Financial Mines

News and notes from the business reporters for the Connecticut Media Group.
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Archive for the ‘Credit markets’ Category

Charging into a better economy? Credit card borrowing rising

Tuesday, June 11, 2013 by:Rob Varnon
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Americans reduced credit card debt in the first quarter of 2013 at a slower pace than the previous year, prompting concerns that the nation is about to punch the accelerator on debt this year.

CardHub.com released its quarterly report on credit card debt and found Americans had more revolving debt than a year ago, despite reducing their debt level by 7 percent compared to the last quarter of 2012.

“Until recently, we could point to the fact that the credit management was improving consistently relative to previous years as a silver lining,” said Odysseas Papadimitriou, CEO of CardHub. “However, the numbers indicate that we’re starting to regress a bit…”

CardHub said the Great Recession was a wake up call for American consumers, but the company says the country is on track to add $47 billion in new charges this year.

A contributing factor to the trend of rising credit card borrowing would be the growing population. So an increase in borrowing could be expected. And that increase does boost consumer spending and the economy, to a degree.

The real question within the credit card numbers is what the people are using the credit for and how they are managing their accounts.

If people are using the cards to survive, buying groceries and gas and carrying more and more debt, then it’s a bad sign. If however, the cards are being used for bigger purchases that people payoff in one to two months, then it’s a good sign.

The best way to know whether more Americans are in the first group or the second is the average household balance.

CardHub says its now $6,591, which is among the lowest quarterly averages of the last four years.

 

Going up: Mortgage rates hit highest levels in a year

Thursday, May 30, 2013 by:Rob Varnon
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The Mortgage Bankers Association said rates climbed to their highest levels in a year on expectations that the Fed is going to start tapering its asset buying program.

The MBA noted that the economy is showing more strength as rates for 30-year fixed conforming loans rose to 3.9 percent, the highest level since May 2012.

Jumbo mortgage rates jumped passed 4 percent last week and are now at 4.07 percent, the MBA said. That’s the highest interest rate mansion and estate buyers have seen since August of last year.

Applications for loans actually fell 8.8 percent last week, with a big drop in refinance activity. Applications for new home purchases were actually up 3 percent. But refi activity makes up more than 70 percent of the market.

Mortgage rates, chickens and eggs

Wednesday, May 15, 2013 by:Rob Varnon
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The Mortgage Bankers Association reported this week that applications for home loans fell 7.3 percent last week on weaker refi and PropertyRoundsLogonew purchase activity. At the same time, banks upped the interest rate for conforming loans to 3.67 percent, a rise of just 0.41 percent from the previous week.

Is there a correlation between the rise in rates and the drop in applications? We’re not sure. Sort of a chicken and egg, thing.

But we did check to see how much the rise in rates could have cost some home buyers and there are implications for further increases.

If a person buying a home a $300,000 home in Danbury put down 20 percent and financed at the 3.59 percent rate of two weeks ago, they’d have a monthly payment of about $1,089.80. That doesn’t include taxes, insurance, etc.

Buying that same house a week later at the 3.67 percent rate would increase the monthly payment $11 to $1,100 per month, according to Bankrate.com’s mortgage calculator.

Not a tremendous burden, really, it’s three or four cups of coffee at Starbucks a month.

If the rate, however, were to go up a full percent, to 4.59 percent, a person buying our Danbury home would have to pay $1,228.91, a month.

Here in the Mighty Financial Mines, as one reader recently dubbed us, we wondered what would happen to the market if interest rates went up.

Those eggs are cooked

Those eggs are cooked

There are several scenarios, of course. Probably the best has the Fed raising rates when the economy starts growing at a stronger pace, thawing out the great wage ice age. In that case, people could probably afford to pay more as hiring increases and employers provide raises and the real estate market could continue to improve.

But, if rates go up in a weaker economy, there is a chance the market could slow down with some people get priced out of it. And in a worse case scenario, prices could actually fall, as sellers have to cave to the reality of what buyers can actually finance.

Unless, of course, the bankers do something like, loosen up their underwriting standards…

But for now, a jump in rates doesn’t look likely, though it is, as Ed Deak, the don of Connecticut Econ, posited in our future.

“They can’t stay at zero forever,” he said in a recent interview.

Jumbo loans also went up according to the MBA, rising to 3.87 percent. Refinance activity was down 8 percent and purchases were off 4 percent.

Check out the MBA for more info.

 

Return of the debt crisis? Yale sues former students

Wednesday, May 8, 2013 by:Rob Varnon
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Bloomberg is reporting that Yale University joined other institutions of higher learning going after former students who default on loans.

But Yale’s not the only school that’s struggling with debt. Statistics show that schools across the state, including nursing, community college and vocationals have people defaulting on debts.

According to the U.S. Department of Education, there were 2,717 Connecticut residents who defaulted on federal student loans in 2010, the most recently published statistics.

When you get down to the school level, what’s particularly alarming is the numbers of defaults appearing as early as 2009, the only statistics available for schools.

Bloomberg has a first-rate story on the student loan issue, but here in the Mines, we can’t help but be concerned about the bigger problem of debt in America and what direction it’s pushing the economy.

