Is Your GM Warranty Worth Anything?

May 29, 2009
Is Your GM Warranty Worth Anything?
Economic News and Information for Consumers 

It was announced today that GM will indeed proceed with chapter 11 bankruptcy Monday along with the announcement that numerous plants would be closed.  Though this action is no real surprise, it still impacts hundreds of thousands of people in a variety of ways.

Details are still to emerge but the most immediate impact will be job losses at plants and dealerships as well as businesses that support these entities.  No one really knows just how large the impact will be until it happens.

There is also deep concern from GM retirees who depend on GM’s retiree health care plan and their retirement checks to pay basic bills.  These are people who worked for GM for decades and have counted on GM to be around when they reached years where they could no longer work.  Details of what the impact will be to retirees are also yet to emerge.

But it’s not just employees and retirees at risk, it’s also the individual who bought a GM vehicle and count on dealerships for regular and warranty service.  So many GM dealerships are being closed that it’s a given service for your GM vehicle will be more difficult either through a longer drive to get there or by schedules that are packed due to consolidated service areas.

Your GM warranty should still be valid as the government has promised to back it but things do change and we won’t know until Monday or later exactly what the details are.

If you own a GM vehicle that is still under warranty contact your dealership and see what information they can provide.  We’ll be posting an update Monday as the bankruptcy progresses.

Mortgage Delinquencies Skyrocket > When to buy

May 28, 2009
Mortgage Delinquencies Skyrocket > When to buy
Economic News and Information for Consumers 

 
The government’s efforts to fix the housing problem have completely lost steam.  Mortgage delinquencies and foreclosures across the country have jumped to 9.12% from 7.88%, which is the biggest ever increase.  What makes matters worse is that the most recent foreclosures are not those of sub-prime borrowers, but rather, very credit-worthy individuals that have fallen victim to job loss, which leads us to the next point.

New applications for unemployment dropped slightly over the most recent period while continued benefits rose above 6 million, an extremely significant number.  Only when employment improves will the housing market begin to recover and that is a long way off, likely into next year.

The “recovery” you hear about on the news has to do with GDP, not things that impact you immediately like jobs and retail purchases.  A sustained recovery will not occur until 2010 but even then there are concerns over more defaults as adjustable rate mortgages continue to reset through 2012.

On top of ever-increasing inventory is an increase in interest rates, which will stall any housing recovery.  The only fix for higher interest rates is a lower price for home, which will again destroy equity for current home-owners.

If you’re in the market to buy a home it will be like watching the stock market as a day trader.  An enormous number of homes will hit the market this Summer but interest rates will play a large factor.  It’s probably best to let the numbers play out for at least a month or two before you consider buying.  Remember that to gain the federal tax credit you’ll need to purchase before the end of the year.

California > It’s Time To Buy…Soon!

May 27, 2009
California > It’s Time To Buy…Soon!
Economic News and Information for Consumers 

Existing home sales rose by 2.9% in March but that does not mean it’s time to run out and buy a home…just yet.

Though this increase will make big headlines, most news agencies are leaving out another important piece of information, the inventory of unsold homes also increased.  So basically we have an increase in inventory and a similar increase in sales.  These go together and it’s the reason why the market didn’t jump into the green.  As of mid-day the DOW had dropped about 100 points.

But the market knows something else that news agencies also failed to report.  First, there is an enormous number of homes about to hit the market that were part of nationwide moratoriums by very large banks, Fannie and Freddie.  In fact, we’ve been told that there was a 70% hold-back, which is significant.  Second, and this is much larger, there are many more loans due to reset all the way through 2012. This means more foreclosures, just as many as there were with the sub-prime loans.

Some local California experts have said the prices will remain low all the way through 2012, which we tend to agree with but interest rates likely will not remain low for too much longer.  In fact, interest rates have been on the rise contrary to promises by the fed to keep them low while the housing market recovered.

If you’re in the market for a new home, the absolute best time to buy might not be immediately but some time over the next three months when inventory is released and while interest rates are still low.  You’ll also be able to take advantage of the $8000 federal tax credit and another one that California offers for $10,000. This is for new home purchases only.

Keep your eye on inventory and interest rates and your next home purchase should be a good financial decision.

Get Ready! Free Fall In Home Prices Soon

May 26, 2009
Get Ready!  Free Fall In Home Prices Soon 
Economic News and Information for Consumers 
If you think home prices are low now, just wait because we have an encore.  Here’s why:

If we use California as an example, we know that the average price of a home was around $500k in 2006.  We also know at that same time that affordability was less than 13%, a historic low.  Take this combination and you have people getting into loans they couldn’t afford called sub-prime loans.

Most of these sub-prime loans have worked their way into the system but not through the system.  In fact, an enormous number of them (that means the majority) have been held back due to moratoriums.  The goal of the moratorium was to keep people in their homes but the programs didn’t work.  Over 60% of people re-defaulted on their loans after a modification, ergo the recent demise of the moratorium.

