Tuesday, April 26, 2011
Since late last year, the Fed has bought government bonds to keep interest rates low. Fed Chairman Ben Bernanke and his colleagues are expected to signal this week that they will allow the program to expire as scheduled in June.
The end of the bond-buying program would mean that, aside from tax cuts, almost all the extraordinary measures the government took to prop up the economy are over. Congress is fighting over how deeply to cut federal spending, not whether to spend more for stimulus.
Since the Fed announced the plan in August, worries that the economy would fall back into recession have all but disappeared. The private sector is adding jobs, and the stock market is at its highest point since the summer of 2008.
But higher oil and food prices pose a threat. If companies are forced to raise prices quickly to make up for escalating costs, that could start a spiral of inflation. Exactly how much of a threat inflation poses to the economy is a matter of disagreement within the central bank.
A vocal minority, including the Fed regional chiefs in Philadelphia and Minneapolis, believe the Fed may need to raise interest rates by the end of this year to fight inflation. The Fed has kept its benchmark interest rate near zero since December 2008.
Richard Fisher, president of the Federal Reserve Bank of Dallas, argues that the Fed has done its job and should consider halting the bond program now, not in June.
The majority - including Bernanke, Vice Chairwoman Janet Yellen and William Dudley, president of the Federal Reserve Bank of New York - believe interest rates should stay low longer, and the bond-buying program should run its course.
Bernanke has predicted that the jump in oil and food prices will cause only a brief, modest increase in consumer inflation. Excluding those prices, which tend to fluctuate sharply, inflation is still low, he has argued.
Bill Gross, who manages the world's largest mutual fund at Pimco, worries that rates on Treasury bonds will rise when the Fed stops buying them. If other buyers don't step in and there's less demand for Treasury bonds, then the rates, or yields, on those bonds would rise. That would drive down prices on bonds. Rates on mortgages, corporate debt and other loans pegged to the Treasury securities would rise, too. Higher borrowing costs could slow spending by people and businesses, and slow the overall economy.
Fed officials and others believe that because the end of the program has been well telegraphed, it won't have much of an impact on bond rates. That was the case in 2010, when the Fed ended a $1.7 trillion stimulus program.
In February 2010, Bernanke began laying out the Fed's strategy for tightening credit. But the economy weakened in the spring and continued to struggle. Bernanke did an about-face, and the Fed announced the bond program during the summer.
The bond-buying program was the Fed's second since the recession. The economy would have to be in serious danger of tipping into another recession for the Fed to consider a third round.
The Fed has other tools at its disposal. Since early August, it has taken about $17 billion a month that it earns in interest from mortgage-backed securities and used it to buy bonds, a separate and smaller step than the $600 billion program.
So far this year, Bernanke has managed to forge consensus for his policies - all Fed decisions this year have been unanimous - but the deepening divides could make Bernanke's job more difficult.
The decision comes at a time when Congress and the White House are fighting over how deeply they should cut federal spending over the next decade to curb the nation's budget deficit. The deficit is on track to be a record $1.5 trillion this year, marking the third straight year over $1 trillion. It's the highest share of the total economy since World War II.
House Republicans have passed a plan that would slash spending by nearly $6 trillion over the next decade, in part by overhauling Medicare and Medicaid. President Barack Obama wants $4 trillion in spending cuts over 12 years and would raise taxes on the wealthy.
The economic benefit of another major government measure meant to stimulate the economy, an $821 billion package passed in 2009 for building roads, repairing bridges and other infrastructure projects, has already rippled through the economy.
However, the economy is still getting support from a sweeping package of tax cuts, including a reduction in the Social Security payroll tax that will give an extra $1,000 to $2,000 to most households this year.
The Fed meeting begins today. When it ends on Wednesday, Bernanke, who wants to make the Fed more of an open institution, will take an unprecedented step for a Fed chief and hold a news conference.
The news conference gives Bernanke the chance to build support for the Fed. But it could backfire if what he says causes confusion and rattles Wall Street.
Bernanke plans to conduct the news conference once a quarter to unveil the Fed's updated economic forecasts. The Fed is expected to lower its forecast for economic growth slightly this year, bump up its inflation estimate and upgrade its outlook for jobs.
Bernanke also is likely to use the news conference to emphasize the Fed's prediction that the jump in oil and food prices will lead to only a modest and short-lived increase in consumer prices.
But he'll also stress that the Fed stands ready to act if inflation shows signs of taking off.
by Jeannine Aversa Associated Press Apr. 26, 2011 12:00 AM
Fed eyes keeping inflation in check
Credit cards don't come with instructions. Student loans lack an owner's manual. High-school and even college students don't need to pass personal-finance courses before facing the real world.
Instead, they typically gain their money education the tough way, through the school of hard knocks.
While a student at Arizona State University, Holly Huntimer made purchases using credit cards without really pondering the consequences. The Surprise woman, now 27, earned her bachelor's degree with relatively little in the way of student loans, just $3,500, thanks largely to scholarships.
But her credit-card bills were another matter, with her balance eventually topping $20,000 a couple of years after graduation.
"My peers all had a lot of credit-card debt, and we never seemed to worry about money," she said. "It was a way to maintain the lifestyle I was used to."
Roughly half of households headed by someone under 35 have credit-card debt, according to a recent report by Demos, citing Federal Reserve figures. Four in 10 households headed by younger adults have an auto loan.
Student loans pose special challenges for many because these debts can't be eliminated through a bankruptcy or repossession. Instead, they can follow someone around for years like a zombie.
Because of the recession and sluggish recovery, job prospects aren't as solid for today's young adults as they were for older siblings or parents, making it tough to repay debts. Unemployment rates are higher for those in their 20s and early 30s, and many employers have cut retirement, health and other benefits.
"After graduation, I felt I was drowning in credit-card debt," said Huntimer, who earned her degree in 2006. "And after graduating, I wasn't making as much as I expected."
Much has been made of boomerang kids who move back home with their parents as young adults. Financial pressures contribute to this trend.
"A lot of them don't have an option but to move home," said Mike Sullivan, director of education at Take Charge America, a non-profit debt-management and counseling group in Phoenix. "Many of them don't have any income, but they still have that student loan and credit-card debt."
Attention on finances
Heightened financial literacy can't do much to correct a tough job market, but it can ease problems tied to overspending and debt.
One hopeful sign is that finances seem to be emerging as more of a hot topic for people in this generation.
"The current credit crisis has caught the attention of a lot of students," said Joyce Serido, an assistant research professor at the University of Arizona. She and her colleagues have launched a research project following over 1,500 college students into middle-age to assess changes in their attitudes and behaviors toward finances.
One observation she makes is that parents can play an important role in educating their kids.
"We liken financial behaviors today to where drugs and sex were five or 10 years ago," said Serido, who is associated with the Norton School of Family and Consumer Sciences. "When parents started to talk more frankly to kids back then about sex and drugs, that's when we saw declines in risky behavior."
Parents as role models
Skeptics might question whether parents make the best role models, given that many have their own foreclosure, credit-card and overspending problems. But Serido said it can be instructive for parents to discuss their own financial missteps. "When parents talk to them, they tend to stay in line," she said.
Sharon Lechter, a Paradise Valley financial author and certified public accountant, notes that parents often make incomplete role models, especially when it comes to paying bills.
"Most young adults see a credit card being used every day by their parents, yet rarely do those same teenagers see the credit being paid off," she said. "This builds in the expectation of instant gratification."
Lechter, who collaborated with Robert Kiyosaki in writing books for the "Rich Dad, Poor Dad" series and served on the first President's Advisory Council on Financial Literacy, views credit cards as a double-edged sword. They are the "quickest way for young adults to build good credit," she said, and "the quickest way to destroy a young adult's credit."
Role of education
Although rare, financial-education classes also have value. Arizona now requires an economics class for high-school students, starting with the class of 2012. Serido applauds the effort.
While a single economics class won't help students deal much with real-world finances, she said, it could whet their interest enough that they're encouraged to take money classes in college and learn on their own, such as through financial websites.
Along with parents and formal education, Serido considers employment the third key part of the financial-education equation, as jobs expose employees to paychecks, taxes, bank accounts, benefits and more. "It forces you to interact with the financial-services system," she said.
Some of those interactions will be difficult for kids to make and for parents to watch.
