Mortgage delinquencies fall...Fed pledges patience in raising interest rates...Best, worst states for child care costs...And more
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The national mortgage delinquency rate, which is the percentage of mortgages that are 60 days or more behind on payment, is 3.12%, or down by nearly 4% from its peak in the first quarter of 2010, according to new data from the credit-reporting agency TransUnion. But there's still a long way to go. Historical norms for mortgage delinquencies are around 1.5% to 2%, Steve Chaouki, head of financial services for TransUnion, tells MarketWatch. TransUnion predicts the rate will hit 2.51% by the end of next year. But it'll be a couple of years more until we see the rate return to normal levels.
SECOND THOUGHTS: Higher delinquency rates create a sweet spot for prospective buyers. The deals you're likely to find aren't quite as compelling as they once were, but if you can find the right foreclosed home, you can still get a bigger, better house than you otherwise could afford. Here are 8 smart moves for buying a foreclosure.
It will be a while longer before savers see a reasonable return on CDs, savings and money market accounts. In the latest Fed rate-setting committee meeting on Wednesday, the nation's central bank said the economy remains weak enough to keep short-term interest rates at lows for a "considerable time." But the nation's central bankers also added new language to the Fed's policy statement: "Based on its current assessment, the Committee judges that it can be patient" in deciding when to raise interest rates. That, the statement noted, is "consistent" with its position on waiting a "considerable time." Of course, interest rates have been low for over a half decade, and with the economy picking up steam, the Fed was widely expected to announce that it would finally let rates rise in June of next year. Sadly, that's not the case. Despite evidence of strong economic growth, the Fed will need to see even more economic strength before it changes direction, according to Bankaholic.com.
SECOND THOUGHTS: When will we see rates rise? Rates are likely to stay where they are until at least late 2015, notes Bankaholic.com. But one thing is for certain. "The decision [to raise rates], when it comes, will be historic," Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, told reporters earlier this month. Yes, it will. We Americans have earned 1% or less on our CDs and savings accounts for six years. When the decision finally comes to raise rates, we'll feel it in our pockets. That day can't come soon enough.
Child Care Aware of America's latest annual report on child care costs lists the least and most affordable states for center-based child care for a 4-year-old. Parents in Massachusetts are spending more on child care than in any other state — $12,320 per year on average to send a 4-year-old to a center. New York takes second at $12,280, followed by Minnesota at $10,812, Rhode Island at $10,400 and Vermont at $10,068. Tennessee is the most affordable state for child care at $4,515 per year, followed by Mississippi at $4,800, Louisiana at $4,882, Arkansas at $4,944 and South Dakota at $5,319.
SECOND THOUGHTS: Child care isn't cheap — sometime costing more than college, notes the report. This can be a big drain on young family budgets and really eat into cash that could go toward beefing up a nest egg. This report is a good way to measure how your child care costs compare with your state's average. Find your state's average by downloading the full report at the Child Care Aware of America> site: www.usa.childcareaware.org.
Fannie Mae and Freddie Mac have announced they'll start backing mortgages with down payments as little as 3%. That opens up lending to more low-income and first-time buyers. But borrowers will have to meet strict criteria. These new loans are only for fixed-rate mortgages on single-family homes that will be the borrower's primary residence. Borrowers must have private mortgage insurance and a credit score of at least 620. They'll also need full documentation of income, assets and job status. Plus, first-time buyers will be required to receive home ownership counseling. Fannie and Freddie currently back mortgages with 5% down. But Fannie will start backing 3% loans on Dec. 13, 2014, and Freddie will start offering the new loans on March 23, 2015. “Our goal is to help additional qualified borrowers gain access to mortgages,” Andrew Bon Salle, executive vice president for single-family underwriting, pricing and capital markets at Fannie Mae, told the Los Angeles Times.
SECOND THOUGHTS: Is putting just 3% down on a home a good financial plan? Not if you can swing more. In order to keep from paying private mortgage insurance, you'll need to put down at least 20%. And remember, the more you can put into a down payment, the more house you’re going to be able to buy or the lower your monthly payments will be. Here's how to figure out how much house you can afford.
