Posted on 09/09/2011 7:36:41 AM PDT by Kaslin
It does not take a genius to understand why consumer spending is weak.
1. Unemployment rate is 9%
2. Real wages are falling
3. Income advances go to the wealthy
4. Middle class is shrinking
5. Jobs hard to find
6. Approval ratings of Congress and Obama at record lows
7. Consumers have high debt ratios
8. Home prices are still falling
9. Homeowners are trapped in their homes, unable to refinance
10. Boomers need to save for retirement
However, those simple facts are far too complicated for a PhD like Fed chairman Ben Bernanke to figure out.
Please consider Bernanke puzzled by weak consumer spending
Federal Reserve Chairman Ben Bernanke says he is surprised by how cautious consumers have been in the two years since the recession officially ended. But the Fed chief offered no hints of any steps the Fed would take to boost the weak economy.
Bernanke says a number of factors are keeping consumers from spending more, including high unemployment, a temporary spike in energy prices, falling home prices and high debt burdens.
Bernanke said the Fed will consider range of policy options at its next meeting later this month without offering any clues to what it might do. His comments were familiar to ones he gave last month in Jackson Hole, Wyo.
Note that Bernanke even cited some of the 10 factors I mentioned, yet he is still surprised. What a dunce.
Is it any wonder his policies are so counterproductive when he cannot figure out simple things the average person can see clearly?
U.S. 30-year mortgage rates are at record lows but it does not matter. Too few want to buy and many cannot refinance because they are underwater.
Fixed mortgage rates fell this week to the lowest levels in six decades. But few Americans can take advantage of the rates to refinance or buy a home.
The average rate for the 30-year fixed mortgage fell to 4.12 percent, down from 4.22 percent, Freddie Mac said Thursday. It's the lowest level on records dating back to 1971. Freddie Mac said the last time rates were cheaper was 1951, when most long-term home loans lasted just 20 or 25 years.
The average rate on a 15-year fixed mortgage, a popular refinancing option, fell to 3.33 percent from 3.39 percent. That's the lowest on records dating to 1991 and likely the lowest ever, according to economists.
Over the past year, the average rate on the 30-year fixed mortgage has been below 5 percent for all but two weeks. That compares with five years ago, when the average 30-year fixed rate was near 6.5 percent.
Yet sales of new homes are on pace to finish the year as the lowest on records dating back a half-century. The pace of re-sales is shaping up to be the worst in 14 years.
Many Americans are in no position to buy. High unemployment, scant wage gains and large debt loads have kept them away.
Others can't qualify for the lowest rates. Banks are insisting on higher credit scores and 20 percent down payments for first-time buyers. Many repeat buyers have too little equity invested in their homes to meet loan requirements.
Roughly 40 percent of U.S. households have the necessary credit scores above 700 to get a prime mortgage rate, according to an Associated Press analysis of Fair Isaac Corp., or FICO, data.
A bigger issue is just half of Americans say they'll ever be able to save enough money for any type of down payment, let alone one as high as 20 percent, according to a survey by the National Foundation for Credit Counseling.
Nearly a third of homeowners have nearly zero equity or are underwater in their mortgage, according to the real estate research firm CoreLogic. That leaves then unable to refinance because of lender-imposed limits and the cost of extra fees.
These findings should not be surprising. I discussed the setup in Five Rules to Remember When Dealing with Real Estate Agents; Why are New Home Sales So Low? How Big is the Pool of Eligible Home Buyers?
How Big is the Pool of Eligible Home Buyers?
Here is a set of questions that will explain what is happening now.
How many people ....1. Don't have a house?
2. Want a house?
3. Can afford a house, upkeep, and property taxes?
4. Have a needed cash cushion in the bank?
5. Have a decent down payment for a house?
6. Have a salary that can support interest and principal payments even at these low rates?
7. Are not scared s*less about the loss of a job, assuming they do want a house and meet the rest of the conditions?
Someone needs to meet all of those conditions before they will buy a new house. How many is that?
I just happen to have the answer.