Many experts feel it is best for parents to let adult children work out their own money problems, especially if doing otherwise could drag down the parents, too.
"As much as you'd like to help your child, it's better for the child to declare bankruptcy and start over than to ransom your own retirement," Sullivan said.
"Taking your kids back into the home is a great thing but paying off their debt is a bad thing."
Time to recover
As rough as many young adults may have it, they still have time to repair the damage and learn sound financial habits.
When Huntimer decided she had to solve her credit-card problems, she turned to Take Charge America. Part of the group's focus is on negotiating concessions from credit-card companies such as in lowering a borrower's interest rate and reducing or waiving fees, then putting them on a plan to pay off the debt.
Another component involves education - helping with budgets and other financial tools. "They have to be willing to make these changes," said Mona Flores, a Take Charge America counseling supervisor. "It takes a serious commitment on their part."
Progress on debts
Huntimer, who stopped using credit cards when she began the program in 2008, said she has pared her original $20,600 credit-card balance to $4,600. She also has cut her student-loan debt from $3,500 to $1,700.
She qualified for a mortgage and bought a home last year. Huntimer, who is single, said she earns between $35,000 and $38,000 a year as a marketing assistant at Peoria Sports Complex and as a part-time pet-sitter. She's even putting away money in a savings account and in a Roth Individual Retirement Account.
Huntimer said participating in the debt-management program didn't hurt her credit, and she feels optimistic about her future. "It was a challenge, but I didn't suffer," she said. "I'm a lot less stressed now."
Get educated about finances
Sharon Lechter, a Paradise Valley-based financial author and certified public accountant, offers several tips for young adults. These include:
• Read the fine print on credit-card agreements, limit the number of cards you have and keep balances as low as possible.
• Maintain a budget. "Once you know where your money comes from and where it goes, it is easier to make changes," she said.
• Delay making purchases on items for at least two minutes when in stores. This can help control impulse buying.
• Consider homeownership as a smart long-term financial strategy. While it might not appear obvious with the market so depressed, current low housing prices and tax benefits provide solid opportunities for young adults.
• View college as an investment in your future, despite benefits that might not be immediately obvious. If finances are tight, consider attending a community college first to minimize student loans.
• Set achievable money goals from which you can gain momentum, such as paying off small-balance credit-card debts first. "This feeling of accomplishment, this little win, will give you the courage to keep going," she said.
- Russ Wiles
Test your financial knowledge
Are you financially literate? Gauge your knowledge by taking the following quiz. Answers provided at the bottom.
• 1. Suppose you have $100 in a savings account earning 2 percent interest a year. After five years, would you have more than $102, exactly $102 or less than $102?
• 2. Imagine that the interest rate on your savings account is 1 percent a year and inflation is 2 percent a year. After one year, would the money in the account buy more than it does today, exactly the same or less?
• 3. If interest rates rise, what will typically happen to bond prices - rise, fall or stay the same?
• 4. True or false: A 15-year mortgage usually requires higher monthly payments than a 30-year mortgage, but the total interest over the life of the loan will be less.
• 5. True or false: Buying a single company's stock usually provides a safer return than you'd get with a stock mutual fund.
This quiz was developed by FINRA, the Financial Industry Regulatory Authority. Typical respondents, both nationally and in Arizona, got three questions correct out of the five. For details, go to finra.org.
Answers: 1. More than $102. 2. Would buy less. 3. Prices would fall. 4. True. 5. False.
by Russ Wiles The Arizona Republic Apr. 25, 2011 12:00 AM
Lack of financial savvy hinders youths in debt
FICO, the firm that created the widely used FICO credit score, studied credit bureau data to develop what it says is a more accurate portrait of strategic defaulters. FICO defines them as people who are underwater on their mortgage -- owing more than their home is worth -- and more than 90 days delinquent on payments but current on other credit lines.
Compared with other mortgage defaulters, strategic defaulters generally:
-Have higher credit scores. The majority of them have credit scores above 620, FICO's research shows. FICO scores go up to 850.
-Use credit more judiciously. More than 35% of non-strategic defaulters max out their credit cards vs. less than 10% of strategic defaulters.
-Have not been in their home very long.
-Shop for new credit card lines before they strategically default.
"They're getting their life in order," says Andrew Jennings, chief analytics officer at FICO.
Lenders have traditionally used the degree of home price depreciation as a basis for predicting strategic defaults. But FICO's research gives a more complete picture, Jennings says. The company last week announced new tools that it says will help lenders better identify strategic defaulters before they default.
Other companies, including CoreLogic, have launched similar products as the strategic defaults continue to erode home values.
While the exact number of strategic defaults can't be determined, studies indicate they account for many lost homes. The University of Chicago Booth School of Business estimates that strategic defaults accounted for 35% of defaults in September vs. 26% in March 2009. In January, the Nevada Association of Realtors released a study showing that 23% of Nevadans who lost homes admitted to strategically defaulting.
Nationwide, 23% of homeowners with a mortgage are underwater, CoreLogic says. That means the problem of strategic defaults is likely to persist, says Craig Focardi, a TowerGroup banking consultant.
Strategic defaulters can be hard to identify because they typically make their house payments, and pay other bills, until they begin the strategic default process, Focardi says.
By identifying at-risk borrowers sooner, lenders may be able to guide them to options other than strategic default, say Frank Pallotta of Loan Value Group. His company aims to reduce strategic defaults by getting lenders to reward borrowers who pay off their loans.
by Julie Schmit USA TODAY Apr. 25, 2011 08:14 AM
Study: Underwater owners who walk are more credit savvy
According to U.S. Bankruptcy Court documents, negotiations between the homebuilder and its creditors, led by Bank of America, appear hopelessly deadlocked.
A hearing scheduled for 11 a.m. today will help determine what happens next. The options include continuing to work on a mutual settlement, which Fulton Homes favors, or bringing in a mediator, which the bank-led group favors.
Like many builders, Fulton Homes was struggling in late 2008 to keep up with its debt payments as its lenders demanded additional cash to offset the declining value of real-estate assets, market analysts say.
The company filed for reorganization in January 2009 and has since been engaged in an epic battle with its lenders.
Fulton Homes and its creditors have submitted substantially different debt-repayment plans to allow the company to emerge from bankruptcy.
The lenders' proposed plan would force a much more rapid repayment of the company's debt, with higher interest and less consideration for a $25 million debt owed to Fulton Homes Chairman Ira Fulton.
Fulton Homes was founded in the mid-1970s by Fulton, a prominent community figure and philanthropist.
The engineering college at Arizona State University bears Fulton's name, and ASU's Mary Lou Fulton Teachers College was named after his wife.
Doug Fulton, Ira's son, is president and chief executive of Fulton Homes.
by J. Craig Anderson The Arizona Republic Apr. 25, 2011 12:00 AM
Fulton Homes still has no debt plan
Sunday, April 24, 2011
- Bankrate.com: Serves up insights about U.S. Treasury bills, Treasury Inflation-Protected Securities and U.S. savings bonds.
- Bonds Online: Explains the government's TreasuryDirect bond purchase program.
- InvestorGuide.com: Offers snapshot of U.S. government bonds.
- Investopedia: Provides good overview of government bonds.
McClatchy-Tribune News Service Apr. 24, 2011 12:00 AM
Get the lowdown on government notes, bonds
When their middle-class parents and grandparents were the same age, they could count on long careers with the same employer, regular pay raises, pensions and generous medical benefits.
This younger, "do it yourself" middle class must shoulder the responsibility of crucial aspects of their financial and work lives - saving for their twilight years, tackling soaring health-care costs and carefully managing their careers - with little help from an employer and dwindling help from Uncle Sam.
Debt also is a recurring theme for younger workers, in part because housing and credit-card debt are stacked on top of enormous school loans that, in many cases, are much larger than what their parents tackled.
Emily Duda, 28, and her husband, Bryan, 24, are working to whittle down nearly $60,000 in student loans, plus other debts. Duda, who has a master's degree in divinity, was laid off from her job at a Tempe church in 2010 and spent nearly two months out of work. She now is employed as a security guard.
"We were hoping to start a family when I turn 30," said Duda, adding that they may delay that if they haven't paid off their debts. She thinks it may take at least three years.