The economy as a whole is doing better and growing, but workers are getting a smaller share of that growth. MarketWatch put together a chart based on quarterly productivity data from the Bureau of Labor Statistics. It shows that the share of output paid to workers from the nonfarm business sector is at the lowest level on record. In other words, employees are getting a smaller share of their employer's profits. Workers received about 63 cents for every dollar their company made from the 1960s to the 1980s, but it's now at around 57 cents per dollar.
SECOND THOUGHTS: That 6-cent difference doesn't seem like a lot, but it means that workers are getting about $800 billion less now than they were over 30 years ago. We've slipped backwards. The typical full-time worker making $40,000 per year would be making $44,000, if they were making 63 cents on every dollar, notes MarketWatch.
In 2013, national spending on health care rose by just 3.6%, the smallest annual increase since 1960, reports CNN Money. That's according to statistics from the Centers for Medicare and Medicaid Services. Premiums for private health insurance, which covers 60% of Americans, grew by just 2.8% in 2013 compared with 4% in 2012. Out-of-pocket spending was down last year, growing by just 3.2% compared with 3.6% in 2011 and 2012. Even spending on physician and clinical services was down, growing by only 3.8% versus 4.5% in 2012. Drug costs were the only expense that increased, growing by 2.5% last year compared with 0.5% in 2012. Overall spending on health care rose to $9,225 per person in 2013, or $2.9 trillion.
SECOND THOUGHTS: Is the American health care system changing in ways that could make it more affordable? That's up for debate. For the last five years, health care spending has been growing at historically low rates, in step with the Great Recession. Optimists say the system is becoming more efficient and safe. But federal officials stress that this slowdown could be the result of a weak post-recession economy, which means next year's report could look very different, notes The New York Times. To hold down your own medical bills, check out these 10 smart moves to save on health care.
According to a survey of 10,000 U.S. households conducted by the Demand Institute, a nonprofit think tank run by the Conference Board and Nielsen, nearly 40 million Americans are spending more than 30% of their monthly income on housing payments, property taxes and other home expenses. Renters are the worst off, with nearly half burdened by their monthly rent costs. It doesn't help that rents have jumped by more than 25% since 2005, right after the bubble burst, according to data from the Census Bureau. Homeowners are better off — just around a quarter are burdened by monthly mortgage payments. But millennials, not surprisingly, are the hardest-hit group. Student loan debt and a deficit of well-paying jobs has them postponing home ownership, notes CNN Money.
SECOND THOUGHTS: It's tough out there for prospective buyers. Mortgage rates are still low. And home prices are still relatively low. But tight lending standards and a slow job recovery have kept many would-be homeowners on the sidelines. In fact, middle-income families are unable to afford the median-priced home in just over half of the nation's largest cities, according to Interest.com's 2014 Home Affordability Study. “The bottom line is that buying a decent home remains a difficult or unobtainable dream for Americans in too many of the nation’s largest cities,” says Mike Sante, Interest.com’s managing editor.
For retirees looking to stay in their homes and avoid assisted living, virtual villages offer advantages similar to life insurance, notes The New York Times. Members of the villages pay yearly dues — $450 on average nationally — and get access to all kinds of services, like yard work, health care and transportation. Members can also find referrals to household repair services, personal trainers and even personal chefs. But the villages also promote social connection through activities like potlucks, happy hours and group trips. There are currently 140 virtual villages in 40 states, and another 120 are in the works, according to Village to Village Network, which helps establish and manage the villages.
SECOND THOUGHTS: If they catch on, virtual villages could be a great economic move for retirees. “You can retain equity in your home, your biggest investment," Frank McAleer, director of retirement solutions at Raymond James, told The New York Times. But the villages largely depend on funding from foundations and donations. Member dues account for only a little over half of village funding. If that funding goes away, retirees could be left in their homes without support.
