Thursday, June 30, 2005

Building Credit Sensibly

While paying cash is preferable over paying interest, there is still a need in today's society to use credit cards for things like, car rentals, security deposits and the like.

The challenge is, how do you use credit without getting in too deep.

Think about searching for "secured credit cards" You will get a list of banks and other lenders that offer credit cards backed by money you put into a savings or checking account. So, for example, you might get a credit card with a $500 credit limit, and in return you have to deposit $500.

By balancing the amount of available credit with your own money, you will not over spend and will avoid building up large credit card balances.

Coming to terms with interest only Mortgages

This is one of the best explanations of the effects of high leverage mortgages.

The question is, what will happen over time when housing prices ease off and people are left owing more on their house than it is worth.

Personal finance: Interest-only loans no bargain

Jeff Brown

Many people are flocking to interest-only mortgages. One Philadelphia lender said these made up half the mortgages it had written in the past six months.

Lenders have been reporting similar figures nationwide.

Let me cut to the chase: Stay away from these things! They're not interest-only mortgages, they're extra-interest mortgages that can increase your costs, not cut them, as the ads promise.

Interest-only loans allow people to borrow more than they can with ordinary loans because the monthly payment does not include any money to pay down principal - the money that was borrowed. The soaring popularity of these loans is evidence borrowers are pushing to the limit, taking on big risks to buy more home than they really can afford, or to pick up second or third properties.

It's more evidence of a housing bubble that could leave millions of Americans owing more on their homes than the properties are worth. Interest-only debt assumes housing prices will continue to go up, but they might not.

To see how these loans work and why they're so bad, let's first look at a conventional 30-year, fixed-rate mortgage.

Today, these loans charge about 5.75 percent, but let's say 6 percent to make it easy. For every $100,000 you borrow, you'd pay about $600 a month. That's composed of two parts. At the start, you'd pay $500 in interest, $100 in principal.

Over time, the principal payments chip away at the debt. As the debt gets smaller, the interest payments drop, too. That's because they're figured each month by applying the interest rate to the remaining debt.

Since the monthly payment is always $600, a smaller portion goes to interest each succeeding month and a larger portion to principal. The effect snowballs. At the start of the mortgage's last year, when only $6,400 of principal is left, just $35 a month goes to interest, $565 to principal.

Now let's look at an interest-only loan for the same amount. Typically, there are no principal payments for the first five, seven or 10 years. The monthly payment during this period is therefore $500, compared to the $600 on the standard loan. Instead of enjoying this lower payment, many borrowers simply take out bigger loans.

What's so bad about all this?

The piper has to be paid eventually. After 10 years, for example, the principal payments would start. Now the $100,000 has to be paid off over just 20 years, instead of 30. So the monthly principal payments have to be bigger than they'd be with the standard mortgage. And, since the principal has not been trimmed, the interest payments are larger, as well.

Result: The monthly payment jumps from $600 to $716. Total interest over the 30 years would be $127,600 instead of $116,000 with the ordinary loan.

But wait, it gets worse. Most of these loans carry rates that are fixed only during the interest-only period. After that, they typically adjust annually as prevailing rates rise and fall.

Imagine if rates in 10 years are 8 percent, a typical level, historically. In this case, our borrower would pay $156,376 in interest over the loan's life, 35 percent more than with the conventional mortgage.

These days, fixed-rate loans are bargains. Don't gamble your future with a risky interest-only deal.

Jeff Brown is a business columnist for The Philadelphia Inquirer. E-mail him at

Wednesday, June 29, 2005

Car Rental Savings

Looking to save some money on your next rental car?

Airport convenience has a price, Airports charge hefty concession fees that get passed on to consumers.

At Dulles airport in Washington DC you can save $18 a day on a midsize rental if you bypass the Hertz lot at Dulles airport and take a cab to the nearby Hertz lot in Chantilly, Va.

Get a handle on administration expenses for your 529 education savings plan

Tax sheltered education savings plans provide an excellent opportunity to grow your money tax free but, ensure you are getting the plan with the lowest overhead.

There are huge variations in plan costs. While some 529s charge no sales commission and annual expenses equal to less than 0.7 percent of assets, others impose an initial or deferred sales commission and expenses that can top 2 percent a year on some share classes. Such hefty costs make it tough to earn healthy investment gains.

Debit not Debt

Ever wonder how you can control your credit card bills?

Try using your debit card instead. While Credit Card companies lure consumers with bonus points, the simple fact that your statement comes only once per month can lead to over spending on your credit cards.

By switching to your debit card, you will control over spending and reduce your interest costs associated with credit card balances.

Because of the ability to track your account balance on a daily basis, the debit card provides you with more control over your finances and let you see exactly where your money has gone.

Student Loan Rates About to Jump...deadline to save thousands is TODAY!

