. Barry Lundquist, president of the
Council for Disability Awareness, said the yearly premium would usually be 1 to
3 percent of a person’s salary, but the payout would still be limited to a
percentage of that person’s income.
As for our portfolio, I put the questions to our adviser, K. C. King of
Emerson Investment Management. I liked that he did not sidestep the bear market
question: Emerson’s portfolios did better than the benchmarks in 2008, but they
lost value like everything other than cash, gold and Treasuries.
Where I took comfort, though, was in how he thought about our portfolio.
“We’re very mindful that what we’re managing for you and most of our clients is
their core portfolio,” Mr. King said. “If someone said from the Tiger group that
this is fairly conservative and you’re not taking big swings, we’d say you’re
right. This is the portfolio that we’re trying to keep for your daughter’s
education and into your retirement.”
The issue that Mr. Mantell raised about spending is the thorniest one. My
wife and I are under no illusions that having a condo in Florida makes financial
sense. Trimming spending in other places is easier: Walking the dogs ourselves,
for instance, would save $100 a week or $5,200 a year.
In the end, though, there are such radical differences between the wealth of
the Tiger members and most Americans that some of their advice could not
apply.
Mr. Sonnenfeldt estimated that 90 percent of Tiger members had paid off the
mortgages on all of their homes.
They also tend to view money as something to preserve rather than accumulate.
Mr. Sonnenfeldt said members spent about 3 percent of their wealth annually,
which allowed the principal to continue to grow. But at the $10 million entry
level, this would mean $300,000 a year.
Perhaps most important, none of the members became rich by eating out less.
They became rich by working in industries that paid extremely well or by
building businesses that they later sold.
Still, what was best about the session was that no one pulled any punches.
Their honesty forced us to think hard about the assumptions we were making. Yes,
it was difficult. But really, who wouldn’t want advice from those who have made
it?
http://finance.yahoo.com/news/Financial-Advice-Gleaned-From-nytimes-3488361631.html?x=0
What You Need to Know and Do
Now more than ever, you need to make sure you understand what’s on your credit report – and you need to know what steps you can take to improve your score. For example, did you know that a Home Equity Line of Credit (HELOC) can impact your credit score quite dramatically – and sometimes unfairly – depending on how it is reported?
Here’s What You Need to Know… and Do!
First, you need to know that HELOC’s are commonly reported by the three credit bureaus as revolving accounts. In reality however, they do not fall under the typical revolving terms, even though they are set up in the same way as a revolving account. That’s because HELOC’s are secured by an asset.
Here’s the Good News…
The Fair Credit Reporting act requires reporting agencies to report true and accurate information. So when a HELOC is reported as a revolving account, you can actually send a letter to the three credit bureaus asking them to change the type of account from “Revolving” to “Line of Credit” or “Other.” This way, the account will not be rated by the scoring system using the “Balance to Limit” ratio scenario – which can drop a credit score by as much as 75 points if the HELOC is maxed out to the limit of the available credit line.
A Final Word of Advice
If you do decide to send a letter, you should send it as a Certified Letter, along with a copy of the HELOC agreement. You may have to send the letters more than once, but persistence is the key to accomplishing a positive result with the bureaus.
This article was adapted from information provided by national credit expert Linda Ferrari, author of “THE BIG SCORE: Getting It and Keeping It, Buying Power for Life.” Learn more and check out her credit resources at www.lindaferrari.com.
Cable basics
Drop the pricey packages.
Don’t pay for dozens of TV channels you don’t watch. Go basic and save big. Although cable packages and prices vary by region, most providers offer a bare-bones plan. Verizon’s FiOS TV Local Digital, for instance, delivers local channels for $13 a month. And rather than pay for premium channels, sign up for Netflix’s streaming service. For $8 a month, you can watch unlimited movies and TV shows (albeit not always the latest offerings) via your home Internet connection.
ANNUAL SAVINGS: $648 (basic cable plus Netflix versus average digital cable bill of $75 a month)
Shrink your utility bills in ways big and small.
Energy costs — which average $1,900 annually — are a budget buster for many U.S. households. In Ithaca, N.Y., Jon Harrod, president of Snug Planet, an energy-auditing and retrofit firm, says these ideas can save big.