Young America is staying away from the housing market. In fact, just 33% of homes were sold to first-time home buyers this year, according to the National Association of Realtors. That's the lowest percentage in almost 30 years. First-time buyers typically make up about 40% of the market. Meanwhile, mortgage rates are close to record lows, and homes are still relatively cheap throughout most of the nation. It sounds like a great time to buy a home.
SECOND THOUGHTS: Why isn't the younger generation jumping into the housing market? It's not for lack of wanting to own, notes CNN Money. But heavy student loan debt and incomes that can't keep up with rising home prices are keeping millennials out of the market. "Rising rents and repaying student loan debt make saving for a down payment more difficult, especially for young adults who've experienced limited job prospects and flat wage growth since entering the workforce," said Lawrence Yun, NAR's chief economist, in a press release. And let's not forget that lending standards have gotten stricter. Younger buyers with limited credit histories and smaller down payments simply aren't that attractive to lenders right now.
Job growth in November put us over the top. Employers added 321,000 jobs last month, making 2014 the best year for job growth in since 1999. On average, the U.S. economy has been gaining around 224,000 jobs a month this year. If we're over 200,000 jobs gained, it's considered a strong month. That means November's gains are a big deal. "The number is almost off the charts, given what we've seen over the past 10 years," Patrick O'Keefe, director of economic research at accounting firm CohnReznick, told CNN Money. Strong hiring was seen in professional, business and retail sectors.
SECOND THOUGHTS: What about wages? Average hourly earnings are only up by 2.1% for the year and stagnant wages have been a concern, especially for millennials. According to a report from Young Invincibles, an advocacy group for the millennial generation, over the last decade median annual wages have fallen in almost all of the popular industry sectors that employ the millennial generation. That's bad news for the generation's long-term financial goals. Still, it's important to save, no matter what your income, while you're young. Here are 10 secrets to successfully save for retirement.
Companies like the Virgin Group are switching to an "unlimited" vacation policy. Sounds nice, right? Only about 1% of companies offer this kind of policy right now, notes CNN Money, but the idea is that employees should be treated as responsible adults who know how to get their work done and deliver results. While some bigger companies seem to be adopting this policy, it's not quite a trend. Tribune Publishing rescinded plans to adopt unlimited vacations after a near revolt among its workforce. Of course, it's not really clear whether these policies would actually make it easier for employees to take the time off that they need. We Americans typically shortchange ourselves when it comes to taking time off amid worries that we'll lose our jobs or miss out on a raise or promotion. And with unlimited time off, we might actually end up taking less time for ourselves.
SECOND THOUGHTS: Want unlimited vacation time? You'd better make sure your work is done. CNN Money notes that Richard Branson, founder of the Virgin Group, wants people to take time off but assumes "they are only going to do it when they feel a hundred percent comfortable that they and their team are up to date on every project and that their absence will not in any way damage the business — or, for that matter, their careers!" Uh, no pressure. Some companies may really encourage employees to take time off if they need it, but others could use this kind of policy to get more out of their employees. We'll hope for the former.
Fidelity Investments says the average contribution to the 401(k) retirement accounts it holds reached $6,080 in the 12 months ending Oct. 31, up 1% from the previous year. The average contribution to a Fidelity IRA hit $4,357, which is up 3% from a prior year. Federal law allows workers under 50 to contribute up to $17,500 to 401(k) plans and $5,500 to IRAs in 2014. Those of us over 50 may contribute up to $23,000 and $5,500.
SECOND THOUGHTS: Compound interest, while powerful, can only do so much. Consistent contributions are crucial to building your nest egg. "Continuing to contribute to your retirement savings account, even during times of economic volatility, is critical to reaching your retirement goals," says Jim MacDonald, president of workplace investing at Fidelity. The 401(k) contribution limits are getting a boost in 2015, which means you can contribute even more to your retirement next year.