On Friday, the U.S. Department of Education will raise the interest rate for federal student loans for the first time in five years. The increase is the result of rising market rates for U.S. Treasury bills.

That means that by 5 p.m. Thursday, students must get a signed application into their lenders in order to lock in loans at current interest rates.

For borrowers still in school or those who graduated in the past six months, the loan rate will rise to 4.8 percent from 2.9 percent. For those out of school more than six months, the rate will increase to 5.3 percent from 3.4 percent.

The change will inflate the cost of an average $16,000 loan by more than $2,700 over a standard 15-year repayment plan

Choose Your Home Improvements Wisely...

When it comes to increasing the value of your home through home improvements, there is no guarantee that the money you spend will be recovered when it comes time to sell.

Based on information from the Appraisal Institute of Canada, the home improvements that will create the best value are kitchen and bathroom renovations which will hold 75-100% of the cost of the improvement.

When compared to something like adding a skylight (0-25%) or a swimming pool (10-40%)you can see that it is important to choose your improvements wisely in order to generate the best returns.

Monday, June 27, 2005

Practice Price Protection

Check into the price protection policy of the stores you shop, monitor the price after your purchase and don't be afraid to return your purchase if there is a price drop.

Most major retailers will guarantee that the price you paid will remain in effect for X number of days after you made your purchase.

Depending on the original purchase price, you will find that you can save hundreds of dollars if you go back to the store with your receipt and ask to be reimbursed for the difference.

Sunday, June 26, 2005

Adding up the pocket change

Looking for a simple way to put a few hundred dollars aside and teach your kids about savings?

At the end of the day, have everyone in the house, empty their loose change into a large savings jar or piggy bank and let it sit.

To ensure everyone is focused on this savings plan, set a fun goal for the use of the proceeds.

If you can resist the temptation of reaching in for extra change, over the course of a year your pennies, nickels, dimes, and quarters will add up to hundreds of dollars and provide you with a great opportunity to teach your children about how even small amounts of money add up.

You will even get to enjoy a special purchase that everyone can be proud to say they contributed to.

Wednesday, June 22, 2005

Credit Card Balance Transfers ...Fine Print

Before jumping at the 0% interest on credit card transfers,understand the impact a default may have on your interest rate. When you read the fine print extracted from one major card, you will note that the rate can quickly jump from 0% to 29.9% if you default on any card you hold with them.

Costly credit card mistakes can be eliminated by using your home equity to consolidate your creditcard debt.

Here is the fine print from a major credit card transfer promotion

Introductory rate of 0.0% for 12 months from date of cardmembership on balance transfers and purchases. After the promotional period ends, the standard variable APR for purchases will be applied to all remaining purchase and balance transfer amounts; the standard variable cash advances APR will be applied to any unpaid balances. As of May 6, 2005, the standard variable purchase APR is 9.99%. The standard variable cash advance APR is 20.99%. However, all your APRs may automatically increase up to the 29.99% variable default rate if you default under any Card Agreement that you have with us. Min. finance charge is $0.50. For each purchase made in a foreign currency, we add an additional FINANCE CHARGE of 3.0% of the amount of the purchase after its conversion into U.S. dollars. This foreign currency transaction fee will be added to the appropriate purchase balance with the foreign currency purchase. The foreign currency transaction fee may cause the annual percentage rate on the billing statement on which the purchase made in a foreign currency first appears to exceed the nominal annual percentage rate. The transaction fee for cash advances is 3% of the amount of each cash advance, $5 minimum. The transaction fee for balance transfers is 3% of the amount of each balance transfer, $5 minimum, $75 maximum. However, there is no balance transfer transaction fee on balances you transfer in response to this offer. The annual membership fee is $0.

Points to consider before you refinance your house

With property values going through the roof, more homeowners are tapping equity in the form of second mortgages. The total amount of second-mortgage debt, including home-equity loans and lines of credit, rose $178.2 billion to $883.7 billion in 2004, according to a recent study by the Joint Center of Housing Studies of Harvard University.

If you're tempted to borrow, first learn about the differences between second mortgage loans and home equity lines of credit. Note that fixed rates on second mortgages are often higher than conventional first-mortgage rates and adjustable-rate loans. Check out average rates for your area. Consider the costs of each alternative and decide with the help of this calculator. Finally, read more about how homeowners are going deeper into debt.

Realestate bubble jumps the pond

From, There is growing fear in the UK that the troubleing rise in realestate values and cheap money will soon hit the British Economy.

June 21 2005

Crippling 'Wealth'

The Daily Reckoning

London, England

Tuesday, June 21, 2005


A love affair that is bound to end badly...a real estate market that is red, white and blue hot... The easy money, easy lending disease is spreading worldwide... our deep appreciation for ignorance... Another doomed phenomenon... don't run your personal life based on market-guesses... and more!