"I don't want to bring a kid into a household with debt," she said. "I want to bring them into a world with solid principles."
A generation ago, a student could go to a local state university, work part time during the school year and full time in the summer and graduate with little or no school debt, said Lauren Asher, president of the Institute for College Access and Success. That's not possible now.
"The cost of education has outpaced family income and grant income," Asher said.
Young, do-it-yourself workers must manage their middle-class expectations, said Kimberly Bridges, manager of financial planning at Scottsdale-based Stoker Ostler Wealth Advisors, an affiliate of Harris Private Bank. Focusing their careers, living within their means, paying down debt and saving for retirement are essential, she said.
Media images of excess and easy credit inflated consumers' expectations of what middle-class life should be like. Sprawling suburban homes and high-tech toys were viewed as entitlements during boom times, but historically, middle-class life was more modest. In the early post-World War II era, families had one car and homes were about 950 square feet, Bridges said.
Most workers under 40 will have time to adjust to the reversal of fortunes, Bridges said.
"We had a great wake-up call, and I think for that age group, it has come in time for them," she said.
The biggest asset that young workers have is their human capital, she said. Usually workers under 40 have not hit their highest-earning years. So if they manage their careers carefully, they have time to repair financial wounds from the recession.
Career management has been an expensive lesson for Duda.
She racked up nearly $60,000 in debt working her way toward a master's degree in divinity, with hopes of teaching theology one day. After she earned her master's, she ultimately took a job at a Tempe church for $25,000 annually. She loved working in the church, but, in hindsight, she said, she should have considered the ability to pay off the loans when she contemplated a career. Now, as a security guard, she makes slightly more than what she did at the church. She and her husband are devoted coupon clippers and try to stick to a budget.
Looking back, she said, "I love my degree and I love the education that I got, but they aren't the most practical degrees."
Health-care costs are a growing burden on all workers, including the youngest members of the workforce.
The number of employers that provide health insurance for workers is shrinking. The jobs that do offer coverage require workers pick up a bigger share of the tab. Workers pay larger co-pays for office visits, and they must kick in - often hundreds or thousands of dollars - for surgeries and medical tests.
For young workers who are struggling with school debt, a shaky job or housing debt, a small medical emergency can cause a financial crisis.
Some punch a clock at jobs that don't provide health insurance and keep their fingers crossed that they stay healthy. Other financially strained workers can't forgo health coverage.
When Laura Limon's husband lost his job in 2009 with the financial arm of Chrysler in Chicago, they paid $400 a month so their family of three could continue to get health benefits - and that included the 65 percent temporary discount that was part of federal stimulus funds. Without it, it would have cost $1,000, said Limon, 32.
COBRA, or the Consolidated Omnibus Budget Reconciliation Act, allows laid-off workers to pay out of pocket to continue health insurance with their employer.
Limon's husband now works in the Valley at PayPal, where health insurance is an employee benefit.
"We are definitely having to manage expenses," said Limon, a stay-at-home mom with a part-time home-based business, who has a 3-year-old daughter.
Her family is still paying off debts accumulated during her husband's layoff, she said.
Saving for retirement
Once personal debt is repaid, saving for the future takes on growing importance, because the national burden of Social Security and Medicare is only expected to grow.
Young adults have become more pessimistic about their long-term financial situation.
When surveyed in 2007 by the Employee Benefit Research Institute, only 8 percent of people in the 25-34 age group said they weren't at all confident about having enough money to live comfortably throughout retirement.
Since then, the percentage of adults ages 25-34 expressing a lack of retirement confidence has steadily increased, reaching 27 percent this year.
One bit of good news is that young adults are participating in 401(k)-style retirement plans and Individual Retirement Accounts at younger ages than prior generations did, said Dallas Salisbury, president of the EBRI.
"The other (part) of the picture is that they are likely to have less help from employers or the government when they do retire," Salisbury said.
5 tips for better money management
Young adults face daunting financial challenges but do have time and other advantages on their side. Here are five tips for adopting sound money-management practices:
With the Internet a click away, educate yourself on credit cards, homeownership, investing and other financial matters.
Despite the many demands on your money to meet near-term expenses, make saving a priority. Strive to put away enough cash to meet at least three months of living expenses but, preferably, six to 12 months.
Take advantage of company benefits.
Fewer young people will enjoy pension coverage, and you might not receive full Social Security benefits, either. So it's important to use benefits that are available. If offered a 401(k)-style plan at work, contribute as much of your own funds as needed to qualify for employer matching funds. Learn to save by having money taken automatically from each paycheck.
Avoid dumb moves.
Like everyone, you run the risk of getting scammed or making bad investments. If you spend a lot of time on the Internet and in social-media circles, beware of identity-theft risks and other tricks. Guard personal information and monitor online accounts. Check credit history by obtaining free reports at annualcreditreport.com.
Don't fear risk - within limits.
You probably should hold the bulk of your long-term investments in stocks, stock funds and other assets likely to appreciate over time. These will gyrate over short periods but tend to track the economy's expansion over time. Learn about your investments: Use common sense to avoid losing money in scams and speculations.
- Russ Wiles
by Jahna Berry The Arizona Republic Apr. 24, 2011 12:00 AM
Young adults face future of self-reliance
Sales of new homes fell by about 24 percent from the first quarter of 2010, from 1,530 sales to 1,170 sales.
Meanwhile, existing-home sales increased slightly from a year earlier, accompanied by a decrease in median-sale price, according to the data.
Total sales volume for existing homes in the first quarter was 16,535 transactions, an increase of almost 8 percent from 15,335 sales during the same period in 2010.
Housing analyst Jim Belfiore, president of Phoenix-based Belfiore Real Estate Consulting, said the increase was especially encouraging because it came primarily from an increase in "move-up" buyers: those with existing homes who are selling in order to buy a larger or nicer home.
"I'd attribute that to consumer confidence being higher overall," he said.
The decrease in new-home sales occurred primarily because the 2011 new-home-buying season got off to a late start compared with the previous year, when there was still some momentum from a now-expired federal tax credit for new buyers.
Belfiore said new-home sales picked up significantly in the latter half of March and have remained strong through the first three weeks of April.
The median sale price for new homes in the first quarter was $222,450, a 2 percent decrease from the median price of $227,115 in the first quarter of 2010, according to ASU's realty studies at the W.P. Carey School of Business.
The median sale price for existing homes decreased by about 11 percent, from $140,000 in the first quarter of 2010 to $125,175 during the same period a year later.
Realty-studies professor Jay Butler said he was concerned that the continued decline in median home prices would push some homeowners who are upside-down on their mortgages to give up and walk away, particularly those who were exhausting all other financial resources to make the mortgage payments.
"There's a high level of frustration out there," Butler said.
There were 11,425 foreclosures in the first quarter of 2011, up slightly from 11,190 foreclosures during the same period a year earlier.
However, pre-foreclosure notices were down considerably, from 18,245 notices issued in the first quarter of 2010 to 15,232 notices issued during the same period a year later.
Butler said the decrease in new notices seemed logical after four years of heavy foreclosure activity.
"First of all, you've foreclosed on 11 percent of the homes in the Valley, so you've got to be running out of properties to foreclose on," he said.
by J. Craig Anderson The Arizona Republic Apr. 24, 2011 12:00 AM
Maricopa County Housing market showing some life
A tough job market, daunting student-loan balances, misuse of credit cards, the housing-market crash and reduced workplace benefits are among the challenges that have put many people under age 40 in a bind.
Will they be able to match the standard of living attained by their parents? Time, of course, is on their side, but for many, the middle-class dreams are on hold.
"This is the first time, for a lot of people in my generation, when things haven't gone their way financially," said Jacob Gold, a 32-year-old financial adviser in Scottsdale. "The last few years have been a real wake-up call."
Jobs and the housing market are at the root of the issues. Job losses, limited opportunities and paltry pay raises have made it difficult to pay off massive student loans. Many young adults bought their first homes at the peak of the housing market and have struggled to make payments on underwater mortgages. Beyond that, many battle debt because they have used plastic to survive tough times, or to live beyond their means, or both.
These workers have time - if they downsize their aspirations - to repair some of the financial damage, financial advisers say. But young Arizonans say that the recession will have a lasting impact on their middle-class dreams.
