Skyrocketing Consumer Debt & Falling Rates With home mortgages, the primary collateral for the loan balance is the home itself. In the event of a future default, the lender can file a foreclosure notice and take the property back several months later. With automobile loans, the car dealership or current lender servicing the loan can repossess the car.
Homeowners often refinance their non-deductible consumer debt that generally have shorter terms, much higher interest rates, and no tax benefits most often into newer cash-out refinance mortgage loans that reduce their monthly debt obligations. While this can be wise for many property owners, it may be a bit risky for other property owners if they leverage their homes too much.
With credit cards, lenders don’t have any real collateral to protect their financial interests, which is why the interest rates can easily be double-digits about 10%, 20%, or 30% in annual rates and fees, regardless of any national usury laws that were meant to protect borrowers from being charged “unnecessarily and unfairly high rates and fees” as usury laws were originally designed to do when first drafted.
Zero Hedge has reported that 50% of Americans don’t have access to even $400 cash for an emergency situation. Some tenants pay upwards of 50% to 60% of their income on rent. A past 2017 study by Northwestern Mutual noted the following details in regard to the lack of cash and high credit card balances for upwards of 50% of young and older Americans today:
* 50% of Baby Boomers have basically no retirement savings.
* 50% of Americans (excluding mortgage balances) have outstanding debt balances (credit cards, etc.) of more than $25,000.
* The average American with debt has credit card balances of $37,000, and an annual income of just $30,000.
* Over 45% of consumers spend up to 50% of their monthly income on debt repayments that are typically near minimum monthly payments.
Rising Global Debt
According to a report released by IIF (Institute of International Finance) Global Debt Monitor, debt rose to a whopping $246 trillion in the 1st quarter of 2019. In just the first three months of 2019, global debt increased by a staggering $3 trillion dollar amount. The rate of global debt far outpaced the rate of economic growth in the same first quarter of 2019 as the total debt/GDP (Gross Domestic Product) ratio rose to 320%.
The same IIF Global Debt Monitor report for Q1 2019 noted that the debt by sector as a percentage of GDP as follows:
* Households: 59.8%
* Non-financial corporates: 91.4%
* Government: 87.2%
* Financial corporates: 80.8%
Rate Cuts and Negative Yields
As of 2019, there’s reportedly an estimated $13.64 trillion dollars worldwide that generates negative yields or returns for the investorswho hold government or corporate bonds. This same $13.64 trillion dollar number represents approximately 25% of all sovereign or corporate bond debt worldwide.
On July 31, 2019, the Federal Reserve announced that they cut short-term rates 0.25% (a quarter point). Their new target range for its overnight lending rate is now somewhere within the 2% to 2.25% rate range. This is 25 basis points lower than their last Fed meeting decision reached on June 19th. This was the first rate cut since the start of the financial recession (or depression) in almost 11 years ago dating back to December 2008.
It’s fairly likely that the Fed will cut rates one or more times in future 2020 meeting dates. If so, short and long-term borrowing costs may move downward and become more affordable for consumers and homeowners. If this happens, then it may be a boost to the housing and financial markets for so long as the economy stabilizes in other sectors as well such as international trade, consumer spending and the retail sector, government deficit spending levels, and other economic factors or trends.
We shall see what happens in the near future in 2020 and beyond.
* The blog article above is a partial excerpt from my previous article entitled Interest Rate and Home Price Swings in the Realty 411 Magazine linked below (pages 87 - 91):
The "Shadow Inventory" Of Delinquent U.S. Mortgages Is Staggering!!!!
As I have written for years, the true number of distressed properties or delinquent mortgages is significantly higher than what is published in most media outlets. In some "bubble burst" regions like California, Nevada, Arizona, and Florida, the potential delinquent mortgage numbers may be anywhere from 200% to 400% larger than what is being reported right now.
There are a number of reasons why U.S. banks are not readily admitting to how large the impending and forthcoming foreclosure "wave"...
The Federal Housing Administration (FHA) is a government insured entity which was established back in 1934 in order to assist home buyers with small down payments, low interest rates, and long loan terms.
This mortgage insurance program helps protect lenders against their future losses should the homeowner later default on their loan payments. There have been close to 40 million FHA home loans made to date across the U.S. since the creation of FHA back in 1934.
According to recent home selling statistics just released, new home sales percentages were up 27% from the previous record month low. Will the positive home selling trends continue next month or even next year? We shall see if these tax credits, low rates, and government insured high loan to value loans will continue later in the year which may continue to stimulate the home selling market.
As home sales were already near all time lows, an increase in sales activity was more likely as they we...
Record Setting Foreclosures in the 1st Quarter of 2010
Foreclosure filings were up over 16% in the 1st quarter of 2010 from the same time period just one year earlier. Over 920,000 homes received some form of a foreclosure notice during this same 1st quarter time period nationwide. March 2010 saw the biggest month over month increase in at least the past five years as well.
It seems that banks are beginning to increase the foreclosure process a bit more as opposed to continually delaying the foreclosure time period partly due to the fact that ban...
As Wall Street, Big Banks, insurance companies, and other large businesses continue to be bailed out by various bailouts via the Fed or the U.S. Treasury, it seems time that the individual home owner was provided with some help as well these days. Home prices continue to drop significantly in various "Bubble" region states like California, Arizona, Florida, Nevada, and other midwestern regions.
We are actively working with individual property owners in Southern California in order to try to as...
As we now are well into the first quarter of 2010, the various financial markets continue to either worsen, or not make any sense whatsover. Typically, a country's economy is considered somewhat solid if their overall unemployment numbers are low. Sadly, many economists and financial analysts nationwide are now saying that the true unemployment numbers may lie somewhere between a low of 10% to as high as 22%.
Strangely, the U.S. stock market (i.e. the Dow Jones - a group of 30 companies) valu...
According to First American Title's CoreLogic's Loan Performance Home Price Index (HPI), national home prices fell 5.7% in a one year time period between November 2008 and November 2009.
Nevada experienced the largest price drops within that same one year time period as home values dropped an average price of 22.5%. Arizona had the 2nd biggest price drop of 14.9%. Florida had the 3rd biggest price declines at 13.7%. Michigan was 4th with a 12.6% price drop, and Idaho dropped 11%.
The Credit Crisis' Downward Spiral Continues...........
The ongoing and worsening Credit Crisis continues at a rapidly escalating downward spiraling pace. The various bailout programs offered by governments and Central Banks worldwide have done absolutely nothing to help the everyday citizen on the street.
These bailout programs have only worsened the financial crisis worldwide, and have adversely impacted our once capitalistic ways of life by having more and more centralized government control over our various major industries such as the automob...
According to the Standard and Poor's / Case Schiller Home Index, national home prices continued on a downward trend through their latest report released (end of October 2009). According to the same Index, home prices dropped as follows over a one year time period:
1.) Atlanta - 8.1%.
2.) Chicago - 10.1%.
3.) Detroit - 15.1%.
4.) Las Vegas - 26.6%.
5.) Los Angeles - 8.1% (a very misleading number as many higher end West Los Angeles areas experienced a 30...
Of all of the residential mortgage loans existing today, approximately 75% were refinance or purchase loans funded during the "Bubble" years between 2003 and 2007.
The vast majority of these same funded loans (2003 to 2007) were highly leveraged refinance loans which typically provided the property owner with cash out via a 1st mortgage only, a stand alone 2nd mortgage or line of credit, or a combination of a concurrent 1st and 2nd mortgage.
There were approximately 500% more cash out refi...