This time of year, here in London, one day has barely died before another is born. It is light until 10:30 at night. Then, it is light again at five in the morning. We have not had time to rest or collect our thoughts.

That is usually a plus. When you are in love, war or a market mania the last thing you want to do is stop and think. You might decide to forget the whole thing. Why? Because they almost always lead to tears: heartbreak, death or insolvency, depending upon the affliction.

Today's love affair is with the U.S. Imperium...the modern American empire had turned our hearts to mush. It must be infectious; now our brains, our money and our economy have turned to mush too. Today's war is a dull, but expensive, fight against "terror" - whoever that is. And today's market mania is in housing. All over the world, residential real estate is HOT! Hot. Hot. Hot. So hot they have to print the listing on asbestos. So hot the sidewalks melt. As hot as the core of the sun on a summer day. As hot as Hades without a shade tree. HOTTER than HOT. Hotter than a $25 pistol in a drug war. Red hot. White hot. Red, White, and Blue Hot.

We only mention it because everyone says so. Everyone says we have a real estate bubble. In fact, The Economist tells us it is the biggest bubble in history. The stock bubble of the late '90s increased investors' wealth, on paper, by an amount equal to 80% of GDP. The stock bubble of '29 added an amount equal to 55% of GDP. But the last five years of the real estate bubble have added as to Americans' wealth as an entire year's output; that is, 100% of GDP.

Here, too, the syndrome is catching. Easy lending, easy spending policies in the U.S. have forced the whole world to keep up. Foreign central bankers must create more and more of their own money in order to sop up U.S. dollars - which are then relent to the United States. The result is a worldwide bubble in money and credit, reflecting in rising real estate prices almost everywhere. According to The Economist, this bubble has added $30 trillion worth of wealth in the last five years. This "wealth," we caution Daily Reckoning readers in the words of the Economist, is "largely an illusion."

And so the whole world is HOT, enjoying an once-in-a-lifetime shindig on borrowed money and borrowed time. In Australia and Britain, property prices seem to be softening already. American prices won't be too far behind.

How do we know?

Longtime Daily Reckoning sufferers know that we have a deep appreciation for ignorance. Where others see enlightenment, we see rampant stupidity. Where others see geniuses, we see blockheads. Where others see the future clearly, we see only the murk of our own thoughts and desires. We have no idea what will happen, but when others bet that something extraordinary would become even more extraordinary, we are happy to take the other side of the wager. The mean would not exist if things did not regress towards it. The days get longer and longer until today; and then they get shorter. Gradually, the days' length regresses to a mean of 12 hours of sunshine, 12 hours of darkness. The trend does not stop there. Then, the days continue to get shorter and shorter until December 21st, when once again, they regress to the mean.

Real estate will regress to the mean just like everything else, dear reader. Prices will either fall sharply. Or they will stop rising, and fall gently against inflation. One way or another, soon or late, the real price of property will go back to where it always has been. Yale economist Robert Shiller predicts a 25% drop in residential property prices. The Economist hints at a worldwide recession when the air goes out of the real estate market. Maybe they will both be right.

But how could we have a real bubble in real estate when so many people say so? Don't worry, dear reader. This mania is a popular mania. And the average lumpen house buyer has no clue. He has heard that he is buying in a bubble. He's happy to do so, because he has no idea what a bubble is. "Yes, there may be a pause," he will tell you, "but property never goes down in price - not in America!"

Bill Bonner, back in the SUPER HOT real estate sector....

***"No-money-down MANIA," reads a headline in MONEY Magazine. The interesting thing in the story about the No-Money-Down gurus is the photo. The people attending are not a group of investors. They are fairly young people, lower-middle-class people by the looks of them. Our guess is that the concept of a "bubble" means nothing to them. We would also guess that they don't have a lot of extra money to lose...and that they've bet their financial futures on the real estate bubble. This is very different from the punters who ran up tech stocks. They had to put up real money. But few mortgaged their houses to do it. When the bubble popped, they were poorer, but wiser.

What will happen to these people when the real estate bubble pops? They are already poor.

*** How? When? We don't know. But we regard the collapse of the housing bubble as a near-certainty. But it is like life itself; just because an end is inevitable doesn't mean you are eager to see it come. People go about their business, buying and selling, as if it will never come. But it certainly will.

Another doomed phenomenon is the U.S. dollar. The American currency rose with the empire - from 1917 to 2002. But no paper money has ever endured. The dollar is now losing value faster than the Roman currency after Nero. That it will eventually be extinct is a safe bet. When it will happen is anyone's guess. But gold is rising against the dollar and will, no doubt, continue to do so. Gold, food, houses, oil and other tangible things can only be brought into commerce at great expense in time and money. Paper dollars can be created at will. The relative abundance of the latter compared to the former makes the decline of the dollar inevitable.