Don't let anyone fool you — trading foreign currency is high risk. According to info from FXCM and Gain Capital Holdings Inc., two publicly traded forex (currency-trading) companies, 68% of forex investors had an average net loss in the past four quarters. It's like trying to invest at a roulette table. Retail forex investors are encouraged by coaches and the up to 50-to-1 leverage they can receive. But just like a casino, the odds aren't in their favor. Plus, brokers are on both sides of the transaction, a conflict of interest. Amateur investors are losing cash and getting blown out of the market by broker conflicts, enticing pitches, practice accounts and credit card debts. The only way to fix it is to shut it down, former U.S. Commodity Futures Trading Commission official Michael Greenberger tells Bloomberg.
SECOND THOUGHTS: Even the CEO of FXCM, the largest OTC forex firm in the U.S., admits trading foreign currency is a long shot. “A myth is that people think that they’re going to be insanely wealthy, guaranteed,” Drew Niv, chief executive officer of FXCM, told Bloomberg. “They understand that they’re unlikely to, but they think they could,” he said. So instead of gambling on foreign currency, stash that extra cash in a retirement account and pad your nest egg. It's all about the long game.
Good news — more people are quitting their jobs, according to the Bureau of Labor Statistics' Job Openings and Labor Turnover Summary (JOLTS) for September. The JOLTS report offers a more complete picture than the employment rate you hear on the first Friday of the month. And it has a metric called the "quits rate," which measures the number of people voluntarily leaving their jobs. When the quits rate is higher, it signals that the economy is healthier because more people feel comfortable leaving their jobs, notes The Fiscal Times. There were 2 million quits in September, the highest since 2008. “Higher quits is a sign of increased confidence in the health of the labor market and has been signaled out by [Federal Reserve Chair Janet] Yellen as a variable that she would like to see increase. Overall, today's JOLTS report is consistent with a number of other indicators that suggest the cyclical state of the labor market is demonstrating fairly rapid improvement,” wrote Michael Feroli, an analyst with J.P. Morgan North America Economic Research.
SECOND THOUGHTS: We're not totally in the clear. We have to keep in mind that people are still finding jobs at a slower rate than they did before the financial crisis and Great Recession. There are still workers out there looking for jobs and hiring needs to pick up. “While it’s been generally improving, the hires rate has not yet come close to a full recovery — it’s well below its prerecession level," wrote Elise Gould, senior economist at the Economic Policy Institute, in a blog post.
According to new data from Springleaf Financial, somewhere between one-fifth and one-quarter of the population, across all demographics, isn't saving a dime. When asked how often they save money, around 26% of respondents said not at all, rarely or inconsistently at best. That's true for even the most educated and high-income consumers. Of those making over $200,000 per year, 20% still gave the same answer. And among consumers with graduate degrees, 27% said they couldn't miss a single month of paychecks without having to borrow money or sell assets. "We were surprised to see that nearly 20% of adults don't have enough of a cushion to last two weeks without a paycheck. What was especially surprising is that this is true across all education and salary levels," said Dave Hogan, EVP of marketing and analytics at Springleaf, in a news release. Yikes. Springleaf surveyed 2,010 U.S. consumers in October 2014.
SECOND THOUGHTS: It doesn't matter if you're a median-income family or a family making over $200,000 per year: Saving matters. Median-income earners who manage to put $5,000 or $6,000 into an IRA or 401(k) are building wealth faster than someone making $200,000 per year and spending it all. They'll have more money in their nest egg when retirement time comes around.
Over the last two years, the published cost of public college tuition has jumped by less than 3%, the lowest since 1974, according to data from the College Board. In-state tuition at public colleges now averages $9,139 a year, up 2.9%. Private school costs continue to rise more quickly, with the average published tuition reaching $31,231, up 3.7%.
SECOND THOUGHTS: Borrow less, and don't pay the sticker price for college. Grants and tax credits can help reduce your tuition bill, notes CNN Money. On average, students at in-state four-year colleges actually paid $3,020. And the amount students borrowed over the last three years has fallen by 13%. Here's another tip — go public over private if you want to save some cash. Students paid an average of $12,361 in tuition at private nonprofit colleges, or about four times more than at a public college.
