The economic news for the last week has been disappointing. The (un)employment front saw job growth slow to a halt last month and no new jobs were created. The employment-population ratio dropped to 58.2% (9/3/11 Wall St. Journal) and the unemployment rate stayed high at 9.1%. Deutsche Bank and Bank of America both announced plans to axe 30,000-40,000 employees. The average American’s income and job security are not increasing.
Let’s look at consumer savings and the debt side. The good news is that household debt loads have been decreasing. The mortgage debt percentage of home values is now nearly twice as high as it was 25-years ago (9/8/11 WSJ). Nearly three out of every three Americans who grew up in the middle class are now living on lower income (9/1/6/11 Washington Post).
People in their 50s and 60s used to be able to get their mortgages paid by this time in their lives so they could plan for retirement. This is no longer true. Nearly 40% of households headed by 60-64-year-olds had mortgages on their primary residences in 2010, almost twice the 22% in 1994 (9/7/11 WJ).
Reviewing the data, it is clear that consumer incomes have stagnated, savings levels are low and debt levels remain high. The government must be implementing a long-term strategy to ensure America’s financial stability. But, alas!
The President last night suggested that $447 billion, or nearly half a trillion dollars, should be spent on tax cuts and spending initiatives. This is in addition to the U.S. current debt. Recent programs such as the purchase of toxic assets from banks and various foreclosure relief programs, home buyers tax credits, cash to clunkers, and others show that Congress and the administration don’t know how to solve the problem.
This is bad news for housing. If potential buyers don’t have enough money to buy or banks are reluctant to lend, sales and home values will plummet. The average 30-year mortgage rate fell to 4.12%. This is still a record low and isn’t enough to drive up home prices.
In some cases, owner financing may be an option. A deed-of-trust note can be set up by a seller of a property to transfer the mortgage note to a trust buyer. Owner financing is not always a good fit for owners with a large mortgage.
Every month, the economic news gets worse and politicians seem less competent. It is impossible to predict how it will end so it is important to keep an eye on the constantly changing economic landscape. We are sorry, but miracles are not in the offing.
Adam Mcbrian, a buyer of deeds of trust, is based in San Diego.