And of course, the empire itself has a tomb waiting for it. As long as there are humans there will be human history. And what is human history but a record of the misadventures of the species? One empire is born; another dies. An empire is an extraordinary thing, like a market mania, a war or a love affair. All of them regress to the mean of ordinary life, where things are not HOT...HOT...HOT...but normal, common, cold, boring and peaceful as the grave.

*** A reader, writing from Ireland:

"I write to you with the intention of passing on compliments with regard to the Daily Reckoning mailout which I thoroughly enjoy reading and also with a genuine query regarding house prices in the Emerald Isle

"Due to a variety of travel and business adventures throughout my twenties I find myself at age 34 in the (slightly) unfortunate life cicumstance of living with my parents.

"This is not entirely an unusual occurrence in Dublin. I have lots of friends my age engaging in similar living arrangements. Frankly, although I love my parents very much, I would much rather be living elsewhere (as would my long suffering parents).

"I pay a nominal rent and contribute to bills and am saving for a deposit to buy a house somewhere in Dublin. As you are most likely aware, local house prices have been steadily increasing and I reckon it will be easy enough for me to acquire an 'agreement until death' with a local lender secured against a habitable collection of bricks tethered with mortar.

"But my question is, 'Should I bother?'

"I am trying to resist pressure to enter the housing market as it goes against my (minimal) better financial judgment breaking many property purchasing rules:

"1. Having a deposit greater than 30% of the asking price. (I possess considerably less than that at present. The parents have offered to help but I am uncomfortable with this kind offer.)

"2. Being able to afford repayments on a loan given a two to five percent increase in interest rates, I probably couldn't.

"3. Entering a market where the price of the artifact is expensive. Every year I have put this off house prices have increased. But I have also experienced the benefits of purchasing property in a foreign land where there was a market 'correction' of over 20%. I know a drop in house prices is not (as is locally called) 'impossible.'

"Should I move out, rent and save more slowly or should I stay, save and get a three-bedroom house swapping cohabitation with my parents for cohabitation with tenants?

"Kind regards,

*** Dear Robert,

We do not give personal advice in the Daily Reckoning. And if we did you'd be a fool to take it. But we have some thoughts.

First, we note that the house bubble has blown up prices in Dublin as much or more than anywhere else. Since that is the case, you could reasonably expect to get more house for your money later rather than sooner. House prices should revert to the mean. When they get to the mean, or below, you will make a better purchase.

Second, we caution that a house is not an investment. It is a consumer item. The time to buy a house is when you want one and can afford it, just as with any other consumer item. Will it be cheaper in the future? We guess it will, but we don't like to run our personal lives on the basis of our guesses about the markets. Instead, we ask ourselves a specific question rather than a general one: do we want to pay that amount of money for that particular house? Or would we prefer to rent the one next door? That is, you might want to convert the whole issue from macroeconomics to a matter of personal, private interest. You cannot really know what the markets will do. So you have to ask yourself the questions without regard to your macro-economic guesses.

We have noticed, for example, that while we are perfectly happy to rent an apartment, our better half feels a strong desire to buy one. It is not an economic or investment question. It is simply a matter of personal taste. In our experience, women like to feel they have the family's feet firmly on the ground - rooted in community affairs and mortgage payments. Men might prefer a more nomadic life. What can you do? You compromise. You divide decision-making. But here we give you some confidential advice, hombre al hombre: You tell your spouse that she will make some of the decisions and you will make others. Just make sure you make the important ones. That's the way we have done it in our household. Your editor's wife decides where we live, where the children go to school, where we go on vacations, what we do with our time, where we invest our money and how we spend it. But your editor makes the important decisions, such as the family's position on the European constitution a!
nd the revaluation of the yuan.

The Daily Reckoning PRESENTS: Do inflating house prices truly enrich homeowners? Do they enrich the nation? Our short answer to both questions is a categorical no. The ugly truth is that both are impoverished. Dr. Richebächer explores...

by Dr. Kurt Richebächer

Let us start with a quote from Friedrich von Hayek: "The means of perception employed in statistics are not the same as those employed in economic theory." American economists think far too much in statistical terms, regardless of underlying economic processes. While the statistics do, indeed, show general enrichment, in reality, there is none at all. The homeowner has zero gain in his comfort of living or income.

This perception of wealth has its true basis in nothing but the famous "greater fool theory"; that is, in the expectation that there will be a greater fool to buy the acquired house later at a higher price. Deluded by this wealth chimera, private households have run down their savings and piled up astronomic debts to be repaid with future earned income.

Where, then, are the economic benefits? The one obvious visible benefit is in the push to GDP growth from higher consumer spending, which also increases current incomes. Yes, but much of that spending on cars, furniture and houses is borrowed from the future. That is, the borrowing pulls future spending into the present, but, of course, at the expense of such spending in the future.

