Home Ownership Gets a Bum Rap.

Last week Time magazine has a front page article called "The Case Against Home Ownership". In this article the writer Barbara Kiviat takes to task the pitfalls and negatives of home ownership. Barbara Kiviat is a prolific writer currently at Time, Inc. She also wrote for "Mutual Funds Magazine" and previously for "The Arizona Republic". She earned a Masters in Journalism at Columbia University - Graduate School of Journalism and a BA at John Hopkins University. 

In a through article she takes to task the idea of home ownership has been sold to us and it is harmful to our society. All throughout the last century starting in the early 1900's home ownership was pushed on the American population as part of a way to make society more functional. That it would bring economic and societal stability. But with it also brought the dark side of home ownership. 

The writer states,"The dark side which includes foreclosures and walkaways, neighborhoods plagued by abandoned properties and plummeting home values, a nation in which families have $6 trillion less in housing wealth than they did just three years ago. Indeed easy lending stimulated by a cult of home ownership may have triggered the financial crisis and led to the biggest bailout, that of Fannie Mae and Freddie Mac. Housing remains a drag on the economy. Existing-home sales in July dropped 27% from the prior month, exacerbating fears of a double dip recession and accelerating the accompanying slide in stocks that that took the Dow Jones industrial average to a seven-week low. And all that is just the obvious tale of a housing bubble and what happened when it popped. The real story is deeper and darker still."

The writer uses words like "cult" in her description of the way all Americans dream of owning a home. It seems we have all been brainwashed by business and the government. Our love of having our own home and the pride that bestows is a result of a marketing scam. Owning property has been a staple of the American experience throughout our entire history. Our history is replete with examples of the American citizen trying to carve out his piece of this land. But to the writer of the article that dream is a con strewn on us. And we don't even know it.

The writer cites examples of how the government has been involved in this. Starting in the 1800's when land was being sold very cheap or given away so as to foster settlement of the new western states. In the 1900's government set up campaigns to foster home ownership. Even after the Great Depression President Roosevelt created the Federal Housing Authority and later Fannie Mae to get lending on home mortgages started again. We see the campaigns continuing through the Second World War. Even up till the present time when Bill Clinton and George Bush encouraged home purchasing through their administrations policy's and laws. 

I can see how the writer sees the immense help and financial assistance provided by government over the last two centuries as a negative. She seems to believe the government should not be involved in the societal development of home ownership in this country. The undue influence of the government, their legislation and work with private industry was not necessary or wanted according to her. Again I can't agree because I feel that we would have found our own way of buying homes without government help. The government made it easier when times were tough or when economy was slowing. 

Later in the article  the writer again states how we were brainwashed into thinking home ownership was a special need for us. Maybe she doesn't experience the deep human need to call ownership of a home and piece of ground an integral part of the our life experience. She also states the "lack of Mobility" the purchase of a home creates. The financial mistake of putting all of ones assets into one thing. She goes on to state how a mortgage is a millstone around our necks. 

With faint praise she does state there are a few pluses that are stated in the article. Owners of homes invest more time and money on upkeep. You can do your own repairs and also it affords you to indulge you gardening hobby. But there seem to be even more negatives of home ownership like detached homes, as opposed to apartments, use 49% more energy. Which leads to the increased use of oil. The brainwashed citizens are again manipulated to feel they have to move out of the cities because they dirty and crime ridden. But now are a very pleasant place to live. It's also unfair that home owners get tax breaks and renters do not. This is unfair.

I have really enjoyed reading this article because it is very well written. I must admit Barbara Kiviat is an excellent writer. She obviously is highly educated and skilled in her craft. Her point of view is unique to say the least and I will read more of her articles soon. Yet I find her conclusions all wrong. She is a product of the current culture idiom of blame everyone but yourself when you screw up. 

In the book there is a deep slant against home ownership. The arguments against it just don't hold water. Trying to blame the government for pushing the idea of home ownership is wrong. Most Americans given the choice to own or rent, would probably own. To blame the high cost of ownership to renting is ludicrous. Of course it costs more to own. Repairs, taxes, insurance, mortgages, etc. make it more expensive. Rent if you want to save money, but your home is not yours. It belongs to someone else. And that's the big difference. Its like the difference between marriage and dating. You have a bond between your house you own and yourself. As you do your spouse and you. 