Later this month, the Fed Bank of New York releases its quarterly report on household debt and that should provide a better picture of how close we are to a “double-dip debt crisis.”

 

Harrisburg a cautionary tale for bond investors and mayors

Tuesday, May 7, 2013 by:Rob Varnon
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The SEC slapped Harrisburg, PA, with a cease and desist order Monday, saying the city’s government for allegedly violating securities law.

Regulators found that city officials failed to come clean about the dire debt trouble at its Resource Recovery Facility and its general financial health while issuing bonds. This all happened in 2009 and since then , Harrisburg has been placed in receivership. Yup, PA’s capital is in bankruptcy.

At any event, the SEC pointed out that the Mayor at the time of the problem failed to properly disclose the scope of the problem and in fact the city misled investors on several occasions. One of the major issues that haunted Harrisburg was having a debt level eight times expected revenue. In the end, the city missed about $13.9 million in bond payments.

The SEC also criticized the city on how it handled its budget, knowing the Authority running the Resource Recovery Facility was in trouble. Here’s an excerpt from the SEC’s findings:

On November 25, 2008, the Harrisburg administration submitted a proposed 2009
Budget to City Council, which was approved on December 22, 2008 (”2009 Budget”). The 2009
Budget included $63 million of general fund expenditures. At the time, Harrisburg’s 2009 Budget
and its accompanying transmittal letter were accessible on Harrisburg’s website. By the time the
2009 Budget was passed, Harrisburg was aware of the Authority’s projected budget deficits and
that Dauphin County was challenging the rate increase. As a result, the Authority was unlikely to
have sufficient revenues to pay its 2009 debt service obligations. Harrisburg’s 2009 Budget, as
adopted, did not include funds for debt guarantee payments for the RRF, raising questions as to
whether it would fulfill its obligations under those guarantees. Nevertheless, at the beginning of
the year, Harrisburg administration officials informally set aside $2.1 million of its surplus reserves
in anticipation of potentially having to make those guarantee payments.

The SEC issued guidelines to municipalities regarding their obligations under the Securities Act. It’ll be interesting to see how this case affects future disclosures among Connecticut and municipalities around the country. The Mines fully expects investors will be digging even deeper into muni financials after this.

March home sales flat as prices flirt with income threshold

Monday, April 22, 2013 by:Rob Varnon
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PropertyRoundsLogoThe National Association of Realtors reported Monday that sales of existing homes were slightly down in March, compared to February, but up more than 10 percent from a year ago.

NAR said there has been a 25 percent increase in people out shopping for homes, but a decrease in the number of homes on the market is pressuring prices upward. In fact, they were up 12 percent from a year ago.

It’s just one month’s worth of data, and most experts are saying they see this as a pause before the big push into spring and summer for housing, but we couldn’t help but dig up a few numbers of our own to see where housing prices sit with income levels.

While interest rates are at all time lows, allowing people to maybe buy more house than they used to, we decided to compare what the median household income could afford for a home using a conservative, but established method, (the old you can afford a mortgage at 3-times your income) versus what the actual median sales prices are.

Here’s what we found.

Nationally, the median sales price for a home was $184,300. The national median income is about $50,443, which means the median family could afford up to buy a $188,189 home provided they have a 20 percent down payment.

In Connecticut, the median sales price for a home has been running around $240,000 while the median income is about $66,748. Which means the median family could buy a house priced at $248,244 if they have 20 percent to put down.

Both state and national sales prices are awfully close to that key income threshold that could come into play as people think about what they can afford and whether they want to take out a loan. But whether that’s playing into the market right now, or will, remains to be seen.

 

New buyers push mortgage applications to three year high

Wednesday, April 17, 2013 by:Rob Varnon
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PropertyRoundsLogoBuyers drove the Mortgage Bankers Associations‘ weekly index of purchase activity to its highest level in nearly three years.

The MBA’s national report said total activity was up 4.8 percent last week, the highest level since January. There was a 5 percent increase in purchasing activity, raising the total amount of loan applications for new purchases to its highest level since May of 2010.

Refinancing activity was also up, and still dominates the market holding a 75 percent share.

Rates inched down for both conforming 30-year-fixed and jumbo loans. The rate for a 30-year mortgage was 3.67 percent, down from 3.68 percent. The rate on a jumbo loan was 3.77 percent, down from 3.79 percent and is now just 0.1 percent higher than loans for more modest homes.

Adjustable rate mortgages continued to represent 5 percent of the total market.

Mortgage rates down, home buying up

Wednesday, April 10, 2013 by:Rob Varnon
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Mortgage bankers across the country reported a 4 percent increase in applications for buying homes and a 6 percent increase in refinancing last week.
The increase in activity, according to the Mortgage Bankers Association, came as interest rates fell. The average for a 30-year fixed rate mortgage fell to 3.68 percent from 3.76 percent.
Those shopping for jumbo loans were also rewarded last week with a lower rate of 3.79 down from 3.85 percent.

Property rounds coming Thursday on new home construction.

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