Many are retraining or adjusting their career plans. Some are delaying starting families. They are putting off saving for retirement or forgoing health insurance. Many rely financially on aging parents or, conversely, must help support relatives who lost their jobs.
Blindsided by crisis
Baby Boomers got a taste of a rough economy during the stagflation era of the 1970s. Their parents and grandparents grappled with stressful economic conditions around World War II and during the Depression.
But the past few years have been marked by the first prolonged financial crisis for adults now in their 20s and 30s.
Many younger workers were blindsided by the recession because they were certain they would find good-paying jobs and the housing market would keep going up, said Kimberly Bridges, manager of financial planning at Stoker Ostler Wealth Advisors, a Scottsdale-based affiliate of Harris Private Bank.
"A lot of people in that age group came into adulthood with a lot of confidence," she said. "They thought they could get a good education and - even if they had to charge it with student loans - they were going to come out making good money. They really thought that everything was going to work itself out and they were going to be able to pay off all this debt, and now they are hitting a spot where they can't."
Arizona shed about 12 percent of its jobs during the recession, about 324,000 positions, since the downturn began in December 2007.
The workers who lost positions had to defer or default on debts that they couldn't repay. Those who managed to cling to their jobs were making less money than they anticipated.
If they bought a house in Arizona within the past 10 years, they are likely making mortgage payments on a home that isn't worth what they paid for it. In addition, banks have clamped down on lending standards, making it harder for first-time buyers.
Making ends meet
For Ryan Hutchins, the wake-up call came in November, when he got laid off from his job at a local bank. His wife, Bethany, continues to work as a community-college instructor, but the loss of his income has caused stress for the Gilbert couple and their young daughter.
The family is renting a home from a relative, Ryan said, adding that neither he nor Bethany currently has health insurance. Nor do they use credit cards for purchases anymore.
"We had to go through our savings," said Hutchins, 36. "We had to liquidate what little we had in our 401(k) plans to make ends meet."
The couple also has debts - about $40,000 in student loans, more than $10,000 for credit cards and $2,000 for federal income taxes, he said.
Hutchins has started training to become an insurance agent. He credits the layoff for helping him find a career that he likes better, and he recognizes that he and Bethany, 31, have time to rebuild their finances. Still, he doesn't downplay the seriousness of their situation.
"Our biggest priority is in paying down debt and putting aside money for retirement and to buy a house," he said. "At times it gets you down, but I have to focus on the fact that my family needs me."
The recession scarred all generations, but several trends are making it particularly rough on young adults:
- Unemployment has been running higher for young adults. Some 15 percent of people in the 20 to 24 age group were out of work nationally in March, as were 9.1 percent of those ages 25 to 34. Both rates were above the overall jobless level of 8.8 percent.
- Changing employment trends make it much less likely that people new to the workforce will be able to stick with one job for most or all of their careers.
- Employers have cut back on benefits, virtually ending traditional pensions for new workers while paring health coverage in many cases as well.
- A slow-growth economy means that a two-decade stock market boom like Baby Boomers and their parents enjoyed in the 1980s and 1990s doesn't seem probable anytime soon.
- The long-term viability of Medicare and Social Security is much less certain for young adults than it is for retirees and older workers.
- The nation's yawning debt woes likely will need to be handled by people paying taxes in coming decades - and that means today's young adults.
Meanwhile, many young adults have accumulated considerable personal debts. People in this age group grew up with credit cards, yet often didn't know how to manage them or receive the financial education to use them wisely.
Education costs also have taken a toll. College costs, which have been rising faster than the general inflation rate, now average more than $20,000 a year (including room and board) for in-state students at public schools and more than $40,000 annually at private institutions, reports the College Board. Among Arizonans with actual loan balances, the average student-loan debt is $27,960, reports Credit Karma, a free credit-management service based in San Francisco.
Plenty of young adults are graduating with five- and even six-figure debts, with dim job prospects.
Limits of bankruptcy
Diane Drain, a Phoenix bankruptcy attorney, said she has noticed more young adults facing financial stress than in decades past. She attributes that to various factors, from a tight job market to the often-reckless use of credit cards.
"It's not unusual to see someone with $25,000 to $30,000 in credit-card debt when they're not even earning that much in a year," Drain said.
Because of student loans, many young adults face a difficult time digging out of their financial holes. Although medical and credit-card bills, some car loans and some types of real-estate loans can be discharged in a bankruptcy, student loans can't be removed except in the most dire hardship cases, Drain said.
Consequently, many young adults have subpar credit scores. The typical Arizonan has a grade of 666 on the standard scale of 300 to 850, reports Credit Karma. But it's only 640 for Arizona residents between ages 18 to 24, and 649 for those in the 25 to 44 group.
Time on their side
Despite the pressures, young adults do have time on their side. People who will collect paychecks for another 30 or 40 years have the chance to learn smart money-management habits, watch their spending, save more and invest better.
Also, with the Internet, young adults have access to more and better financial information. Whether they use it favorably is a big question, though financial adviser Gold expresses optimism.
"One positive is that this is a generation that's very tech-savvy, innovative and entrepreneurial, with aspirations to create something," he said. "Given time and opportunity, they will blossom."
by Russ Wiles and Jahna Berry The Arizona Republic Apr. 24, 2011 12:00 AM
Arizona's middle class further out of reach for young
The majority of the homes are in Scottsdale, but Mesa, Gilbert and Queen Creek are also on the luxury list, with individual sales between $1.3 million and nearly $3.8 million.
The transactions, totaling nearly $300 million, are an indication that Canada's preference for Arizona as the No. 1 place to invest is growing, said Glenn Williamson, founder and CEO of the Canada Arizona Business Council, a non-profit that promotes bilateral trade.
The Canadian purchases represent at least 6 percent of the 1,742 homes sold in Maricopa County for $1 million, or more, since Jan. 1, 2009, according to Ben Toma, broker for Toma Partners, a Phoenix real-estate firm that specializes in sales of luxury homes.
Toma and other agents called the transactions a significant chunk of the high-end housing market and said there are probably more such sales to Canadians that have not yet been identified in surveys.
A recent report by Valley real-estate analyst R.L. Brown identified nearly 500 Valley home sales to Canadians in 2010. The report said the homes were bought from more than builders.
Many of the sales in Mesa - 96 of them in communities developed by builder Jeff Blandford - indicated that Canadians were influencing other Canadians to buy homes in the same communities. Other sales were in Gilbert, Chandler and Queen Creek.
"What perhaps is the most surprising is the number of homebuilders that failed to capture substantive numbers of Canadian new homebuyers over the data period, begging the question of what marketing strategies or product positioning was used by the builders with the highest capture of these buyers," Brown said in his report.
Williamson said the Business Council obtained records of the sales from the Canadian government to compile a more complete Arizona/Canada trade and investment picture.
Canada is Arizona's largest foreign investor, a statistic reflected by the state's $2.3 billion bilateral trade with Canada, excluding tourism, Williamson said.
The Business Council is bringing industrial leaders from Canada and Arizona together to try to increase bilateral trade between Canada and Arizona to $5 billion U.S. by 2012.
Williamson said Canadians have been purchasing homes in the Valley for years, but the recent trend seems to be increasing.
The momentum, he said, has been influenced by many factors, including the prices of homes and the current pro-Canadian, currency exchange rate that turns their $20 into 21 U.S. dollars.
"First it was people coming down here on their own, now dozens of Arizona residential and commercial brokers are making trips all across Canada and promoting the concept of buying homes and commercial buildings as well as land in Arizona," he said.
Williamson said the Business Council has also noticed that more and more eastern Canadians, a demographic that traditionally purchased winter homes in Florida, are now choosing the Valley.
"We're seeing this trend for the first time," he said. "Taxation was one reason. If you're a second-home purchaser in Florida, odds are you pay more taxes. Hurricane insurance also is expensive."
Fulton Homes CEO Doug Fulton said US Airways flights to and from Phoenix Sky Harbor International Airport to the city of Toronto and the province of Quebec, are also an indication of the growing eastern Canadian interest in the Valley.
Fulton, Beazer Homes, Shea Homes and Robson Resort Communities are marketing aggressively to reach more Canadian buyers in Canada and Arizona, and US Airways has three salespeople dedicated to the Canadian market, Williamson said.