Its sad to blame the government, the banks, lenders and all financial institutions for making those poor people sign up for those mortgages. I say it was the personal responsibility of the borrower to know if they were able to replay the money they borrowed. Ultimately, the owner is responsible for his actions and the resulting failure or success of their decision. Why not bring back personal responsibility and repercussions for our actions. 

Home ownership is part of the American Dream and human experience. Its in our DNA to crave our own hearth and home. And when you do, be sure your able to pay for it.

Is Ditching Your Mortgage An Option?

If you owe more on your mortgage than your house is worth you have an underwater mortgage. What options do you have? Do you give up paying the mortgage and leave the house to foreclosure. 
 
People look at this problem two ways. First, there are those that think it is unethical and shameful to walk away from an obligation. Secondly, those that think walking away is nothing compared to what the banks have done, making a profit on bad loans and those that gambled on mortgages. 
 
If we look at it from a strictly economic position. At what point are you so far under that there is no way you will ever be even in the foreseeable future. Not walking away would be the wrong thing to do. If your 50% underwater on a $400,000 home how is not walking away the right thing to do for you financial life. 
 
If you compare your mortgage payment to the rental payment for the same house, is the rental payment lower than the mortgage payment. If your mortgage payment is $2600 and the rental payment is $1600, what do you do? Then it would make sense to walk away because you would be saving $1000 month. Over ten years that would come to $120,000. If you did this the you would have this money and your credit report would have been cleared of the foreclosure years ago. If you did stay and paid your mortgage, you may have some equity or still may be underwater at the end of ten years. 
 
Some good news from Moody's Economy.com , 62% of major metropolitan areas will have their home values return to pre-recession levels by 2016 . But if that is inconceivable to you, some experts say it may take til 2030 or 2040 to return to those levels. 
 
Still the stigma of being foreclosed on is strong in some people. The discarding of an obligation so big is so negative to people they find it hard to chose that decision. Yet you could, after 7 years have a clean credit report by then and the stigma may have passed. You could purchase a house and start over. What ever choice is made, both options are gut wrenching. 

The ETF Price War

Image via WikipediaThe cost to invest in ETF's has dropped dramatically this year. From the high commission fees of previously years, to sometimes zero commission fees, today. The competition between brokerage houses has benefited the consumer. With the amount of money these companies make it's about time they give a break to the consumer. It really helps the beginning investor the most. Because they're the ones who need the most help in the beginning years of investing. 
 
My favorite investment company Vanguard has expanded it's ETF line-up with 20 new funds. The most known fund the Vanguard 500 Index Fund now has an ETF version. With an expense charge of only 0.06%. The lowest cost for any S&P 500 ETF. The new funds bring Vanguards ETF offerings to 66. 
 
This is a great thing for competition in the investing world. Charles Schwab cut expense ratios and removed trading commissions on all it's own ETFs. Fidelity has also waived fees on 25 iShares ETFs. In assets, State Street and iShares are first and second in assets. But Vanguard is third with $103 billion in assets, with a $14 billion increase in assets so far this year. 
 
All this competition is a great benefit to the consumer. Vanguards new ETFs include an international real estate fund, mini bond funds, and value and growth-style stock funds. 
 
This is something along time coming. It benefits new investors and old alike. The low expenses and ease of investing will only attract new investors and impact the brokerage houses bottom line for the better. As always for long-term investors, regular index mutual funds with low cost, remain an excellent option. 

College Loan Defaults Increasing

Image via WikipediaOver at Yahoo.com there's an interesting article about graduates not paying their student loans. Figures from the U. S. Department of Education shows 7 percent of borrowers of federal student loans defaulted within two years of graduation, up 6.7 percent from the previous year and 5.2 percent the year before that. 
 
Her we have the perfect storm of easy flowing money from the government. Coupled with the recession starting and the cutback in job hiring. These two factors really hurt the newly graduating students. 
 