If you think it over, you realize that in reality, such a borrowing/spending bubble adds nothing to economic growth. It only distorts the time pattern of spending in relation to its long-term trend, as in the case of the consumer determined by the underlying rate of income growth.

The second problem is that such a bubble distorts and deforms the direction of demand and production in the economy. Consider these grossly disproportionate increases in U.S. domestic spending since 2000: consumer durables +30.8%, residential building +29.5%, nonresidential investment +5.8%, imports +23.5%, exports +5.8%.

Strikingly, all economies with housing bubbles have features in common that were, in the past, generally associated with ailing economies. These are collapsed savings; skyrocketing debts; chronic, large trade deficits; and booming residential investment, but weak business investment.

This coincidence is not accidental. The common denominator of these countries is runaway consumer spending. That is the key point. The big spending excesses in these countries are in consumption, while business fixed investment is in the doldrums. Policymakers and economists in the countries with these symptoms are the first in history to proclaim that people and nations become richer with consumer borrowing-and-spending binges.

Consumption never creates wealth. It is categorical: Capital decreases when consumer spending exceeds production. What is happening in these countries is the exact opposite of wealth. It is capital consumption in the sense that consumption absorbs a growing share of GDP at the expense of investment and the trade balance.

On the macro level, this is impoverishment. As a matter of fact, it is statistically easily verifiable. It shows in the comparison of soaring U.S. foreign indebtedness to the lagging growth of the domestic capital stock, as measured by net capital investment.

U.S. net foreign debts are increasing at an annual rate of around $700 billion, or 6% of GDP. The available data for America's net fixed investment end in 2003; in that year, net private domestic investment amounted to $529.9 billion, or 4.8% of GDP. Of this total, residential building accounted for 3.4% of GDP and nonresidential investment for 1.4%.

Traditional economic thinking assumes that higher consumer spending stimulates businesses to increase their spending on capital investment and employment. This went badly wrong. It has not been realized that excessive consumption, taking up a rising share of GDP, has the exact opposite effect of depressing savings, investment and the trade balance through well-known crowding-out processes.

If you think all this over, you will realize that the American economic reality on the macro level is not record wealth creation, but national impoverishment, foreboding a declining living standard. Take the borrowed import surplus away, and U.S. living standards collapse.

Among the industrialized countries, Japan and Germany are the two great exceptions that have missed the global housing bubble. Japan is still struggling with the aftermath of its building bubble in the late 1980s, while Germany is struggling with the building bubble that developed in eastern Germany in the wake of unification.

Yet speaking of a global housing bubble, we hasten to emphasize again that there is one all-important difference in such bubbles. There are countries where rising house prices have been isolated events in the price system without significant effects on the economy, and there are countries where the housing bubbles have become the dominant influence both on the economies and financial systems.

This really is the dividing line between bubble economies and nonbubble economies.

The inflating house prices in Europe have even failed to prevent a slow decline of consumer spending. Consumers maintained their high saving rates.

Now one question: What does this aversion to consumer borrowing have to do with monetary and fiscal policies? What does it have to do with fundamental economic weakness? Absolutely nothing.

It has to do with a traditional cultural aversion in Europe to consumer borrowing for purposes other than building or buying a house.

And of course, it is stupid to believe that this aversion can be broken with still lower interest rates. In the first place, it robs the savers of income on their large mass of existing savings. It will shock them. The crucial difference to see is that Europeans are primarily savers, while people in Anglo-Saxon countries are primarily borrowers.

Consumption-driven bubble economies reveal themselves at first through sharply falling personal savings. Their second typical, yet spectacular, hallmark is large trade deficits.

In the end, the main question is, of course, what happens when a housing bubble expires. As to be expected, Mr. Greenspan and the bullish consensus deny the possibility of a hard landing. A little logic says that such a landing is inevitable.

An illuminating case in this respect is the very recent experience in the Netherlands. While traditionally a country highly conservative in its finances, it developed a housing bubble in 1998-99, after years of strong economic growth. House prices and credit growth soared at double-digit rates. As homeowners cashing in on their burgeoning home equity went on a spending spree, the household savings rate plunged from 12.9% of disposable income in 1998 to 6.8% just two years later.

As the Dutch central bank raised its short-term rate from 2.5% to 4.5% from 1999-2000, house price inflation came to an abrupt halt. Household borrowing and mortgage equity withdrawal slumped sharply.
Being deprived of their "wealth effects," the Dutch people returned to saving from their current income. Within just three years, the personal savings ratio was back to 12%, driving the Dutch economy into the worst recession among the industrialized countries. The growth rate of consumer spending sagged in a straight line from 4.7% in 1999 to minus 1.2% in 2003.

We have recalled this episode to emphasize one point of greatest importance, yet one that is widely ignored. The Dutch example confirms that for consumer spending to slump in the wake of a fading housing bubble, house prices do not need to fall at all. It is sufficient that they stop rising, thereby depriving households of new wealth effects and the associated borrowing facilities.