Quick payback. Start with the easy changes that cost nothing. These include switching off lights and electronics when not in use and turning down the thermostat (or properly setting your programmable thermostat). Put compact fluorescent light bulbs in your five most-used light fixtures, and swap out your showerhead for a next-gen, very-low-flow model. (More suggestions at www.energystar.gov and www.energysavers.gov.)
SAVINGS: $454.
Long-term payback. Replace an older refrigerator with a new one (you’ll save $100 on energy annually by replacing a 20-year-old fridge with a new, Energy Star-rated one). If you’re doing lots of laundry, replace an older washer (save $135 a year when you retire one that’s at least ten years old).
SAVINGS: $235.
Air leakage through the exterior shell and interior ductwork is a big issue. Also, attics, basements and crawl spaces often lack sufficient insulation. Sealing your home’s gaps and adding insulation may cost in the range of $2,500, says Harrod, but these measures can cut heating and cooling bills 20% to 50%.
SAVINGS: $300.
TOTAL ANNUAL SAVINGS: $989
Get fit at home
Set up your own gym.
The average gym membership will set you back $40 to $70 per month. With a budget of about $1,500, it’s easy to build a state-of-the-art gym at home.
For cardio, pick up an elliptical machine, such as the Schwinn 420 Elliptical ($600). And for strength training, get a total-body machine, such as a Classic Bowflex ($650). Fill out the rest of your gym with resistance bands (three for $30), a stability ball ($40) and a few sets of dumbbells ($50).
ANNUAL SAVINGS: $600 (savings on a $50-a-month gym membership after initial investment)
Despite the slump, housing remains a good long-term investment—in the right markets
The era of get-rich-quick real estate is dead. The era of increasing long-term wealth in your home is back.
Historical data from the National Association of Realtors (and adjusted for inflation by Businessweek.com) show that in 18 of the 25 largest metro areas in the U.S., the value of homes purchased in 1990 had increased by 2010, often by double digits. And this in a year when real estate prices around the country have softened since their peak in 2006. These houses would have been worth even more a few years ago.
While that’s cold comfort for the many Americans whose homes have lost more than $1.7 trillion in value in 2010, according to a new report by Zillow.com, it underscores the fact that homeowners who buy for the long term have historically seen the value of their investment increase over the years. In inflation-adjusted terms, the median U.S. home sale price in the third quarter remains approximately 9.5 percent higher than in 1990, despite falling 26 percent from peak levels, according to calculations based on NAR data.
Says Greg Hebner, chief operating officer at Sorrento Capital, an Irvine (Calif.) asset management firm: “You should at least be looking at housing now,” especially as interest rates are low and homeowners can deduct mortgage interest from their income taxes. “It’s still a good game” if a buyer understands the risks, has consistent income, and purchases a house he can afford, Hebner says.
When Supply Is Limited
Based on data since 1968, nominal U.S. home prices have risen 5.5 percent annually and outpaced inflation by about 1 percent to 2 percent, says Lawrence Yun, NAR’s chief economist. The main reasons housing has grown faster than inflation, he says, are that more people wanted to buy in places with a finite supply of developable land, which drove up prices, and owners increased the value of their properties through home improvements.
Home prices followed this pattern through most the 1990s but started shooting up in the early 2000s. Between 2000 and 2006, nominal prices rose 89 percent, according to data from Moody’s Economy.com and Fiserv (NasdaqGS: FISV – News), a financial service company in Brookfield, Wis.
Economists from NAR, Fiserv, and Moody’s Analytics interviewed for this story expect home prices to continue to grow slightly more than inflation in the long term. Still, buyers are not likely to see prices skyrocket the way they did in the early 2000s, at least in the near future.
Up by Half, or More
In an analysis of the country’s 25 largest metro areas, Businessweek.com found that the Portland, Ore. area had the largest real price gain since 1990, with the median sale price in this year’s third quarter ($242,100) up about 85 percent over 1990, in inflation-adjusted terms. Home prices in the Denver, Baltimore, and Seattle areas also made gains of more than 50 percent in that period.