After the moratoriums expired it allowed banks to continue the foreclosure and eviction process, which typically takes 2-3 months at least.  The moratoriums ended in late March so what we have is a housing sale boom coming this Summer, keep your eyes open for June-August but…

There’s more!  Don’t think that after we get through this bulk of inventory that prices are going to rise again because they’re not and probably won’t in our lifetime (that’s inflation adjusted of course).

There’s more defaults to come in the form of alt-a and adjustable rate mortgages that are due to reset all the way through 2012.  With that in mind, there will be inventory for several more years.  Only after that inventory is worked through can prices begin to stabilize.

Back to California, we’ll have thousands of homes hitting the market in hard hit areas like Rancho Cucamonga and Riveride, arguably the start of this crisis as determined by several national news agencies. So if you think there are lots of empty homes on your block now, wait until August because it will get worse.

If you’re in the market to buy a home, do it this year for the tax breaks.  There’s an $8000 federal tax credit and more available through your state.  In California you can get an additional $10,000 for buying a new home.

Retailers Push Memorial Day Weekend Sales To Recover

May 22, 2009
Retailers Push Memorial Day Weekend Sales To Recover
Economic News and Information for Consumers 

If there has ever been a Memorial Day weekend to go shopping, this is it.

Memorial Day weekend marks the beginning of Summer but it is also known as one of the biggest sale weekends of the year particularly for the auto industry.

If you thought there were good deals going on now for cars, go look over the weekend.  Dealerships on the brink of bankruptcy will be doing anything to move their old inventory.  This is truly a time when you hold the cards in the negotiation.  Remember that if you go to buy a car, you’re one of the few they’ve had.  Tell them what you want then tell them to make it happen or you’re going somewhere else.

Coming in at a close second to auto dealers is general retail.  Simply said, the retail industry is 100% in the dumps.  Look at the stores around you and it makes no difference what neighborhood you’re in, many of the stores are empty.  To keep this from happening to them, retailers will be marking down old inventory (often at a loss), just to get out from under the cost.  Decide what it is you want or need and hit the malls.  Don’t forget that little strip malls are probably the hardest hit so go after those too.

The only place you won’t see a discount this Memorial Day is at the gas pump though the grocery store probably will only be marketing their loss-leaders to drive traffic.  Most other foods have gone up significantly in price or the size and weight of the product has been reduced to create the perception that prices have gone down or stayed the same.

If you have a store or mall you really like, see if they’re providing sales updates on Twitter and follow them. This will give you instant access to the best deals in town!

30 Year Mortgage Rates Continue To Fall > 4% When?

May 21, 2009
Economic News and Information for Consumers
30 Year Mortgage Rates Continue To Fall 

The Fed has been consistently buying up treasuries.  Today they purchased nearly $8 Billion more in an effort to keep 30 year mortgage rates moving in the right direction.

The reason this works is that mortgage rates are closely tied to 10 year bonds.  When the Fed buys up treasuries it forces the yield down, which in turn, forces down mortgage rates.

For months the 30 year mortgage rate has hovered around 5%.  This number can obviously vary depending on the bank you check.  The Fed had made some veiled promises to get rates down to 4% but that is yet to happen. If it does, the window of opportunity could be short but we believe that window is short anyway due to other factors.

The first time home-buyer tax credit provides $8000 in relief, not a bad deal at all but you need to purchase a home before the end of the year.  For details you should check the IRS website.  There was some information distributed that mentioned the tax credit could be used as a down-payment but this appears to have been rescinded at this time.

As an example, if you paid $1200 in taxes for 2008, then purchased a home, you could amend your return and get a $6800 check.  You could also just carry the $6800 forward to pay for taxes next year.

The next point to consider is housing prices.  Some have said that they are beginning to stabilize but this was primarily due to moratoriums that artificially caused inventories to shrink.  The moratoriums have expired causing a near future release of a 70% backlog.

Much of the inventory is due to be released this Summer starting the first week of June.

Credit Card Companies Hammered > Guns now allowed in parks?

May 20, 2009
Credit Card Companies Hammered and now Guns Allowed in Parks
Economic News and Information for Consumers 
This is an interesting one.  Congress passed major legislation to counter tactics used by credit card companies that have been determined to be unfair.  This is a big deal for anyone that has a credit card, most of us.  But interestingly, at the same time congress approved the right for loaded guns in national parks.

What’s the connection between credit card laws and gun control, absolutely nothing but it does provide some insight into how our government works.  What I gather from this is that it’s inefficient and a bit strange.  It seems like the issues, both important ones, should have been separate.  But what we’ve noticed from congress over the years is that many don’t even read the legislation before they vote.  Some have said they simply don’t have the time.  This also happened with the recent budget that was passed.