"The Canadians are looking at Arizona as if our homes were half price," said Terence Murnin, a spokesman for Fulton Homes. "It's been great, and it is such a neat relationship with our neighbors to the north."
Fulton said it is no surprise that Canadians are big players in the high-end home market and that they seem to be responding to promotions tailored to their tastes.
"We have an aquatics center in one of our developments because when they come in winter they want to go swimming," he said. "Another thing we noticed is that they love west-facing backyards, which is perceived as a negative here. They have brought a different flavor to the market."
by Art Thomason The Arizona Republic Apr. 23, 2011 12:00 AM
Canadians flocking to buy homes in Southeast Valley
The company, one of Arizona's largest residential real-estate agencies, recently vacated the property without notice, a violation of its lease agreement, according to the lawsuit, filed by building owner Saypo Cattle Co.
Richard Rector, Realty Executives owner and executive chairman said through a company spokeswoman that Realty Executives, like most other real-estate firms, has experienced financial losses in the past two years and has been working to renegotiate several of its office lease agreements in an effort to cut costs.
Realty Executives has 1,230 licensed agents in Arizona, ranking No. 4 in the state. It also is among Arizona's largest real-estate firms in terms of local sales volume.
Realty Executives has not yet filed an official response to the lawsuit, but spokeswoman Andrea Kalmanovitz said the pending response may include argument that the Saypo complaint contains defamatory statements about Rector personally.
The Saypo complaint, filed March 31, seeks about $143,000 in past-due lease payments, as well as damages for breaching the Pinnacle Peak lease contract, which the lawsuit says was not set to expire until May 2014.
It also accuses the company of fraud, arguing that Realty Executives staff surreptitiously vacated the building just a few weeks after negotiating a lower lease rate.
"We allege that, based on the timing of their midnight move, that they were already planning to move to another space," said Phoenix attorney Daniel Kloberdanz, who is representing Montana-based Saypo in the lawsuit.
Kloberdanz said he had been in discussions with a financial consultant hired by Realty Executives, and that the lease-payment lawsuit could be resolved relatively quickly with a settlement agreement.
But Kloberdanz said the consultant, MCA Financial Group Managing Director Paul Roberts, also has indicated that Realty Executives might file for bankruptcy protection, which could put the lawsuit on hold while the company undergoes financial restructuring.
"They've alluded that they plan to file for Chapter 11," Kloberdanz said.
Kalmanovitz said Realty Executives hired Phoenix-based MCA Financial to help with lease renegotiations and not to advise on a possible Chapter 11 reorganization filing.
"Rich (Rector) did hire MCA Financial but not to pursue restructuring," she said.
Realty Executives Inc., the flagship agency of parent company Realty Executives International Inc., is embroiled in a second lawsuit with its former president, John Foltz.
The company has accused Foltz of a number of violations of his multiple employment contracts, including theft and mismanagement.
In the lawsuit, it accused the former president of infractions, including breach of contract and failing to meet his fiduciary responsibilities while working as an independent contractor for the agency.
The complaint also accused Foltz of "making negative and disparaging remarks" about Rector and his wife and business partner, Robyn Rector, to employees, executives and potential investors "as part of an effort to undermine their authority and credibility."
Foltz has denied the allegations. He filed a counterclaim arguing that the Rectors invented the malfeasance charges to justify breaching a compensation agreement with Foltz that was supposed to remain in effect through 2015. Foltz also is suing for defamation of character.
The counterclaim alleged that Realty Executives owes Foltz for wages dating to April 2010, and for bonus pay dating as far back as 2009.
Foltz argues in his claim that Realty Executives attempted to force him into a new compensation deal that involved a set salary and no profit-sharing or bonuses.
When Foltz refused, the company sued, the counterclaim said.
"Realty Executives has notified Foltz that such amounts due and owing will not be paid, and that its material breaches are intentional," the claim says.
More than 100 pretrial briefs, motions and documents have been filed in the Foltz case.
No trial date has been set.
by J. Craig Anderson The Arizona Republic Apr. 23, 2011 12:00 AM
Realty Execs in lease dispute
For the past 18 months, Jason Loewen and John Janssen, partners in Investment Resources LLC, have been buying homes at the lower end of the market and renovating them for sale with investor-backed financing. That includes a handful of homes in southern Scottsdale and about two dozen others in Maryvale and other parts of the Valley.
The individual investors provide capital to buy and fix the homes in return for a 10 percent return on their investment that is paid monthly, quarterly or annually, said Loewen, a former Merrill Lynch financial adviser who has been in the Valley for seven years.
During the run-up in home prices, he bought and sold almost 50 homes and did his own remodeling work.
Janssen, who grew up Scottsdale, has been in real estate development and the mortgage business for 35 years.
The two partners in 2009 bought a house on Belleview Street in Scottsdale for $112,000, spent about $12,000 renovating it and sold it for $170,000.
But the market has gone down since then. They bought a home on nearby Garfield Street for $104,000 and spent $15,000 remodeling it. But there were no buyers after several months, so they leased it.
Safety net of rentals
That is the safety net of their investments in lower-end houses. With a strong rental market, Investment Resources can rent its homes to pay the debt service if they don't sell, Loewen said.
That helps protect investors. The partners also keep a 15 to 20 percent stake in the property and collect all the payments and send them to the investors, Janssen said.
The buyers put 20 percent down, leaving the investors with a 60 to 65 percent stake in the home, Loewen said.
Investors have a first-position deed of trust and hazard insurance on the homes.
Steve Rudy, a physician in Laguna Beach, Calif., has been pleased with his investment properties through Investment Resources.
"They delivered on everything they said they would," said Rudy, adding that he has invested a few hundred thousand dollars in four houses.
The 10 percent return on investment is "very attractive," he said.
Janssen noted that local investors can "drive by and see their money at work" in their investment homes.
The investments are also helping stabilize neighborhoods as the renovated houses often spur other owners to clean up or improve their homes, he said.
"It's an investment in the community," Janssen said.
Buyers pay higher rate
Investment Resources helps buyers who have a down payment for a home but credit dings, such as a short sale, that precludes them from qualifying for a loan. The loan process is lot quicker than the 60 to 90 days it can take for a conventional loan, he said.
Buyers pay interest rates of nearly 10 to 12 percent, but they can refinance the mortgage, Janssen said.
Many buyers sign up for five-year loans so they can quickly own their home free and clear.
Investment Resources would foreclose on delinquent buyers if it became necessary.
As with any investment, there is risk and potential investors are advised to do their due diligence on Investment Resources. The company has been accredited with the Better Business Bureau since November.
by Peter Corbett The Arizona Republic Apr. 23, 2011 06:09 AM
Investor-backed financing carves homes niche
Officials also said that although two workers were killed in a Monday accident at the company's Indonesian mines and that underground mining there had stopped, the company did not expect that to significantly affect earnings.
"We are very positive about the copper business," President and CEO Richard Adkerson said during a conference call with investors. "We are the world's largest producer. We think the world is going to need copper."
The company produced 950 million pounds of copper in the first quarter, compared with 929 million in the comparable quarter last year. Much of the increase came from ramped-up production at its Morenci mine and other North American properties.
It also produced 466,000 ounces of gold, compared with 449,000 a year ago, and 20 million pounds of molybdenum, up from 17 million. Molybdenum is a metallic element used to strengthen steel.
Freeport has been increasing production at Morenci in the past year and also is exploring increasing production from or restarting operations at its Sierrita, Bagdad, Ajo, Twin Buttes and Safford/Lone Star mines in Arizona, in addition to foreign opportunities, Adkerson said.
One option would be to expand the mill at Morenci to double the current design, he said.
"We are seeing opportunity for significant growth," he said, giving credit to the company's exploration team for identifying minerals near many of its existing operations.
Expanded mining already is taking place at its Miami mine, where the company was conducting reclamation activities. Adkerson said Freeport expected to mine as much as 100 million pounds of copper a year from the restarted Miami mine.
"The economics are extraordinarily positive there," he said.
The expanded mining activity is possible because of the high price of copper and gold and the earnings that trend is creating.
Freeport said that the company earned a first-quarter profit of $1.5 billion, or $1.57 per share, compared with $897 million, or $1 per share, in the same quarter last year.
All of its share prices have been adjusted to reflect a February stock split.