Even before the recession was on the horizon student borrowing had doubled. Education Secretary Arne Duncan voiced his concern over excessive debt and useless degrees. The article goes on to argue not about the burden, all this debt has but, who's debt is worse public or private schools. 
 
Here we see the bureaucrat mentality. The common sense rules of excessive debt isn't even explored. Just who to point fingers at. We have 2 problems here. First a mindset of non-restrictive borrowing. No preset guidelines depending on the degree your seeking. For example, borrowing $100,000 for a job that only pays $35,000 per year. Secondly, why is the government so deep in the student loan business? I can see some intercession by the government for it being the source of last resort for people who can't borrow anywhere else. 
 
Even some private sector loans are guaranteed by the government. The government has a never ending supply of money to loan out. In this day of an ever expanding government. Do we have to address every need of the citizen. Maybe it's time for Uncle Sam to but out. 

8 Great Money Moves

Image via Wikipedia

 
 
In today's economy confusion is the norm. So what's the right thing to do? Here are 10 positive suggestions of things to do with your money. 
 
1. Max out that 401(k) 
This is an easy one. Every dollar that you invest comes off your taxable income. Better yet if your company matches that's a 100% gain. 
 
2. Give up your vacation home. 
I know it's your favorite thing but it also is your most expensive financial burden. They cost big money to buy and we only use them only a few weekends a month. Don't forget the annual upkeep, maintenance, and taxes. 
 
3. Put $5000 into a IRA or Roth 
If you over 50 you can put $6000 and your spouse can do the same. A regular IRA cuts your taxable income and grows tax free, it's only taxable when you take it out. In a Roth, you contribute after-tax dollars, buy then it's tax free forever. 
 
4. Pay off your credit card debt. 
If your carrying a balance your paying high interest on somebody else's investment. Pocket that interest payment and stop helping credit card company's get rich. 
 
5. Fire your Banker. 
Most banks we use today have high fees. Dump them and find a nice local community bank that will look after your money for a lot less. 
 
6. Get your tax refund early. 
Make sure your withholding on your pay is correct so at tax time you don't get a big tax refund. Don't lend Uncle Sam your money interest free. 
 
7. Buy inflation-protected bonds. 
Treasury inflation-protected securities, or TIPS are boring and won't make you rich, but they are guaranteed. The U.S. Government and the coupons and principle is adjusted for rising inflation. Make sure they are in a tax-sheltered account because they are susceptible to taxes. 
 
8. Play tough with your Insurance company. 
Whether it s you car,home or boat call up your agent and ask for a reduction or shop around for better prices. Also raising your deductible can also save you money 
 
Try these money move and start saving money. 

Your Investment Advisor Can Juggle, Too!

Image by jericl cat via FlickrOver at Schwab.com they have a new Investment Adviser survey. It has quite a few details of what your advisor has to go through. The job of your investment advisor is part guide and part handholder. Advising is a person to person business. You must establish trust and build a relationship. We are handing over our money, which is like our children. 
 
One survey reflects the difficulty in achieving a clients goal. The data shows back in July 2007 it was quite easy, only 27% thought it was a problem. It peaked at 84%, January 2009. This shows the good times when everything was fine and money was being made. But when the market tanked, I'm sure your advisor was on the phone all day trying to calm down their clients. 
 
The survey reflects the changing activities of clients. Clients have increased their activities in reducing expenses at home. Also, reducing their spending on discretionary items. Everyone is tightening their belts during these times. 
 
The chart demonstrating the reasons clients leave the advisor, states 62% leave because they have lost trust in the firm. 64% leave because they want more personal service. 33% leave because they have lost money. Which also leads to losing faith in the advisor. When the market pulls back your bottom line is not the only thing that suffers. Your advisor catches alot of the blame. 
 
When ask to pull out their crystal ball and asked for a prediction on which sectors would rise, they said the top 3 sectors to rise are Information Technology, Energy and Health Care. Also 20% of the adviser's revealed they had no view of the future. They are the smartest of the bunch. 
 
I have a healthy respect for financial adviser's, there consul and advice have helped me succeed in investing. It's always good to pay an independent advisor to get a recommendation and learn a little about your investments. It's like your yearly Doctor's visit. Do you take as good care of your money as your body?