Therefore, major housing bubbles imperatively end in a hard landing. A second major adverse influence on economic growth implicitly arises from the sudden cessation of the building boom. Yet the worst looming problem is always the potential damage to the banking system through escalating bad loans.

On Dec. 5, 1996, when Alan Greenspan made his famous remark about possible "irrational exuberance" in the stock market, he asked a rhetorical question: "How do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions, as they have in Japan over the past decade?"

For a central banker, that is really a most astonishing question. With some knowledge in macroeconomics, bubble economies - in the sense that asset bubbles impact the economy - are most easily identifiable. Consider that last year, the United States had recorded an overall credit expansion of $2,718.6 billion, versus virtually zero national saving. As you can see, the simple clue is in the relationship between soaring credit and collapsing savings.


Kurt Richebächer
for The Daily Reckoning

Tuesday, June 21, 2005

Housing Prices Expected to Drop

Are your personal finances looking like a house of cards?
The run up in housing prices has created a false sense of wealth that has fueled consumer spending and encouraged people to borrow more.

Once Reality hits, will the burst of the Real estate bubble make the dot come bust look like childs play?

Housing market tumble forecast
Economists see bubble bursting by late next year

Kelly Zito, Chronicle Staff Writer

Tuesday, June 21, 2005

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A long-predicted correction in the high-flying housing market could steer the economy into a recession as early as late 2006, according to a forecast to be released today.

Economists at the prominent UCLA Anderson Forecast have anticipated a real estate downturn for a couple of years, but they have stepped up their warnings in their latest quarterly report.

The reason? Home values simply have flown too high, too fast. In California, for example, home prices have vaulted 70 percent in the past five years, compared with 55 percent in the mid-1970s and 45 percent in the late 1980s.

"Prices are not associated with reality," said UCLA economist Christopher Thornberg, whose paper on the state's economy is subtitled "Beware the Froth!" Home buyers "are gambling on massive amounts of appreciation, and it's not worth the price compared to the rental value. It's a house of cards."

Many housing experts agree the market is due to ratchet down several notches -- and some evidence suggests that trend is already under way in some areas -- after an unprecedented boom that was aided in recent years by historic low mortgage interest rates.

But there is sharp disagreement about the timing and magnitude of any falloff.

Nicholas Retsinas, the director of Harvard's Joint Center for Housing Studies, agrees that certain markets may be more vulnerable to deceleration. But he doesn't necessarily agree that a recession is in the offing.

"There has been a pickup in business spending and you see other signs that we're not on the verge of a major economic downturn," Retsinas said.

The latest Anderson report comes at a time when many consumers, pundits and the media are fretting over the possible presence of a home-price bubble. Federal Reserve Chairman Alan Greenspan spoke earlier this month of froth in some regions. And data on prices, affordability, consumer debt burdens and the percentage of real estate investors indicate to some that the market is on the brink of unraveling.

Thornberg expects a housing slowdown to trigger a widespread slump in consumer spending across the state and nation, because many homeowners are using their homes' equity to fund things like college educations, cars and retirement. And Thornberg argues that even a plateau in prices could freeze spending, because many consumers count on continued equity increases to fuel purchases.

Thornberg added that he and his colleagues see little potential for accelerated business, government or foreign spending to help offset a housing slowdown.

One of the key predictors of a housing slowdown is a peak in real residential investment per worker, a measure of home-related consumer spending that includes new home building, remodeling and brokers' fees, according to UCLA economist Ed Leamer. Right now, the figure hovers at $4,000 per U.S. worker. In past housing booms, it topped out at $3,000. History suggests a sharp pullback in spending, rather than a gradual decrease, he added.

The UCLA report forecasts a 10.7 percent decline in residential construction in 2006, helping to push real gross domestic product from 3.4 percent in 2005 to 2.4 percent in 2006. analyst Mark Zandi puts the GDP at 3.7 percent in 2005 and 3. 5 percent in 2006.

Zandi's more upbeat forecast relies in part on recent employment gains. Last month, the United States generated 78,000 new jobs, with 17,600 in California.

That said, Zandi doesn't rule out the possibility of dampened economic growth -- particularly if interest rates were to jump. For the growing number of consumers with interest-only or other riskier adjustable loans, higher rates could translate into steep increases in monthly mortgage payments down the line.

"Housing is overdone and eventually there will be a correction, and it will weigh on the economy," Zandi said. "If it's a modest, slow rise in rates, the economy can digest that. If they rise quickly at high levels, recession is not out of the question."

But Leslie Appleton-Young, economist at the California Association of Realtors, contends the possibility of a recession remains low.