The only good news to come out of this is that your credit card company will finally be held somewhat accountable for unfair tactics.  In recent months credit card companies have increased interest rates, reduced credit lines, increased fees and canceled cards altogether, often with little or no notice to the consumer

The result of this has been a reduction in available cash to consumers, big fees and severely damaged credit. The damaged credit piece has to do with the FICO score calculation, which in part is affected by your available credit.  If you have a $3000 credit line with a $1500 balance and your credit card company suddenly reduces the line to $1500, you’re card is now maxed out.  Within 30 days your credit will be severely affected.  

To help maintain a good credit rating, your available credit should be at least 50% of the total line but more is always better.

2% Mortgage Rates Surge But Is It Fair To You?

May 19, 2009
Economic News and Information for Consumers
2% Mortgage Rates Running Strong, Fair? 
If you thought a 5%, 30 year mortgage rate was good, you’re in for a big surprise.

In recent months 30 year mortgage rates have been gradually moving down.  Generally speaking, rates have been hovering around 4.5%, which is lower than they’ve been in decades.  Most anyone would jump for joy at the thought of acquiring an interest rate this low, but us humans like to compare and in society, lack of fairness rules.

Consider that you just purchased a home, at arguably a decent price given current market conditions and at a great interest rate.  Now consider that someone who was 3 months behind on their mortgage just had their loan balance reduced by 30% while getting a rate of 2%!  Well, the 2% rate is temporary, only 5 years, then it jumps to an astounding 4.5%, about the rate you have now on your new home.

This story is true and it’s happening all over the country.  The good news is that if you need a loan mod, chances are you’ll get a sweetheart of a deal on your mortgage.  The bad news really isn’t too bad but it is frustrating.  If you bypassed the silly run-up in prices, saved your money and decided to rent for 3 years, you still got a great deal but you get to see people who made poor financial decisions end up in the same place you’re at.

Does this seem fair?  Probably not, but the reason banks are doing this is they want to save money by avoiding foreclosure, evictions and clean-up of the home.  For them, it’s strictly a business decision.

The debate on this issue rages on but there’s really nothing that can be done to stop it or make things more “fair”.  If you’re in the market to buy a new home, negotiate the best deal you can and if you’re attempting a loan modification, do the same thing.  In the end, everyone gets a great deal!

2% Interest Rates Hit California > Is it fair?

May 18, 2009
Economic News and Information for Consumers 

Many home buyers waited on the sidelines as home prices skyrocketed in California.  It was just 3 short years ago that the median home price in California was more than $500,000.  As you know, that’s a half-million dollars for homes that were really worth less than half of that.

But banks, Realtors, and buyers all jumped in thinking prices would continue to rise, but how far could they possibly go?  We learned in 2007 that we had hit the ceiling but few predicted what was going to happen next.

So you waited for the smoke to clear, saved your money and protected your credit so you could buy your first home at a good price and a good interest rate, which has been hovering around 4.5% for months.  You closed the deal and got the home of your dreams next to someone who stopped taking care of the lawn and other maintenance on the house.

They had purchased their home in 2006 for two times what you paid and have now fallen behind on their mortgage.  After talking with your new neigbor, you learn that they’ve been granted a loan modification.  The details of their new loan include a reduction in the loan of $150,000 and a mortgage rate of 2% for the first 5 years, which then jumps to 4.5% for the remaining 25 years.  You just closed your house and got a loan for 5% with costs added in.  How do you feel, is it fair?

This scenario is playing itself out all over the state as banks grant loan modifications with incredible deals in lieu of foreclosing on the property.  

The reasoning is simple.  It’s cheaper to keep the people in the home than to go through the foreclosure and eviction process, which often can take many months and at great expense.

The banks have learned that middle-of-the-road loan mods were just forcing people to re-default at the rate of 60% within the first year.  It didn’t make sense so they increased the stakes and have been giving sweetheart deals to many.

How do you feel about people getting loan modifications with incredible rates and write-down on their loans.  Use the comment box below to let us know your thoughts.

Treasury Buys Continue > 4% Interest Rates

May 18, 2009
Economic News and Information for Consumers 
Following the housing market can be tough but really there are only a few things you really need to know that apply to you.

Interest rates should remain low for some time, but certainly not forever.  As promised, the Fed has been buying up Treasuries that mature at different periods.  This tactic affects the rate on 10 year bonds, which in turn forces mortgage rates lower.  The Fed should continue this for some time but don’t be surprised when they stop.

When interest rates do eventually go up, there is the potential for them to go much higher due to massive government spending and the risk of inflation.  Think back to the 1970’s when interest rates were astronomical.  If you think 7% is high, just wait until rates skyrocket in a few years.  It very well could happen.  But for now, interest rates are great so take advantage of them soon.

Housing prices will continue to fall around the country due to a backlog of inventory (about 70% of it), that was held back with moratoriums on foreclosures and evictions.  In the Southern California area we’re expecting waves of homes to hit the market in the first week of June.  This will continue through the Summer.

When will available homes slow?  With several more waves of interest rates due to reset in coming years, inventory could remain high through 2012.  This recession is proving to be one of the worst we’ve ever had but in the end, prices will come down to where they should be and people will be much more conservative with their finances (hopefully).

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