Yet in some other markets where homeownership skyrocketed during the housing boom, inflation-adjusted prices have fallen so dramatically that they are now below 1990 levels. Real prices in the Atlanta metro, for instance, are down about 21 percent compared with 20 years ago, and in Sacramento they are down 19 percent.
After recovery from the housing bust, “we expect house prices to settle into a price-growth trend that’s slightly higher than inflation over the long term. So in that sense, housing is still a long-term investment with a positive yield,” says Andres Carbacho-Burgos, an economist at Moody’s Analytics.
Securities Look Better
After accounting for the time and money put in for property taxes, home insurance, security, and maintenance, “investing in a home doesn’t have the rate of return of a diversified, well-managed portfolio in stocks and bonds,” adds Carbacho-Burgos. Securities potentially offer greater returns, but buyers are wary.
A national housing survey by Fannie Mae shows that in the third quarter this year, 66 percent of consumers believed buying a home is a safe investment, compared with 16 percent who believe stocks are safe. That does not mean confidence in real estate has not been shaken in recent years: In 2003, 83 percent considered a home a safe investment.
Fannie Mae’s survey also showed that 59 percent of respondents still believe owning a home is a good way to build wealth, and 84 percent believe buying makes more sense than renting.
Assuming home prices continue to increase 1 percent to 2 percent better than inflation, a buyer needs to own the property for at least five years to break even and cover selling costs, says Sorrento Capital’s Hebner.
How 2011 Shapes Up
According to the latest forecast by Moody’s Economy.com and Fiserv, nominal home prices in the U.S. will decline 4.8 percent from the fourth quarter of 2010 to the third quarter of 2011, when they are forecast to reach their trough.
NAR estimates that in 2010, 4.8 million homes will be sold in the U.S.—less than the 5.2 million sold in 2000, which is regarded as a “normal” year, says Yun, as the market had not yet overheated.
As the market normalizes, Yun expects sales volume to rise 6 percent year-on-year in 2011—assuming GDP grows 1.9 percent, 1.5 million jobs are created (bringing the unemployment rate to about 9.5 percent), and mortgage rates stay near 5 percent. Markets with high foreclosure rates, such as Nevada, Arizona, and Florida, will remain volatile.
David Stiff, chief economist at Fiserv, says despite hopes that we can avoid another housing bubble, there likely will be upswings again in the future. “In general, people are optimistic” and get caught up when times are good, he says. “When you see the next cyclical upswing in housing, try not to get carried away.”
Even with a constant flow of information about energy efficiency, homeowners make major heating mistakes that end in higher electric bills and larger environmental footprints.
Here are 10 of those errors, with the cause and effect of each decision.
1. Maintaining a constant temperature
Cause: A persistent myth suggests that you can save energy by leaving the house at a comfortable 68 degrees (a widely recommended winter setting), even when you are sleeping or away at work.
The idea is that it takes more energy for the furnace to reach a comfortable temperature than to maintain that temperature.
Effect: You could miss out on significant potential energy savings by not using a programmable thermostat and adjusting the temperature overnight and during the workday.
Though the impacts of adjusting the thermostat vary based on your climate and other factors, studies show that knocking the temperature down by 10 degrees for eight hours per day can cut heating bills by 5 to 15 percent.
Sure, the furnace will cycle on for a longer period to return to the more comfortable temperature, but it will be far outweighed by hours of savings when it didn’t have to work as hard.
2. Cranking up the temperature to warm up the house
Cause: You come home in the middle of the day to a cold house. You want to warm back up to 68 ASAP, so you crank the dial up to 78 to get the furnace working harder and faster.
Effect: No time is saved in reheating the house. Most furnaces pump out heat at the same rate no matter the temperature. They just cycle on for a longer period to reach a higher temperature.
The furnace will take the same amount of time to return to 68 degrees regardless of the thermostat setting. By cranking up the thermostat, you are likely to overheat the house past 68 degrees and waste energy. Just reset the thermostat to 68, make some hot chocolate, and wait.
3. Closing off vents in unused rooms
Cause: You don’t want to waste energy heating rooms you aren’t using.
Effect: Again, this just wastes energy and makes your furnace run inefficiently because it changes the air pressure in the whole system.
Experts recommend never shutting off more than 10 percent of vents. Sealing your ducts is a more efficient way to save energy.