The trade group forecasts median home prices across the state will rise 15 percent year-over-year in 2005, down from 21 percent last year. In 2006, prices will probably increase less than 15 percent, but well above zero.

"There may be some people who may get into trouble, but we don't think it will dominate the market," she said.

Monday, June 13, 2005

Cutting Your Prescription costs in half

UnitedHealthcare is now encouraging patients to get their prescriptions filled with double dosage pills and cut the pills in half.

This practice has the potential to significantly reduce costs for the insurer who passes the savings on to their client.

The Associated Press
Updated: 6:20 p.m. ET June 10, 2005

MILWAUKEE, Wis. - Chopping his Lipitor tablets in half gives Randy Schneider a little thrill.

“I kind of chuckle when I do this,” said the 41-year-old line worker at a cheese factory. “It’s like I’m making good money per minute if you figure it out.”

Schneider saves about $31 for a six-month supply, because double-strength pills don’t cost much more than single-strength ones. It takes him 10 minutes to cut the 90 pills in two, and he gets the same supply of cholesterol medicine for less money.

Now, the nation’s second-largest health insurer, UnitedHealthcare, is getting behind the practice, giving away pill-splitters and providing advice on which drugs can be safely cut in half.

'Meaningful savings'
It is offering half-price on drugs for those who split double-strength pills, cutting the patient’s insurance copayment in half as well.

“It has the potential for meaningful savings,” said Tim Heady, CEO of UnitedHealth Pharmaceutical Solutions, a division of UnitedHealthcare, based in Edina, Minn.

Pill splitting
“For every patient that chooses to reduce their costs by 50 percent, it would reduce ours and their employer’s cost by half of the cost of that prescription as well,” he said. “The question is how many consumers would be willing to participate.”

Seniors have split pills to cut costs with the help of their doctors and pharmacists for years. But recently insurers have promoted it as studies have shown it can save massive amounts on purchasing drugs — a key driver of increased premiums.

The U.S. Department of Veterans Affairs said in November it managed to save $46.5 million a year by having 1.1 million patients split one cholesterol drug alone — Zocor.

The Regence Group, a health insurer operating in Oregon, Washington, Idaho and Utah, saves $5 million a year through pill-splitting, which it began promoting 18 months ago.

Containing costs
The practice helps contain costs as newer, more expensive drugs replace older, cheaper ones, and as people take more and more medicine, said Regence’s vice president of pharmacy services, David Clark.

“With all those pressures (that tend) to increase pharmaceutical costs, this is one of the elements that reduces those pressures,” Clark said.

UnitedHealthcare began its voluntary program across Wisconsin on June 1, sending out letters to 10,500 patients to promote it. The insurer plans to take it nationwide for 12.5 million drug benefit subscribers before year’s end, Heady said.

Among the 15 pills the insurer recommends splitting are expensive cholesterol drugs such as Lipitor, antidepressants such as Zoloft, and blood pressure pills such as Aceon and Diovan.

Those pills can be split easily without any adverse effects, Heady said.

“Say one day you get 30 percent of the tablet and the next day you get 70 percent,” he said. “What we’ve been able to determine is that doesn’t really have an impact on efficacy or safety.”

But Pfizer Inc., the maker of Lipitor and Zoloft, disputes that finding. Splitting a pill and leaving it in a steamy bathroom, for example, could change the nature of the drug, said the company’s Dr. Mark Horn. It amounts to an “unlabeled use of our medicines” that has not been rigorously tested, Horn said.

“An experiment is being conducted on the people who are being encouraged to pill-split.”

The Federal Drug Administration does not regulate pill-splitting, but says there are risks such as forgetting to split pills, slicing time-release pills or unevenly breaking ones for which a precise daily dosage is needed.

It is crucial to have the consent of a doctor, said Tom McGinnis, FDA’s director of pharmacy affairs. Doctors can judge whether a patient is capable of splitting pills, or whether they are likely to forego taking their medicine if they feel it’s too expensive.

“The important thing is for patients to get a dose of their medication, and if it’s the only way they can afford to be on a statin (cholesterol-reducing) drug, I think a doctor would think that was reasonable,” McGinnis said.

High costs putting patients at risk
Studies have shown that the high cost of prescription drugs has put patients at risk.

The nonprofit research group, Center for Studying Health System Change, said last month that more than 18 percent of U.S. adults did not fill at least one of their prescriptions in 2003 because of the cost.

The center’s president, Paul Ginsburg, said pill-splitting was unorthodox but effective in increasing access to care.

“It may be the difference between being able to take the drug and not being able to,” he said.

For factory worker Schneider, splitting his pills at the suggestion of his pharmacist is not a life-or-death decision, since his cholesterol is back to normal. But for a father of three with a mortgage on a new house, every penny counts.

“Most people, it probably doesn’t faze them to just go ahead and pay for it, but I’ll take whatever route is necessary to keep costs down,” he said.

