For parents with children in college, or nearing college age, this video from NBC’s Today Show is worth watching.
Investing in collegiate housing is not for everyone, but if the angle interests you, don’t forget to purchase an accompanying personal liability insurance for injuries that may occur on-site.
Economists worry about rising oil prices because it tends to generate higher pump prices for Americans. With more money spent on gasoline, there’s (theoretically) less money available to spend on goods and services.
Today, GasBuddy.com says that the average price for a gallon of unleaded gasoline is $2.792, up from $2.344 last year at this time.
Now, as a country, it is estimated that we consume 146,000,000,000 gallons of gasoline annually. That converts to 400 million gallons each day.
Therefore, the 44.8-cent difference between today and last year at this time, costs Americans an additional $179,000,000 in fuel charges daily.
And this doesn’t account for premium gasoline or diesel fuel charges.
Consumer spending makes up roughly two-thirds of our economy so when gas prices rise, economists worry — it means that less money is available to pump back into businesses, and that the economy should slow down.
The good news in this type of story is that people in the market for a new home loan may benefit. A slowing economy tends to lead to lower mortgage rates.
As Hurricane Season rolls on and the post-Fed meeting chatter dies down, expect to hear more from the news on the price of oil and gasoline.
The National Association of Realtors® released its monthly Existing Home Sales report for August 2006 and, as usual, you should be ignoring it.
The report discusses real estate on a national level and we all know that real estate is a local phenomenon.
It’s not that the report isn’t helpful — it is. The Existing Home Sales report paints a broad picture of our nation’s housing market which has implications for the economy as a whole.
The reason why the EHS report is not helpful to individual homeowners is because the process of buying and selling real estate is not a national occurrence — it’s a very, very local one.
When you buy your next home, you won’t be buying a home that exists in all 50 states. You’ll be buying a very specific home on a very specific street in a very specific neighborhood.
So, when the NAR — a national group! — reports that home supply is up and home sales are down, it is lumping every street in every town together into one giant chunk of irrelevant data.
Again: real estate is a local business, not a national one.
On the “street” level, the story can be much different from what the general reports tells us. Locally, there are plenty of areas in which there is a shortage of homes and in which property values are increasing.
This is why “national” real estate stories in the papers are often wasted ink — accurate real estate stories are the local ones.
In a study of 2,036 U.S. adults commissioned by Visa USA, nearly half of all Americans are losing track of their money.
An average of $45 in cash is “lost” each week in what Visa dubs “mystery spending”, Visa’s version of “I know I had this money in my wallet but I can’t figure out what I spent it on.”
Averaged out over the course of a year, mystery spending accounts for $2,340 — enough to fund a Roth IRA or other investment plan.
According to the study, events most likely to cause “mystery spending” include:
How people spend money isn’t the point of the survey but it does raise an interesting point about how careless we can all be with our dollars.
On one hand, we wonder how will we fund retirement, or pay for college, or send our children to tennis lessons. On the other hand, we aren’t even aware of how much cash we’re spending and where we are spending it.
For example, if the average American saves the $2,340 annually at 8% instead of “mystery spending” it, that money could grow to $31,000 in 10 years, $91,000 in 20 years, and $204,000 in 30 years.
Being aware of your money is the best way to control it.
Source
Half of All Americans Say They Lose Track of $2,000 In Cash Each Year
September 10, 2007
In a semi-surprise move last week, the Federal Reserve lowered the Fed Funds Rate by 0.500%.
The Fed wants to prevent a dramatic economic slowdown that started in the housing sector and appears to be spilling over into other sectors now, too.
According to some pundits, the half-point FFR drop was exactly what the markets needed — it restored confidence and promoted liquidity.
According to others, though, the Fed bailed out risk-takers and may have re-ignited the flames of inflation.
It’s hard to tell which side is correct, so we’ll have to believe that both sides have valid points worth considering.
And, like the market players themselves, the best course of action now is keep an eye on economic data and try to interpret what it foretells about the future.
This week, we’ll see a bevy of inflation-related data come down the pipe:
Each of these data points has an impact in its own right, but the PCE is a known favorite of the Fed. If PCE comes in higher than expected, mortgage rates will likely increase in response.
At least until the market regains a sense of balance, expect an over-reaction to most newly-released data. This could present some terrific (or terrible!) opportunities to lock in mortgage rates.