The average balances of our 401(k)s and IRAs dropped in the third quarter, according to Fidelity Investments. The nation's largest provider of 401(k) and IRA plans says the average balance in its 401(k) accounts fell to $89,100, down 2% from the second quarter. Year over year, our 401(k) balances were up 6%. Our IRA balances dropped to $92,100 from $92,600 in the second quarter, but increased by 8% year over year.
SECOND THOUGHTS: Participating in a company 401(k) plan is one of the best ways to build up your retirement nest egg. Here's the kind of return you can realistically expect from your 401(k) retirement plan.
Six big banks have agreed to pay $4.33 billion in fines to settle charges that they attempted to manipulate foreign exchange rates. That list includes Citibank, HSBC, JPMorgan Chase, Bank of America, RBS and UBS. The biggest chunk of the fines will go to Citigroup and JPMorgan Chase, which will each have to shell out about $1 billion. Some of the money will go to Britain's Financial Conduct Authority and some will go to the U.S Office of the Comptroller of Currency. Lax controls between 2008 and 2013 allowed traders to collude and share confidential information to fix rates and boost profits.
SECOND THOUGHTS: Big banks are up to it again. Around $5 trillion is trading on the global currency market every day, and foreign exchange rates impact the price of imported goods, company earnings and even investments held by pension funds. "At issue is the approximately $5.3 trillion traded each day in foreign exchange — the world's biggest financial market," reports The New York Times. "The exchange rates are set daily, and traders at the big banks that are being fined, as well as other banks still under investigation, were accused of rigging the rates so that their own banks could profit." Shameful. But this is just the first round. The individuals at these banks will also face fines, according to the BBC.
Millennials are moving away from small-town America to metropolitan areas faster than previous generations. Their top destination is Arlington, Virginia, in suburban Washington, D.C., where Ozy.com says the millennial population grew by 82% between 2007 and 2013. They don't seemed fazed by high housing costs. The median home price in the 10 counties that attracted the most millennials during that time was $406,800, according to RealtyTrac. This just adds to the sense that millennials are comfortable with urban living and pursuing the economic opportunities that big cities provide.
SECOND THOUGHTS: Baby boomers, on the other hand, are moving to towns with an average population of 261,232 and median home prices of $144,875. But smaller communities will need to recruit and retain millennials if they hope to thrive over the next 20 to 30 years. "Small towns will have to rev up their sales pitch to convince young adults that they can live not just cheaply but also well in the places that older generations called home," notes Ozy.com.
Working moms are more productive than women without children, according to a recent study from the Federal Reserve Bank of St. Louis. How on earth did it determine that? Researchers analyzed the amount of research published by more than 10,000 academic economists as a proxy for productivity. The more they published, the more productive they were considered to be. It found that over a 30-year career, mothers in the study outperformed their childless peers. Mothers with two children performed the best, but even mothers with one child were more productive than those with no children.
SECOND THOUGHTS: That's not to say that having kids had no impact on the lives of these academics. The study found a 15% to 17% drop in productivity among women with little kids. But those moms tended to be more productive both before and long after the birth of their children. When that work is smoothed out over the course of a career, the paper found, they are more productive on average than their peers. Now, academic economist is a small and privileged profession, and these highly educated moms probably had lots of advantages such as maternity leave and sick time that not all women can count on. That makes extrapolating these results to other professions a little iffy. But those bomb throwers over at the St. Louis Fed have certainly given us something to talk about.
Remember Laker Skytrain? Or PeoplEXPRESS? Could the cheap transatlantic travel those upstart discount carriers pioneered in the late '70s and early '80s be about to make a modest comeback? Starting in March, Wow Air is planning to offer round-trip fares from Boston and Baltimore to London and Copenhagen for as little as $228. Yes, intercontinental flights on the budget carrier based in Iceland include a stop in Reykjavik. But that seems like a pretty minor inconvenience at a time when nonstop round-trip tickets between Boston and London typically cost $800. "Paying even $200 for a one-way flight to, say, London, is unheard of," Tom Parsons, the CEO of bestfares.com, which tracks airline pricing, told the Washington Post. "It just doesn't exist."