US Consumers have lowest cashflow out of 37 countries

A recent study by AC Neilson found 28% of US consumers had no spare cash.

In the face of rising interest rates, this is significant cause for concern as there is very little room to adjust to the additional monthly costs that accompany higher rates.

June 13, 2005 12:06 PM US Eastern Timezone

Large Number of U.S. Consumers Continuing To Live Paycheck to Paycheck, According to ACNielsen

NEW YORK--(BUSINESS WIRE)--June 13, 2005--

More Then One-Quarter of U.S. Consumers "Have No Spare Cash" U.S. Tops 37 Other Markets for Most Cash-Strapped Consumers

The U.S. is number one when it comes to the percentage of the population that claims to "have no spare cash," according to a new ACNielsen survey of consumers in 38 markets. More than one-quarter (28%) of U.S. respondents said once they have covered their essential living expenses they have no money left over.

Markets With Highest Percentage of Markets With Lowest Percentage
Consumers Who Have No Spare Cash of Consumers Who Have No Spare
(Global Average = 13%) Cash (Global Average = 13%)
Ten Market % With "No Ten Market % With "No
Highest Spare Cash" Lowest Spare Cash"
1 United States 28% 29 Philippines 8%
2 Portugal 24% 30 Taiwan 8%
3 Brazil 23% 31 China 7%
4 Chile 21% 32 India 7%
5 Korea 19% 33 Ireland 7%
6 Canada 19% 34 Mexico 7%
7 Netherlands 19% 35 Spain 7%
8 Denmark 18% 36 Indonesia 5%
9 Sweden 17% 37 Russia 5%
10 Greece 17% 38 Thailand 5%
Source: ACNielsen Online Consumer Confidence Study

Here is the Full study

Profit on Your Next Home

With 4% of American Mortgages at the risk of Foreclosure,increasing economic uncertainty,and the prospect of higher interest rates the Mortgage Bankers Association of America estimates that there is $360 Billion dollars of realestate that could come on the market under forclosure conditions.

Forclosures are an excellent way to find bargain realestate, and with a little work, you can turn a profit.
Search Foreclosures FREE For 7-Days!

Buying a Foreclosure Property Below Market Value: Five Tips from the Pros

House hunting can be a very daunting experience, especially in today’s real estate market. Both investors and home buyers have been priced out of the market by escalating costs, and good real estate deals are increasingly difficult to find.

But there are bargains out there, for people who know where to look.

“For people willing to do some homework, the foreclosure market offers some of the best opportunities in real estate today,” explains James J. Saccacio, chief executive officer at RealtyTrac, the leading online foreclosure marketplace.

Web-based services such as RealtyTrac give consumers access to foreclosure and pre-foreclosure information that was previously available only to professional real estate brokers and investors. Today, homebuyers can use these services to assist them identify and research potential home purchases, as well as the tools and professional resources they need to help them close the deal.

Tuesday, June 07, 2005

50% off new appliances...

If you are fortunate enough to live in a city with a clearance center for a major department store chances are you can get brand new major appliances at a deep discount.

These are not your standard "Warehouse Outlet" stores but, rather the place where established retailers send product that has been rejected (wrong color or size is often a reason to send it back) by the original purchaser.

If you search carefully through the warranty returns (slightly used appliances) and scratch and dent merchandise you will often find perfectly good appliances still with the factory packaging inside at a very good price.

Next time you are in the market for a major appliance look up your nearest clearance center and save.

Thursday, June 02, 2005

Here is a secret most car dealers don’t want you to know…

You can negotiate a better lease deal!

Car leases are designed to offer you a monthly price point that you will readily accept and eliminate the price discounting that makes people dread the new car purchase experience.

A great for the dealer but, it costs you.

Negotiating a better lease rate is possible but takes more factors into consideration than an outright purchase.

By understanding how a car lease is structured, you can negotiate a more favorable lease that will save you thousands of dollars.

Variables in a car lease:

1) Initial value of the vehicle to be leased - this should be the same as the price you are willing to pay if you bought the vehicle outright and include dealer discounts from the factory.

2) Interest rate – this is the cost of money…are you getting the lowest interest rate?

3) Residual Value – this is the “buyout” value at the end of the lease. Often times, leases are structured with a high residual while the market price for a similar vehicle at the end of lease can be less than negotiated residual.

4) Mileage – The lease is based on an agreed to number of miles over the term of the lease. Less expensive leases tend to have a mileage allowance that is lower than what the average person drives in a year. If you go over the agreed to limit, you pay a penalty that quickly adds to the total lease cost.

5) Down Payments and dealer preparation charges – To lower the monthly price of the lease, many deals are structured with non-refundable down payments. Sure it gets you into the car but, this is money that is gone, and if you want out of your lease in the future, you will never see it again. Look into a $0 down lease.

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