Mortgages and Personal Finance

Last week the Dow Jones Industrial Average finally clawed its way back above the 10,000 point mark, a level that has not been seen since long before the current financial crisis. So with the benchmark index reaching new heights does this mean we’re finally out of the woods and can breathe easy once again? Or is this a false spike that will only lead to another downturn?

Leading economists and analysts are mixed in their outlook, but there is plenty of evidence to suggest continuing storm clouds up ahead. While the stock market may be celebrating, the larger economy still has a long way to go.

Here’s a few things to look out for:

• Unemployment is still worsening. When the national unemployment rate goes above 10% (which is already has in many states) will this further contract consumer spending? In the U.S. consumer spending still acount for 70% of GDP. In the U.K. that figure is only 65% of GDP, so perhaps we still have a ways to go down.
• The specter of inflation. The U.S. has $50 trillion (yes, trillion) in unfunded liabilities. Many analysts fear this will lead to significant inflation in the next three years.
• What about innovation? The credit crunch has most impacted small businesses and entrepreneurs, the seat of innovation in the U.S. The number of patents files has been declining, not a good sign for America’s future innovation.

So if the stock market rally isn’t indicative of the weakness in the broader economy, what’s causing it? Many argue that we’re simply seeing the effect of massive government spending. When that spending stops will the economy be able to pick up the slack?

There’s an interesting article in today’s Business Insider that argues the housing bubble, or some form of it, has returned. Is it possible that after so many months of falling prices and glum out look that the market has fully turned around so quickly? There is – surprisingly – some evidence to suggest this might be the case, at least in certain housing markets.

While home prices have not yet reached overinflated levels, the enthusiasm (some would call it mania) and the speculation of the earlier housing boom have returned. Markets like Las Vegas which were once the epicenter of the foreclosure crisis are now bustling once again.

While home prices in Vegas are down a whopping 50% off their peak reached in 2006, the inventory of houses on the market is now down to a 3-month supply. Compare this to the national average of 8.5 months of supply on the market and it becomes clear that something is going on in Las Vegas and other foreclosure centers. In addition, 40% of all transactions in Vegas are all cash, indicating that deep pocketed speculators are entering the market.

All cash deals? Speculators? Dwindling supply and transactions completed in the blink of an eye? Sounds like mania has returned to Vegas. The only question is when and if this craziness moves on to other hard-hit housing markets.

Falling home prices around the country have cut the amounts seniors can receive on reverse mortgages from the Federal Housing Administration. The popular FHA program is running a $798 million deficit this fiscal year, forcing the agency to cutback new reverse mortgages.

Analysts say the move amount to a cutback of 10 percent on all new FHA reverse mortgages. Those who have existing FHA reverse loans are not impacted by the change.

The National Reverse Mortgage Lenders Association estimates the policy could prevent more than 1 in 5 applicants from paying down their existing mortgage note with the funds from a new reverse mortgage. The Association says this could lead some seniors to delinquency and foreclosure.

Under the new FHA policy, a $100,000 FHA reverse mortgage would be reduced by $10,000 to $90,000 in proceeds. This reduction would leave many applicants without the money to pay off the balance of their note.

In a reverse mortgage, the bank providers homeowners 62 and older with a lump-sum payment, monthly payments, or a credit line the borrower can draw upon. The reverse mortgage is secured by the equity in the home and is only payable when the owners sell the house.

Coldwell Banker released its annual Home Price Comparison Index (HPCI) a couple of weeks ago and while the most expensive areas are no surprise, the real news was how many markets are now affordable.

In total, there are 84 U.S. markets in which the sample home price averages under $200,000. The monthly mortgage cost for homes in this price range could average less than $600, and down payments could amount to less than $4,000.

The survey found a price gap of more than $2 million between the most expensive and most affordable U.S. housing markets. In the annual comparison of similar 2,200-square foot homes in 310 U.S. housing markets, La Jolla, Calif. led the list as the most expensive real estate market in the country with an average home price of $2,125,000. Grayling, Mich., also known as the “canoe capital of the world,” ranked as the most affordable market in America, where a similarly sized home costs $112,675.

As in past years, California dominated the most expensive housing market list. Joining La Jolla in the top 10 were the California markets of Beverly Hills, Palo Alto, Santa Monica, San Francisco, Newport Beach, Palos Verdes, and San Mateo. Boston and Greenwich, CT were the only two non-California locations in the top 10.

In contrast, the midwest dominated the list of most affordable markets. Akron, OH, Canton, OH, Detroit, and Eau Claire, Wis. all placed in the top 10 cheapest housing markets.

The most expensive market outside the United States is Singapore, where an HPCI subject home averages $1.9 million U.S. dollars, ten percent lower than La Jolla. Coldwell Banker Real Estate compared a total of 57 markets in 29 countries outside of the United States, with those international home prices averaging $487,844 in U.S. dollars.

While doctors may no longer make house calls, electric carmaker Tesla now does. Tesla announced that it would send technicians to the homes or offices of their vehicle owners to take care of maintenance, software upgrades and many repairs.

Tesla’s “Mobile Service Rangers” will drive to owners even if they are hundreds of miles from the nearest dealership. The upstart carmaker has only four dealerships around he country: Menlo Park, Los Angeles, Seattle and New York. But the company has sold 700 Tesla Roadsters and now has customers in every state.

Because Tesla’s electric technology is so now, the average service station can’t work on the cars. Before this service, Tesla’s customers had to ship their car to the nearest dealership if they couldn’t drive in. To minimize the hassle, Tesla rolled out its mobile tech teams.

The service won’t be free, however. Vehicle owners will pay $1 for every round-trip mile that the technicians travel from the nearest Tesla service center. The minimum charge is $100.

Of course, Tesla Roadsters cost about $109,000, so this will be small change for the company’s vehicle owners.