SECOND THOUGHTS: Take advantage of this while you can. "Those are definitely opening, introductory fares," Skuli Mogensen, Wow Air's chief executive, told The Washington Post. And keep in mind that purchasing a ticket from Wow Air doesn't guarantee much but a seat, a tray table and an 11-pound carry-on. You'll pay extra for additional carry-ons, leg room, assigned seats and food. Plus, a checked bag can be an extra $67 at check in. So, if you purchase one of these tickets, travel light. Oh, where have you gone Freddie Laker?
The number of buyers paying all cash for a home is declining. In the third quarter, all-cash sales accounted for just 33.9% of all sales of single-family homes and condos throughout the nation, according to a recent report from RealtyTrac. That's down from 36.9% in the second quarter and from a high of 47% in the first quarter of 2012. Why? The advantage of paying all cash is that you typically get a nice discount, but that benefit is disappearing. All-cash buyers in the third quarter only paid 10% less on average than the market value of the home. One year ago, that discount was 14%. It was 25% in the third quarter of 2012. “The 10% is not a hefty discount, given that the average going back to 2001 has been a 19% discount,” Daren Blomquist, RealtyTrac vice president, told MarketWatch.
SECOND THOUGHTS: There's still a benefit to paying all cash if you can swing it and still afford to buy groceries. All-cash buyers accounted for more than a quarter of all home purchases even before the recession, so they aren't going away. That's why you could still need our 9 ways to crush all-cash buyers.
The number of companies offering health plans with high deductibles is soaring. In fact, 81% of large employers will offer at least one high-deductible "consumer-directed" health plan in 2015, up from 63% five years prior, notes CNN Money. Nearly one-third of large employers will only provide high-deductible medical coverage next year, up from 22% this year. The average individual deductible for these kinds of plans is $2,215, according to the 2014 Kaiser Family Foundation/Health Research & Educational Trust report. Some companies argue that while plan participants have to pay more out of pocket, they also benefit from lower monthly premiums, keeping health insurance affordable.
SECOND THOUGHTS: At Wells Fargo, for example, employees can choose coverage with a $2,000 or $3,000 deductible. In an interview with CNN Money, a spokeswoman for the bank did a masterful job of making it sound like shifting a greater share of health care costs onto workers was a good thing for employees. "It gives them greater visibility into the cost of care and how they spend their health care dollars," she said. Just like eliminating traditional pensions and pushing all of the responsibility for retirement saving onto employees was a good thing for us, too. The reality is that those with high-deductible plans visit the doctor less often than those with traditional plans, they save less money and have difficulty paying the bigger medical bills, according to a recent survey by the Associated Press-NORC Center for Public Affairs Research.
Two recent court cases offer a rare and captivating look at the spending habits of billionaires. It seems their monthly expenses can dwarf the lifetime earnings of many middle-class Americans. Sam Wyly, the former billionaire who made his dough from Michael's stores and Sterling Software, spent somewhere around $3.75 million a month before declaring bankruptcy, according to Yahoo Finance. Anne Dias Griffin, the soon-to-be ex-wife of billionaire hedge fund manager Ken Griffin, is seeking to break their pre-nup. Ken Griffin has already given her $40 million and pays all expenses for their children, but she apparently needs more to maintain her lifestyle, including unlimited access to private jet and helicopter transportation.
SECOND THOUGHTS: More money, more problems. Wyly was forced into bankruptcy after the Securities and Exchange Commission accused him of hiding stock trades in offshore trusts. The SEC says Wyly spends $2,200 a month for pool, home maintenance and landscaping; $2,000 per month on groceries; $32,000 a month for two personal writing assistants; and $29,000 a month on the mortgage for his wife's bookstore. He also spends $7,000 every month to support family and friends. What a nice guy. A median income household earns about $50,000 a year and something like $2 million over a working life of 45 years.