For more proof that the Fed does not control mortgage rates, consider this:
In the immediate aftermath of the Fed’s decision to lower the Fed Funds Rate by 0.50%, mortgage rates improved by about 0.125% on average.
But, in the two days since, mortgage rates have not only given back those gains, but have approached their highest levels of the month.
This is because post-rate cut, the U.S. dollar is trading at all-time lows against the Euro and other currencies. Therefore, buyers of dollar-denominated securities such as mortgage bonds are getting less return for their investment.
When an investment loses its return, buyers tend to become sellers and that pushes the supply-and-demand balance to the supply side.
Additional supply of mortgage bonds drives down prices and increase mortgage rates.
It can be a complicated web, of course, but consider it to be additional evidence that the Fed Funds Rate and mortgage rates are unrelated.
Prime Rate is currently 7.750%.
Prime Rate is the “shorthand” name for the Wall Street Journal Prime Rate, a variable interest rate that is used in pricing many types of consumer loans.
These loans include:
Prime Rate’s variable nature is tied to the Fed Funds Rate. Prime Rate moves in tandem with the FFR and is always three percentage points higher.
So, after the FFR’s 0.500% drop Tuesday, consumer loans tied to Prime Rate dropped by 0.500%, too.
Prime Rate was 4.000% in June 2004 before the Federal Reserve started a string of 17 rate hikes to 8.250%. Tuesday’s drop is the first reversal since the rate hikes began.
The Fed lowered the Fed Funds Rate by 0.50% yesterday. A rate decrease was expected by most market participants, but the 50 basis points movement seemed to catch some players off-guard.
Mortgage rates dipped in the wake of the announcement, but the real winners are homeowners with balances on their home equity lines of credit and holders of credit card debt.
Each saw their respective borrowing rates drop 0.50% yesterday because the interest rates for HELOCs and credit cards are based on Prime Rate.
Prime Rate moves in lock-step with the Fed Funds Rate.
In the statement above — as explained by The Wall Street Journal — the Fed expressed concern about a broader economic slump and the half-point reduction is attempting to prevent it from worsening.
Source
Parsing the Fed Statement
The Wall Street Journal Online
September 18, 2007
http://online.wsj.com/mdcapp/public/page/2_3024-info_fedparse_shell.html
It’s all eyes on the Fed today; the market anxiously awaits the central bank’s 2:15 P.M. ET press release.
Some of the market bias towards a 0.50% rate cut has decreased in favor of a 0.25% cut. This shift is largely psychological.
Markets are trying to “get inside the head” of Fed chief Ben Bernanke, speculating about how he will react in the first Federal Open Market Committee meeting since the credit crunch reached a head in mid-August.
The speculation and guessing tells us that there is tremendous uncertainty about how the FOMC will vote today.
Uncertainty in markets leads to volatility.
No matter which course the Fed chooses – 50 basis points reduction, 25 basis points reduction, or something else — there will be a lot of traders scrambling to reposition their portfolio because of “bad bets”.
Mortgage rates are calm this morning. The calm likely won’t last. If you are floating your mortgage rate and don’t like taking on additional risk, locking your rate prior to the FOMC press release may be a safe play.
The volatile path of mortgage rates last week followed the changing expectations for Tuesday’s Federal Open Market Committee meeting.
The FOMC sets the Fed Funds Rate, a benchmark interest rate upon which Prime Rate is based.
According to Federal Funds Rate futures, there is a 94 percent chance that the Fed will lower the FFR by at least 25 basis points Tuesday. The same analysis shows a 50% chance for a 50 basis points cut.
One basis point is equal to 0.01%.
The wayward path of mortgage bonds last week reflects varying opinions about tomorrow’s Federal Reserve press release and subsequent action. As the expectations for a Fed Funds Rate cut increases, mortgage rates appear to fall. When expectations of a cut damper, mortgage rates appear to rise.
The speculation will end tomorrow at 2:15 P.M., however, after which mortgage rates will rebalance. Higher or lower? We don’t know.
Therefore, today may be a good day to lock an interest rate in order to avoid the risk that the FOMC surprises market participants.
Also hitting the wires this week: Producer Price Index, Consumer Price Index, and Housing Starts. Each is a predictor of inflation, but will take a back seat to the big show Tuesday afternoon. It’s all eyes on the Fed for next 36 hours.