Revenue for the quarter topped $5.7 billion, compared with $4.4 billion in the comparable quarter.
The company's financial performance easily topped analysts' estimates. Freeport was expected to earn $1.26 per share on $5.3 billion in revenue.
The company sold its copper during the quarter for an average of $4.31 per pound, compared with $3.42 per pound in the same quarter last year. It sold its gold for an average of $1,399 per ounce, compared with $1,110 per ounce.
It got $18.10 per ounce of molybdenum, up from $15.09 per ounce in the same quarter last year.
The company sold less copper from its seven North American mines in the quarter despite the increased production, which officials attributed to timing of shipments.
Production dropped slightly at its South American operations and rose slightly at its Indonesian and African operations.
"Congratulations to the whole Freeport team on another great quarter," JPMorgan Equity Research analyst Michael Gambardella said. He asked how the Monday accident at the Grasberg mine in Indonesia might affect operations.
Adkerson provided more detail than had previously been released.
"I'm very sad to report that we lost two of our workers," Adkerson said.
The miners were killed when mud flowed into the underground mine, he said, blaming the accident on extremely wet conditions.
"With heavy rainfall and wet conditions at Grasberg, the risks are more pronounced at the (deep underground) mine," he said.
He said that in the 1990s, Freeport invested in robotic mining equipment to collect ore from the mine when wet conditions made it too dangerous for workers, and the company could use those robots more often following the accident.
Adkerson said that the underground portion of the mine had been shut down while government investigators review the accident. He said the shutdown should not affect the company's production significantly because the underground mine does not produce as much copper as the adjacent open pit.
"We will get to the bottom and review our procedures and do everything we can to ensure it doesn't ever happen again," he said.
Analyst Tony Rizzuto from Dahlman Rose asked if using robots more at the mine would hurt production in the long run.
"We've been using remote, robotic machines now 10 years," Adkerson said. "It is a fairly significant part of the draw points we are using them on. They have been working well. It is a bit slower than manned draw points. It is not like this is new technology."
Shares closed up $1.58, or 3.05 percent, to $53.30.
by Ryan Randazzo The Arizona Republic Apr. 21, 2011 12:00 AM
Freeport income jumps $603 million
Both new-home sales and building permits increased last month, according to the "Phoenix Housing Market Letter." The gains aren't huge but are an improvement over several dismal months of sales.
Last month, there were 645 new-home construction permits issued in the region, compared with 435 in February and 358 in January.
During March, 581 new homes sold in the Phoenix area, compared with 433 in February.
The uptick could continue based on contracts written for new-home purchases, the best leading indicator for the homebuilding market. The Housing Market Letter, published by real-estate analysts RL Brown and Greg Burger, reports 766 new-home contracts in March, compared with 653 in February.
Investors looking for deals on short sales and foreclosure resales continue to dominate the existing-home market in Phoenix. But first-time buyers are homebuilders' top customers now. Research from Brown and Burger shows nearly three-fourths of all new homes in the region are being purchased by first-time buyers using Federal Housing Administration loans.
Fannie Mae incentive
This incentive won't affect the housing market like last year's homebuyer tax incentive, but it could entice more buyers to purchase foreclosure homes. Mortgage giant and government entity Fannie Mae is offering to cover 3.5 percent of closing costs for homebuyers who close before June 30. The catch is that the homes have to be foreclosure properties that are part of Fannie's HomePath program, but there are some great deals to be found in that inventory.
Buyers who are eligible for the HomePath program are offered low-down-payment mortgages and can skip mortgage insurance and appraisal requirements.
Shopping in the Valley
Potential homebuyers are definitely shopping in the Valley. New data from Realtor.com shows metro Phoenix is the fifth-most-popular area in the nation for homebuyer searches. Chicago is No. 1, followed by Detroit, then Los Angeles and Las Vegas at No. 4. Tucson was listed at No. 82.
by Catherine Reagor The Arizona Republic Apr. 20, 2011 12:00 AM
Trends show promise for new-home market
Market experts say now is still too early to declare the beginning of a recovery for the region's battered home values. But the number of successful home sales is at near-record levels, the number of homes for sale is dropping, future foreclosures are in decline and home prices, although low, are holding steady.
The shift in the region's housing market started in March. An upward turn, if one materializes, would be much more significant than just another twist in an ever-changing market. It would mark the end of the worst housing bust metro Phoenix has ever experienced.
Overbuilding during the first half of the past decade preceded a collapse of the American mortgage industry and, later, the global economy. Phoenix-area houses lost more than half their value since the peak in 2006. During the bust, foreclosures soared and home sales dropped. Arizona's economy, long dependent on housing, fell apart.
The years since have seen new construction grind nearly to a standstill. Job losses and foreclosures meant there were many more homes for sale than there were buyers. Prices finally rose slightly in 2010, then fell again as still more foreclosures flooded the market.
That "double dip" has made many market watchers wary of being too optimistic about the latest positive news.
Phoenix real-estate analyst Tom Ruff of the Information Market, a real-estate data firm, said almost all the key market indicators that turned negative during the summer of 2010 and led to the second dip in home prices late last year have now turned positive.
"I am not being overly optimistic when I say home prices could climb during the next six to nine months," he said. "Those same market indicators that went negative last year are now turning positive."
Last month, existing-home sales in metro Phoenix climbed to their highest level since October 2005, which was in the midst of the boom. There were 10,031 resales in March. The number includes a record 1,311 homes that were sold at auction as part of a foreclosure.
Last spring, home sales jumped as buyers rushed to take advantage of a federal tax credit that gave first-time buyers $8,000.
Analysts believed the credit spurred most of the likely buyers in the market to make a move, meaning few other prospective buyers would exist after the credit expired. Indeed, by the expiration that summer, sales fell off substantially and remained low, averaging about 7,000 a month until March.
New homes accounted for as much as one-third of all metro Phoenix home sales before and during the boom but have since plummeted to only about 7 percent of the market.
Jay Butler, director of realty studies at Arizona State University, said March is traditionally a strong home-sales month in metro Phoenix. During the spring, homebuyers try to purchase so they can finalize their deals and move before the next school year.
Butler's monthly housing report, released Tuesday, was more upbeat about the market's recovery than it has been in past months.
However, he still is concerned that a "glut" of foreclosure homes on the market could continue to delay a recovery.
And although sales are up, most of those sales - about 65 percent in March - are what the industry calls "distressed" properties: homes sold at foreclosure auctions, taken back by lenders through foreclosure and resold, or short sales.
Although foreclosures continue to drive the market, signs indicate those could soon start to decline.
The historic recession left many in metro Phoenix without jobs, and plummeting home values meant many homeowners who couldn't afford their mortgages also couldn't sell their homes for what they owed. The result was a huge wave of foreclosures: Buyers defaulted on their mortgages, and banks either sold the homes at auction or took them back and waited to resell them on the market.
The result was a glut of inexpensive foreclosure homes for sale. Experts have long said that home prices wouldn't recover until foreclosures subsided.
Last month, the number of homes foreclosed on actually climbed - but the shift was expected. Lenders last fall put a moratorium on foreclosures amid questions about their handling of the practice. Those foreclosures are now being finalized and artificially inflating the monthly numbers. In March, there were 5,000 foreclosures or trustee sales in the Phoenix area, up by about 500 from February.
The more important indicators are so-called pre-foreclosures, or notices-of-trustee sales. The legal filing notes that a lender plans to seize a home from a delinquent buyer and sell it at auction; it typically precedes a foreclosure by three to nine months.
Pre-foreclosures have been hovering around 5,000 a month this year, after averaging 7,000 a month in 2010. This signals fewer homeowners are falling behind on payments or abandoning their homes, meaning fewer future foreclosures.
For the past year, investors have bought the majority of the region's foreclosure homes and turned them into rentals that are filling up quickly with tenants who lost their homes or can't afford to buy.
The number of homes for sale in the Phoenix area has been dropping steadily during the past four months, signaling the supply of homes for sale is down while demand is up.
Homes being sold after foreclosure or homes offered for short sale - in which banks let homeowners sell for less than they owe - now typically make up about half of all homes listed for sale.
Although that remains the case, the total number of homes on the market was about 36,000 on Tuesday, a more than 15 percent drop from last year's supply.
