The Consumer Debt Anchor 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):
As lenders continue to tighten up their underwriting guidelines partly due to a combination of weakening lending institutions with lowered cash reserve balances, a technically insolvent FHA which continues to "insure" the vast majority of new home mortgage loans, worsening home sales comps due to the increasing numbers of foreclosures, and more and more struggling Americans who are just trying to survive in this ongoing economic meltdown, we continue to try to search for new opportunities for ou...
As the securitization market for mortgage loans has effectively been "frozen" for several years as I had forewarned many of my readers in various regional and national real estate publications several years in advance of the "official" start of The Credit Crisis back in 2007, we primarily have seen loans being funded which are backed by governmental bodies via Fannie Mae and Freddie Mac (both taken over by the U.S. government back in September 2008) and FHA (government insured financing).
Cancelled Foreclosures Outnumber Sales In California
In December 2009, the number of California foreclosure cancellations increased 26.5% to 13,243 mainly due to increased loan modifications. For the first time ever, the number of foreclosure cancellations surpassed actual bank REO (Real Estate Owned) foreclosure sales in which the properties revert back to their respective banks if no third (3rd) party bidders purchase them at the final Trustee's Sale on the courthouse steps.
In 2009, lenders had to discount the opening bids at the final Truste...
As home values continue to fall in most parts of the U.S. partly due to the nationalizing of the mortgage and financial markets, buying homes for short or long term appreciation may not be the best option these days.
Mortgage lending continues to tighten up for both residential and commercial mortgage loans, and stated income loans may be banned nationally in the near term after the Senate recently voted to pass a bill in favor of the banning of "no income verification" or "stated income" mor...
The U.S. Senate recently passed a bill which may outlaw all stated income (or "no income verification") real estate mortgage loans nationwide. The bill now will go to Congress for a vote as well. If Congress also passes this "no income verification" ban nationwide, then it may go into effect later this Fall, or early next year.
As the residential and commercial real estate markets continue to weaken, any attempt to limit the availability of non-conventional type mortgage financing may only...
Mortgage loans held by U.S. banks which are secured by apartment buildings (5 plus units) increased to a record 4.6% default number in the 1st quarter of 2010. This delinquent mortgage percentage number was almost twice the number just one year earlier. In the 4th quarter of 2009, the mortgage default number was 4.4%.
Typically, apartment buildings are considered the safest type of commercial property nationwide as compared with the other perceived riskier type commercial properties such as re...
1 in 10 Homeowners May Now Lose Their Home To Their Bank
There may be an additional 5 million homes which go all the way to foreclosure over the next two (2) years, according to various financial analysts. A record high number of 4.63% of all mortgages nationwide were in some form of foreclosure in March 2010. An even more staggering 9.54% of all mortgage loans in the USA were more than 90 days late.
As I have said and written many times over the past few years, I continually hear stories of homeowners who are able to go one or two years without ma...
For the first time since June 2009, new housing starts rose above 500,000 as approximately 593,000 new homes were started under construction. In Orange County, California alone, new housing starts exceeding 55,000 new homes.
Over the next few months as we enter the peak summer buying months, we may see more buyers entering the home buying marketplace primarily in the FHA mortgage loan price range which is typically in the low $400,000 price range. In certain high priced home regions like coa...
According to both the National Association of Realtors and The Pending Home Sales Index, homes sales were up in the month of March partly due to the typically strong Spring selling time period as well as the use of the home buying tax credit which appealed to many buyers.
The forward-looking home selling index rose 5.3 to 102.9 from 97.7 in February. In addition, the March 2010 home selling index was up 21.1% over the March 2009 index which was at just 85.0. This information reflects home sale...
April 2010 had almost $650 in U.S. Treasury Bill & Note Redemptions.
The U.S. Treasury continues to need massive amounts of capital to fund our various government programs as they recently redeemed over $596 billion in short term Treasury Bills for the month of April alone. This is an all-time world record amount for one single month. If you add in an additional $47 billion in longer term Treasury Notes, the amount rises closer to $650 billion.
Thirty (30) year fixed mortgage rates are tied to the direction of the 10 year Treasury Bond yield. With less demand...