Millennials aren't buying cars or housing with anywhere near the enthusiasm that previous generations have, but Derek Thompson and Jordan Weissmann at The Atlantic have come up with some insightful reasoning for why the younger generation is shunning ownership. Instead of millennials' aversion to car-buying and home ownership being a temporary side effect of the recession, it may be a permanent generational shift in tastes and spending habits. Millennials are adjusting to the realities of the modern economy, and they are becoming tech-savvy savers. Technology and the new "sharing economy" — ZipCar, Airbnb and thredUP, for instance — affords millennials the opportunity to eschew car, home and other ownership. In fact, adults between 21 and 34 made up just 27% of all new-vehicle purchases in America in 2010, down from 38% at the peak in 1985. And the homeownership rate among adults younger than 35 fell by 12% between 2006 and 2011, according to the Joint Center for Housing Studies.
SECOND THOUGHTS: Let's not forget Uber. The ride-sharing service pretty much eliminates the need for a vehicle in many urban areas. No paying to park. No car insurance premiums. Just use the smartphone app to request a ride and you're off. Plus, it's a lot cheaper than buying and owning a car outright. Imagine self-driving Uber cars — "Uber Automated" — which may only be 10 to 15 years away. Why own a car? Millennials watched their parents struggle with mortgage and car payments through the Great Recession. So it's not surprising they're ditching those big-ticket items. But while millennials may find owning cars and houses less important, they'll likely have more money in their pockets to spend or save. "Ultimately, if the Millennial generation pushes our society toward more sharing and closer living, it may do more than simply change America’s consumption culture; it may put America on firmer economic footing for decades to come," say the authors.
Getting the lowest price on plane tickets can feel like a guessing game. That fare looks good, but if I buy now, will I really be getting the best price? Or will that ticket cost $100 less if I buy tomorrow? A new study from Airlines Reporting Corp. looked at 19 months' worth of ticket prices and found that the lowest average fares are offered on Sunday, followed by Saturday. So next time you want to get away, wait for the weekend to book that trip.
Regulators recently resolved the details of a rule in the Dodd-Frank Act of 2010 that was supposed to require banks to retain some stake in the home loans they create and sell to investors. With no skin in the game, banks had flooded the market with outrageously risky and failure-plagued mortgages that triggered the 2008 financial crisis. Dodd-Frank aimed to fix that by requiring lenders to keep at least 5% of the loans they wrote. But a loophole in the law exempted banks from having to keep any "supersafe" loans where a substantial down payment mitigated the risk of default. When regulators succumbed to pressure from the banks and agreed to categorize virtually all loans as "supersafe," they essentially gutted the rule.
SECOND THOUGHTS: “The loophole has eaten the rule, and there is no residential mortgage risk retention,” Barney Frank, the former chairman of the House Financial Services Committee and the Frank in Dodd-Frank, told The New York Times. It's hard to find a better example of how the banking industry and its army of lobbyists and vault full of campaign contributions completely controls Washington, D.C.
NPR recently put together an interactive graphic to show what the rich, middle-class and poor do for work in the U.S. The graph displays the 10 most common jobs in each income bracket, and the results provide a blueprint for how to get ahead in this country. Doctors, top corporate executives and lawyers are at the top, while cashiers and nursing aids are at the bottom. To put together the graph, National Public Radio used individual income wage and salary data from the American Community Survey. It sampled adults ages 25 to 65 who worked at least three months in the past year. In America, the conventional idea of what people do to earn a living still holds.
SECOND THOUGHTS: It's not overly surprising that the biggest paychecks go to doctors and lawyers, who are only found in the top two brackets. But if you don't want to go to med or law school, become a manager. Manager positions are the most common job from the 70th percentile up to the 99th, or about $58,000 to $207,000 and over. Secretaries, retail sales clerks, janitors, cooks and nursing aides show up a lot among the poorest-paid Americans.
Federal Reserve Board Chairwoman Janet Yellen recently spoke on income inequality, and her view is pretty stark. “By some estimates, income and wealth inequality are near their highest levels in the past hundred years, much higher than the average during that time span and probably higher than for much of American history before then,” Yellen said. While others have noted this before, the fact that the world's most powerful central banker is concerned about income inequality may give the idea some room to grow, notes SFGate. Just how big is the wealth gap? Yellen pointed out that the average net worth of the poorest half of all households (about 62 million individuals and families) had fallen to $11,000 in 2013, while that of the wealthiest 5% of all households had risen to $6.8 million.