"Both investors and owner-occupied buyers are starting to burn through the inventory of homes for sale," said Beth Jo Zeitzer, president of Phoenix-based ROI Properties and an expert on distressed property sales.
She said buyers who can pay cash, usually investors, continue to dominate the market.
Julie Bieganski, a Phoenix real-estate agent and investor, said it's becoming more difficult to find inexpensive homes, including foreclosures, in popular neighborhoods because there are so many more buyers vying for them.
The median price of resales in metro Phoenix has held steady at $115,000 since December.
Although it's good news prices haven't dropped this year, the median remains at the low it fell to last fall after the second dip.
Not every indicator points to an uptick.
The Arizona Regional Multiple Listing Service, an index of homes for sale run by local Realtors, maintains data on homes under contract for upcoming sales. This data, the Pending Price Index, has called for another big drop in Valley home prices this year.
However, in January, the index predicted the area's median would fall to $100,000 by March. Instead, prices remained steady.
The group's index is now forecasting the median price for metro Phoenix home sales will be $113,000 in April.
Based on the pending sales index from the "Cromford Report," a daily analysis of listings data and public records, home sales and prices this month are supposed to stay at March's levels or climb higher. Pre-foreclosure filings are down so far this month.
"The housing market is showing encouraging signs of a strong recovery in demand and a correction of an oversupply problem we have had since 2006," said Phoenix housing analyst Mike Orr, publisher of the report.
He said metro Phoenix home prices could start to gradually climb later this year or there could be a "sharp movement" up in prices.
"My guess would be (home prices will increase) sometime before the end of the year," he said, "and possibly quite sooner."
by Catherine Reagor The Arizona Republic Apr. 20, 2011 12:00 AM
Metro Phoenix housing market showing signs of upswing
The finding, the first of its kind in the 60 years that S&P has been judging the country's credit quality, sent a jolt through the markets and injected a new sense of urgency into the debate gripping Washington over whether to allow the Treasury to keep borrowing.
S&P changed its outlook on the United States from "stable" to "negative" and said the federal government could lose its AAA rating if officials fail to bring spending in line with revenue.
The AAA rating identifies the United States as one of the world's safest investments - and has helped the nation borrow at extraordinarily cheap rates to finance its government operations, including two wars and an expensive social safety net for retirees.
A downgrade would drive up the cost of borrowing and throw into question the global role of the Treasury bond. The Treasury serves as a crucial risk-free place to invest money - and has been a stalwart of stability amid the economic upheaval of the past few years.
Stock prices fell nearly 2 percent in the hours after the report's release before ending the day down about 1 percent. The dollar and Treasury bonds also slid in the wake of the report but recovered by the end of the day.
Lawmakers on both sides of the deficit debate tried to take advantage of the warning from Wall Street, but that just highlighted the point of the report - which is that the polarization in Washington is the problem.
"We believe there is a material risk that U.S. policy makers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013," S&P said in the report. "If an agreement is not reached ... this would, in our view, render the U.S. fiscal profile meaningfully weaker."
S&P is one of the nation's three major rating agencies, whose assessments influence the decisions of investors worldwide. The other two major agencies have not changed U.S. ratings.
The Obama administration responded to the report by saying that the likelihood of a compromise is greater than the agency realizes. Officials stressed that S&P essentially played the role of political pundit - and its guess is as good as anyone else's.
"We believe S&P's negative outlook underestimates the ability of America's leaders to come together to address the difficult fiscal challenges facing the nation," said Mary Miller, assistant Treasury secretary for financial markets. "Addressing the current fiscal situation is well within our capacity as a country."
Last week, President Barack Obama laid out a plan to trim $4 trillion from deficits over the next 12 years. On Friday, House Republicans adopted a budget resolution that would cut deficits by $4.4 trillion over 10 years.
Although the goals are similar, there is sharp disagreement over how to reach them. Obama wants to cut spending, including on defense, and raise taxes on businesses and the wealthy. Republicans would protect defense spending but cut deeply elsewhere, including Medicare and Medicaid. They have rejected any new taxes.
In a conference call with reporters Monday, David Beers, S&P's global head of sovereign ratings, said the agency took the action after warning for years of "what we considered to be the gradual deterioration of the U.S. fiscal profile."
The deterioration was hastened, Beers said, by December's $858 billion deal between the White House and congressional Republicans to cut the payroll tax for one year and to extend a variety of George W. Bush-era tax cuts through 2012.
S&P analysts said they had hoped that Obama's fiscal commission, which offered a plan in December to reduce borrowing by nearly $4 trillion over the next decade, would provide the needed momentum to rein in the debt. But Obama declined to embrace those recommendations and put out a budget plan in February that was "below our expectations," analyst John Chambers said.
Now, the analysts said, odds for a prompt resolution look especially grim. "When you pull all this together ... we think the fiscal profile of the United States is increasingly diverging from a number of its AAA peers," Beers said.
The report also fed into the debate about whether to raise the legal limit on government borrowing. Republicans want spending cuts as a condition of increasing that limit; the White House has said that a vote to raise the debt limit should not be linked to other issues. The deadline is early July.
"S&P sent a wake-up call to those in Washington asking Congress to blindly increase the debt limit," said House Majority Leader Eric Cantor, R-Va. "The debt-limit increase proposed by the Obama administration must be accompanied by meaningful fiscal reforms that immediately reduce federal spending and stop our nation from digging itself further into debt."
But Rep. Peter Welch, D-Vt., said the S&P report underscores the danger of using the debt limit as an occasion for political haggling over spending, because failure to raise the limit would leave the government in default - demonstrating the inability of the political system to manage the nation's finances.
"I hope Majority Leader Cantor and those in Congress seizing upon debt-ceiling pressure as a leverage opportunity are listening to the markets today and thinking twice about their risky strategy," said Welch, who on Monday released the names of 114 House Democrats who support his position.
On Monday, another major credit-rating agency, Moody's, issued a routine report holding the U.S. rating steady and calling it a "positive" that lawmakers are seriously discussing deficit cuts.
by Zachary A. Goldfarb and Lori Montgomery Washington Post Apr. 19, 2011 12:00 AM
U.S. stunned by Wall St. alert on debt
The two-story brick buildings at Park Lee Apartments have fresh paint and new carpeting and appliances. The community clubhouse and three pools look new and sparkling.
In December 2009, Phoenix used federal funds to buy the apartments, 1600 W. Highland Ave., to provide stability and affordable-housing options near the light-rail line. Park Lee is closest to the stop at Camelback Road and 19th Avenue.
Tom Elgin, who lives in the Grandview Neighborhood east of the 523-unit community, said he's extremely happy with the city's effort to clean up the blighted area.
"The police used to be there a lot," Elgin said. "Drugs, graffiti . . . was a real problem. I'd paint over graffiti every weekend. All of that has basically gone away."
Kim Dorney, Phoenix Housing Department director, said the city paid about $5.2 million to buy the community, built in 1955. It consists of 34 buildings and sits on nearly 32 acres.
Councilman Tom Simplot, who represents the area, told residents at a neighborhood meeting that city staff uncovered extensive water damage and vandalism in the multifamily community. Some units required extensive electrical repairs and upgrades.
Angela Duncan, deputy housing director, said the city budgeted $5.36 million to rehabilitate the community in phases. Approximately 160 apartments will be available to rent by the end of May.
Chain-link fencing surrounds the community to deter criminal activity. In July 2010, juvenile-arson-caused fires destroyed 12 units. Insurance proceeds will be used to rebuild the fire-damaged homes, including transforming six apartments into handicapped-accessible units.
"Units are being leased as work is completed," Dorney said. "Fencing will come down when apartments are leased."
Federal Neighborhood Stabilization Program funding requires Phoenix to set aside affordable housing for a percentage of qualified renters. Duncan said approximately 75 percent of Park Lee will have affordable rents. The city defines affordable housing as housing provided to those who earn 40 to 60 percent of the adjusted area median income, or $26,650 to $39,960, for a family of four.
The homes, one- and two-bedroom apartments and two-bedroom cottages, are priced at $275 to $575 a month.
