$4 Gas Just Around The Corner > Blame?

June 10, 2009
$4 Gas Just Around The Corner > Blame?
Economic News and Information for Consumers

Do you remember how tough things were last Summer when gas prices pushed over $4/gallon?  Well, get ready for that same feeling because it’s going to happen again, just in time to ruin a much-needed economic recovery.

The primary cause of the recent rise in the price of oil is speculators.  Speculators essentially drive the price of oil up when they believe consumption will be higher.  In this particular instance, speculators believe we have hit the bottom of the recession, ergo their buying frenzy and resulting higher prices. But have we hit bottom or is the buying premature?

Given recent economic data, we’d have to say it’s premature.  Although new filings for unemployment are slowing a bit, overall unemployment continues to rise and is sitting at 9.4% today.  Many analysts believe this number will reach 11% before it turns around.

Don’t forget that Chrysler and GM are closing many plants all over the country, which will result in hundred of additional thousands of lost jobs.

On top of that, retail numbers have proven very slow, crippling shopping malls and other outlets, which of course, leads to more layoffs.

To make matters worse interest rates have been on the rise despite the efforts by the Obama administration to keep them low.  Only a few weeks ago you could find a 30 year mortgage rate of 4.5%, today they are approaching 6%.  This effectively reduces buying power by 10%, which places more downward pressure on housing prices.

In addition to interest rates going up we still have an inventory hold-back of about 70% just waiting to hit the market.  Obviously when the market gets flooded with these homes, prices will continue to fall.

So the economic outlook is still not very good.  Speculators have driven up the price of oil far in advance of a true recovery.  They could and likely will push the price over $4/gallon.  At that time market forces will need to come into play to bring prices down again.

How do I get out of debt? Answers from Dr. Debt

May 1, 2009
Economic News and Information for Consumers 

Many are asking questions about increased interest rates on their credit cards.  This is a fairly recent tactic used by credit card companies to recover their losses.  The unfortunate part is that the good-paying customers will end up paying this bill.

Fortunately, legislation was passed yesterday to rein in these unscrupulous actions.  In July of 2010 you’ll see big changes.  Before that you’ll see a change in 90 days that requires credit card companies to provide 45 days notice of an increase in interest rate.

Until that time, you might consider calling your credit card company to check the terms.

Buying your first home?  There are many options available to you today that did not exist just a year ago. There is a Federal first time home-buyer credit of $8,000 that will come right off the top of your taxes but you need to buy before the end of the year.

Many states are also offering first time home-buyer credits.  California, for example, is offering a $10,000 tax credit with the purchase of a new-build home.  These are great deals if you can make them work.

One more thing to consider as you’re looking for a new home is the fact that moratoriums recently expired. This expiration will push thousands of homes onto the market toward the end of Summer.  So if you’ve been looking, you might consider waiting another month or two! 

Unemployment Picture > March 2009

Unemployment is arguably the most important number we should watch as a gauge of the health of the economy.  

We’ve seen job losses of 600,000 per month for several months, all bad news.  We’ve also seen more people staying on unemployment benefits while the newly unemployed join in.  But with all of this dire news, the market had its best 3 week growth since 1982.  Why?

 

The market is always looking for some good news, even if it’s really bad news that just wasn’t as bad as they thought it was going to be.  Here’s an example:

The nationwide unemployment rate is predicted to rise to 8.5%.  This number is released next Friday so if it continues to rise but less than expected, the market will likely see that in a positive light.  Realistically it should be seen as bad news until the light turns green and unemployment actually drops instead of rising less than expected.

Unemployment is of particular importance because ultimately that is what fuels our economy, people with jobs spending money (especially retail).  In reality reports of increased existing home sales and new home sales are meaningless when jobs are still on the decline.  It’s obvious that the people buying now have been waiting on the sidelines for a long time to buy a home.  This pool of people is finite and will run out at some point.  They might also stall buying if interest rates don’t drop to the marketed rate of 4%.

So when will unemployment actually improve, which means people are being employed?  The economy has all the appearances of improving this year, maybe later than expected but still this year.  However, the jobs scene is typically the last one to improve because companies that had to tighten their belts for 2 years are concerned with over-hiring.

We’ll have a much better picture next week when the jobs report comes out.  When it does, we’ll be hoping for actual improvement of lower overall unemployment.

Navigating Loan Modifications > They Can Work

Months ago it was extremely difficult to get a loan modification but circumstances have changed.  Mounting foreclosures have created an enormous inventory of bank owned homes that have been sitting.  Most of these homes are in dire need of minor repair while others have extensive damage.