SECOND THOUGHTS: What can we do? Yellen suggests some "building blocks of opportunity" to level the playing field. She says we need to improve education and other resources for children while easing the unequal debt burden of college on the less well-off. That would require some government spending. Next, Yellen suggests improving opportunities to build wealth through business ownership. And the final building block is inherited wealth, which while concentrated among the wealthiest families, plays an important role in intergenerational mobility. “I have only just touched the surface of the important topic of economic opportunity. I do believe that these are important questions, and I hope that further research will help answer them,” Yellen said.
The Federal Reserve pronounced that the economic recovery was now strong enough for it to end the bond-buying campaign it had used to drive long-term interest rates — including mortgage rates — to record lows over the past two years. The Fed's rate-setting committee ended two days of meetings by proclaiming that the $1.66 trillion worth of treasury and mortgage debt it purchased had served its purpose and helped employers create more jobs. Although the end of the campaign was widely expected to drive up mortgage rates, they are at or near 2014 lows this month.
SECOND THOUGHTS: The nation's bank-for-banks began buying $85 billion worth of debt a month in September 2012, a fairly even split between Treasury bills and bonds backed by thousands of home loans. By flooding the mortgage market with money, it pushed mortgage rates to record lows in an attempt to revitalize a real estate industry still struggling to overcome the financial crisis and recession. In a process the Fed referred to as tapering, it began reduced those purchases to $75 billion in January, $65 billion in February and March, $55 billion in April, $45 billion in May, $35 billion in June and July, $25 billion in August and September and a final $15 billion this month. Through September, employers added an average of 227,000 jobs a month and the unemployment rate has fallen faster than expected, to 5.9%. “I do think this has been a success story,” Carl Tannenbaum, chief economist at Northern Trust told The New York Times.
The fiduciary standard is a stringent requirement for financial professionals, stipulating that they must provide advice that is always 100% in the consumer's interest. But not all "advisers" have to follow that standard, and it's creating some confusion and problems for those seeking out sound advice. "If brokers continue to call themselves advisers and advertise advisory services, customers believe they are receiving objective advice that is in their best interest," Arthur Laby, a professor at the Rutgers School of Law, told The New York Times. "In many cases, however, they are not." Many stockbrokers are only required to recommend "suitable" investments that may be more profitable for them than their customers.
SECOND THOUGHTS: Dodd-Frank gave the Securities and Exchange Commission the authority to propose a rule that brokers act as fiduciaries, but the agency is still deciding whether to move forward with such a law. The Labor Department is set to issue a new proposal in January that will broaden fiduciary requirements for retirement accounts. Although that's a move in the right direction, it's still "investor beware" until some new regs are enacted. Investment advisers registered with the SEC or a state securities regulator are required to put customer interests first. CFPs take a pledge to do the same. But if you really want to put a prospective adviser to the test the Times says have them sign an oath stating they will act as fiduciaries.
We opened nearly 800,000 new home equity lines of credit in the 12 months ending in June, according to the housing data company RealtyTrac. That was up more than 20% from the previous year and represented the most new HELOCs since the 12 months ending in June 2009. “This recent rise in HELOC originations indicates that an increasing number of homeowners are gaining confidence in the strength of the housing recovery and, more importantly, have regained much of their home equity lost during the housing crisis,” says Daren Blomquist, a RealtyTrac vice president. Riverside, California, Las Vegas and Cincinnati topped the markets with the biggest jumps in HELOCs.
SECOND THOUGHTS: HELOC originations in June were still 76% below the previous peak in June 2006, according to the RealtyTrac report. But the return to using equity should be done with extreme caution and for a very narrow set of reasons. It's important to remember that borrowing against your home puts it at risk of foreclosure if you can't pay the bill. And for most purchases, the risk isn't worth it. Here are 4 smart moves for using home equity. Let's not try to turn our homes into an inexhaustible piggy bank again.