The city will host an affordable-housing gathering 8-10 a.m. May 14.
by Sadie Jo Smokey The Arizona Republic Apr. 17, 2011 06:08 PM
City-rehabbed apartments almost ready for move-in
To say that the current housing market is likely to punish those who don't painstakingly evaluate their decision to buy a home would be an understatement. In most parts of the country, there's no strong tailwind of buyer demand to provide a safety net against home purchase mistakes. With all that in mind, here are three questions that prospective home buyers would be wise to incorporate into their evaluation process:
1. Are you prepared to own the house for five to seven years?
The housing bubble is long since gone, and with it, the old idea that you could count on a 5% to 10% average annual appreciation in your home's value. Today, that only applies in a few high-demand niche markets. That means if you have to move again in a few years, you're probably going to pay a high transaction cost. Between the costs of selling, and the possibility of a decline in value of your home, or a minimal increase, you may end up netting less money than your outstanding mortgage principle.
So examine your goals. If you're thinking you'll be able to flip this home for a quick profit in a few years, the odds are against you in most markets. If you don't see yourself owning the new home for at least five years, you're probably better off from a financial transaction standpoint in your current home, all other factors being equal.
2. Are you buying the best house in the neighborhood?
The value of the best home in a less-than-ideal neighborhood will always be constrained by its sub-par locale, but the effect is magnified in a soft housing market because buyer demand does not exist to offset the neighborhood factor.ot exist to offset the neighborhood factor.
The current situation is not a bust -- the housing market is recovering in selected markets -- but it's a sluggish, uneven recovery, with some metropolitan areas stabilizing, and others showing signs of falling into a double-dip. In such a soft market, think extra carefully about location liabilities: Does the street have many homes worth less than the one you're considering? Too many vacant homes? A rainwater drainage problem?
To guard against such issues, do the following test: Examine two homes to the left of the house, two homes to the right, and at least four across the street. If more than three appear to be of lower value than the prospective house, eliminate that home from contention, and proceed to the next potential house in another neighborhood.
3. Does your monthly budget have room for an oil shock?
Determine exactly how much it costs to commute to work from the prospective new house.
For example, if you face a 45-mile commute one-way from your prospective new home in Van Nuys, Calif., to your office in Anaheim, and you travel by car, determine exactly how much your commuting costs would be if the price of gasoline doubled. Admittedly, the price of gas -- currently about $4.20 per gallon for regular unleaded inSouthern Californiaand about $3.80 per gallonnationally-- is not likely to double to $8 per gallon in the immediate years ahead. But it could, if another oil shock occurs.
Some probably view this spring's $1 per gallon surge in gas prices as an oil shock, but the reality is prices could vault much higher ifMiddle East civil unrestworsens, or if some other factor reduces the supply of oil to the U.S. for a sustained period.
Given that uncertain energy climate, it's best to stress test your monthly budget for higher fuel prices. If your 45-mile commute to work at roughly $4 per gallon would become a serious hardship at $6 per gallon or $8 per gallon, then a comparable home closer to work -- perhaps one that has a 20-mile or 15-mile commute -- may make more sense, depending on other cost and location factors.
It's also worth considering your potential new home's ease of access to mass transportation, because as long as the U.S. continues to use gas as its primary transportation fuel, the nation will be vulnerable to an oil shock.
There's no way to sugarcoat it: Buying a home is more complex than it used to be. In addition to adequate living space, good schools and public services, and the potential for quiet enjoyment, prospective buyers have to think in longer terms, and gauge risks they might once have ignored. The boom is over, and the safety net is gone -- so be careful.
The housing crash seems to have had little impact on consumer confidence, as 81% of adults believe buying a home is the best long-term investment a person can make.
According to a report by Pew Research released this week, this figure is only down 3% from 1991. Pew cites a CBS News/New York Times survey completed in 1991.
Of those 81% of the adult sample, 37% "strongly agree" that a home is the ultimate long-term investment, while 44% only moderately agree. Both figures indicate less adamant view than the 1991 survey.
Pew finds the overwhelmingly positive results notable in light of the fact that 47% of survey respondents said their home value depreciated since the beginning of the recession. About one-third of those surveyed claimed their home value has stayed the same, while 17% said their homes are now worth more than before the recession.
The national median home price in March was $177,001, according to Denver-based RE/MAX.
Almost half (44%) of individuals whose homes lost value said they expect to recoup their equity losses in three to five years. Another third are less optimistic and believe it will take between six and 10 years.
Homeowners aren't the only people who consider a house the best long-term investment one can make. Approximately 81% of current renters surveyed by Pew reported they would like to buy a house at some point. One-quarter said they would continue to rent.
Homeownership ranked first among long-term financial goals for those who took the survey. That prospect was followed closely by living comfortably during retirement, being able to pay for their children's college and being able to leave an inheritance.
Pew Research polled 2,142 adults between March 15 and March 29 for this survey. The survey sample was comprised 57% of current homeowners and 30% of renters. The remaining percentage of people had special living arrangements, such as living with family members.
by Christine Ricciardi HousingWire April 22, 2011
It's not the big penalty from the fifty state attorneys general, but it will hit big bank bottom lines in a big way.
The Office of the Comptroller of the Currency, the Federal Reserve and the Office of Thrift Supervision released enforcement action against fourteen major bank/servicers in the form of consent orders.
Bank of America , JP Morgan Chase , Ally Financial, Wells Fargo, SunTrust, Citibank,HSBC, MetLife, PNC, U.S. Bank, Aurora Bank, EverBank, OneWest Bank and Sovereign Bank will all be hit with no fewer than 16 new requirements for mortgage servicing and loss mitigation.
They will also have to overhaul oversight of third-party vendors, including lawyers, who provide foreclosure services.
"These reforms will not only fix the problems we found in foreclosure processing, but will also correct failures in governance and the loan modification process and address financial harm to borrowers," according to acting Comptroller of the Currency John Walsh.
While there is no penalty involved in this action yet (penalties often follow enforcement actions), the Federal Reserve release says, "The Federal Reserve believes monetary sanctions in these cases are appropriate and plans to announce monetary penalties."
The Fed regulates Ally Financial, SunTrust [STI 27.10 -0.53 (-1.92%) ] and HSBC [HBC 54.36 0.88 (+1.65%) ]. The OCC also says the enforcement actions, "do not preclude determinations regarding assessment of civil money penalties."
As part of the enforcement though, the banks will be required to engage an independent firm to review foreclosure actions from January 1, 2009 through December, 2010 to assess whether foreclosures complied with federal and state laws and whether there were in fact grounds to foreclose.
If the foreclosures are found to be faulty and borrowers were harmed financially by "deficiencies," the banks will have to remediate the borrowers in some way.
There's your big can of worms. I asked an OCC spokesman if this wouldn't release an incredible floodgate of claims, he replied, "There are going to be a large number of claims submitted." He said that remediation could include monetary damages and even the borrower getting the home back.
The banks will have to submit a plan to regulators for this review process for approval. The process must allow anyone who believes they have suffered financial harm to submit a claim for consideration.
While this part may get the most attention, the overhaul of the foreclosure process is what you might expect. It's mostly forcing the servicers to improve on foreclosure documentation, oversight, and chain of ownership.
It requires independent reviews and a single point of contact for borrowers facing foreclosure. The action prohibits dual tracking, when one arm of the bank pursues foreclosure while another pursues modification.
"We will work hard to address these issues and believe executing on the required changes will make a meaningful difference in our customers’ experience with us," according to a JP Morgan statement. Bank of America [BAC 12.31 0.04 (+0.33%) ] and Wells Fargo [WFC 28.54 -0.29 (-1.01%) ] had no comment before the 1 pm release.
All of this is supposed to happen pretty quickly, within 120 days of the order. Most of the big banks have already implemented many of these requirements. This morning JP Morgan Chase [JPM 44.68 0.12 (+0.27%) ] reported $1.1 billion in Q1 risk management losses for new mortgage servicing procedures.
The action comes before any settlement with the fifty state attorneys general, headed by Iowa's Tom Miller. That process has hit many snags, especially over a proposed $20 billion bank penalty that could be used to write down principal on troubled loans. The federal regulators say they are working with the Department of Justice, which is taking the lead with the 50 state attorney's general.
"These actions do not preclude any action by other regulators, including the attorneys general, for issues they uncover within their jurisdictions," the OCC spokesman added.
by Diana Olick CNBC April 13, 2011
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