Today banks are risk averse but they also have very little desire to foreclose on homes due primarily to cost and secondarily to government pressure.  In fact, it has been recently reported that a “shadow inventory” of foreclosed homes has been building for months as a moratorium on evictions continues to get pushed back.

Furthermore, banks are typically responsible for any unpaid property tax.  On top of that, most new loans today are through the FHA, which has numerous requirements for home clean-up and repair before they’ll fund the loan.  These expenses also fall to the banks.

In the end, the current homeowner that is behind on payments has some leverage.  In many cases, the bank prefers to work the loan out with a modification.

If you’re 1-3 months behind on your loan or you know that missing payments is imminent you could be eligible to have your loan modified.  If your home has already gone to foreclosure or has been sold at auction, it is too late.

Generally speaking, someone who is eligible for a loan modification can count on a much reduced, temporary interest rate.  1% fixed for a period of 5 years is not uncommon.  That rate then would move to a more realistic rate of around 6% for the remaining 25 years of the loan.  But rate reductions aren’t the only thing available.  It’s also common for banks to reduce loan amounts or cancel second mortgages altogether.  This move, in effect, would bring the home down to current market levels.

It’s difficult for homeowners to navigate a loan mod with banks because the process can be daunting. For assistance in gaining a loan modification, fill out the short form below and a specialist will contact you to help:

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Everyone wants to know when the economy will improve

When will the economy improve?  It’s on every one’s mind because people want jobs, homes and the essentials that are becoming more difficult to obtain.

Many economists believe that the recession will start to slow down by mid-year 2009.  So what does this mean? It means that unemployment (layoffs) will slow down from current levels.  It also means that gross domestic product (GDP) will stop contracting.  By definition, when these things happen the recession will have turned but the key thing to remember is that you likely won’t feel the effects of the turnaround for months.

This recession officially started in the end of 2007 but at that time most people had no idea we were in a recession, nor did they feel the impact, absent those who started to lose their homes to foreclosure at that time.

Getting out of the recession will be the same but in reverse.  When we do exit, you’ll still be feeling the pain until months later.  For all intents and purposes, you’ll probably feel the positive effect in early 2010.

The reason this is so slow is that a great deal has to happen for people to benefit directly.  Housing prices will not stabilize until foreclosures slow down, nor will new construction begin.  For this to happen, mortgage rates need to be low but people also need to have jobs to buy a home.  When unemployment is high, homes for sale continue to sit and lose value.  Everything is intertwined making it difficult for the government to enact policy that works quickly.

For example, the new stimulus package provides an $8,000 tax credit for first time home buyers.  This is a great incentive, but it’s worthless with so many people out of work.

The economy will improve by mid-year.  You’ll start feeling it in early 2010 with a sound recovery by 2011.

In the meantime, maintain cash flow as best you can and protect your credit for future tax incentives the government will be offering.

Checks from Obama stimulus reduced in final debates

February 12, 2009

Obama’s stimulus package is ever closer to passing but certain pieces are now missing, in particular, the signature tax cut (stimulus check payment) has been reduced.

Obama had wanted tax cuts of $500 per individual ($1000 for couples), but this plan was partially cut yesterday during debates.  The refund/rebate/check now rests at $400 per individual ($800 per couple).  This represents little difference from the Bush stimulus that was passed last year around March, which provided $300 per person and $600 per couple.  That stimulus, at the time, did little to stimulate the economy though there was a brief uptick in retail purchases.

Also of note that was jettisoned from this bill was a $15,000 tax credit for home buyers.  We thought this one would go through for sure, but in the last hours it was ditched.  The current program provides tax payers with a $7500 tax credit for new home purchases however, this money needs to be paid back over time.  The new $15000 credit proposed would have come straight off the top of income and did not need to be paid back.

There was also a tax credit provided to purchasers of new vehicles that was killed in the latest round of negotiations.

The details of Obama’s stimulus plan will not be available until the final vote comes in, which is tentatively on Friday (tomorrow, February 13, 2009).  If this bill does pass tomorrow, we’ll have the latest details of what was voted on and passed.

Many consumers have been waiting for this tax cut/check from the government to assist with bills that have become increasingly difficult to pay.  However, this one-time event did not help at all with last year’s stimulus.  People need sustained assurance of monthly income.

One avenue of assistance is consolidation of unsecured debts (credit cards), which can reduce interest and payments while protecting your credit.  For the average credit card debt holder, you’ll save more money that the stimulus provides.  For more information and a free, no obligation consultation call (888) 233-3213 or fill out the short form below.

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