New Home Sales at 1963 Levels
The Los Angeles Times reports New home sales drop to six-month lowSales of newly built homes fell in July to the lowest level in six months, as the nation's housing market continues to struggle.
Newly constructed single-family homes sold at a seasonally adjusted annual rate of 298,000, putting the industry on a pace to post the lowest annual sales since the Commerce Department began keeping data in 1963.
Is the eligible buyers' pool getting bigger or smaller?
The trend says smaller, in spite of falling interest rates and falling prices. Many items on my 7 point list are more important than interest rates, notably 1, 2, 3, 5, and 7.
That is the psychology of the situation and I see little reason for it to change until the labor market changes first.
“We has found the enemy, and he are us....” ERRR, who was it elected this trash?
And it targets Bernanke for criticism for what? All he said was that the Fed would try to help the economy, which is what the Fed is supposed to do.
Articles like this are a distraction from the true problems and those really responsible.
Every extra cent I get goes into precious metals. I have also been stockpiling ammo lately. I still need to get a pistol. And the garden is a top priority. My wife is starting up the canning mill. And I’m getting the bicycles into good repair.
Don’t laugh, but it is all actually a lot of fun. Maybe those Amish are on to something, when they are not flying planes into buildings, that is.
“””Federal Reserve Chairman Ben Bernanke says he is surprised by how cautious consumers have been in the two years since the recession officially ended”””
Here are some reasons people are cautious:
1. They are unsure how much ObamaCare is going to cost when it gets fully implemented or they are already seeing huge increase in their medical insurance premiums.
2. They see Obama spending billions on “green energy” projects that are going bankrupt and wonder if the craziness of spending money on money losing projects will ever stop.
3. They see Obama constantly increasing the size of government and making sure the government employee unions get bigger.
Is there any wonder people are cautious? And this is but a very short list of the concerns held by people.
Obama must go!!!!!
Is Professor Enema Ben still living in that river that flows through Cairo, Egypt? Starts with a “D” - - - ? I’ll think of it.
Anyway it might, just could be the right time to admit that THE KEYNESIAN PLAYBOOK has once again been proven wrong.
Is Professor Enema Ben still living in that river that flows through Cairo, Egypt? Starts with a “D” - - - ? I’ll think of it.
Anyway it might, just could be the right time to admit that THE KEYNESIAN PLAYBOOK has once again been proven wrong.
A few years ago, my eldest son put over $40,000 down on a $215,000 home. This was after prices started falling and he thought he had a bargain. He has a decent loan and has no problem making the payments, but now he is about a $100 grand underwater and his employer has asked him to transfer 100 miles away.
He can’t sell, refi or even rent it out for the monthly payment. He’s stuck and I’ll bet their are many in his predicament.
Sorry Danny, the article is very correct. You make a few points but have some flawed assumptions about “all he” is doing and saying.
Bernanke’s policies and misunderstanding of what motivates businesses and consumers due to his faculty lounge theoretical assessments are in fact demonstrating him to be ignorant and his policies a drag on the economy.
China is not “stealing jobs” - they are taking advantage of our own stupid regulations and taxes in the real world of supply and demand. We can’t control China. We could get our government the hell out of the way of businesses and get a sound dollar policy back in place - all of which would make China far less of a problem.
Bernanke and Gates - two Bush/Rove and Obama “triumphs”.
Tonight I’m gonna party like it’s 1963!
The article is BS. Unemployment is well past 9% and closer to 30%. “Income advances”, whatever the Hell that really means, is not going strictly to the “wealthy”. The “Middle class” is not shrinking. Consumer debt spending is at a low right now. Consumers are spending less on debt and more with cash. Why is this “unable to refinance” even an issue? Why do they need to refinance? What the author is probably saying is that they cannot get the federal government, read: Me the taxpayer, to paydown what they owe on a house.
This is all liberal tripe, nothing more.
Is California a non-recourse state?
If it is, have him explain to his situation to his boss about the reason he wants to give the keys back to the bank.
Such a decision has nothing to do with morality; it’s a financial decision. The bank knew the law permitted him to walk away at any time, and there is nothing immoral about taking advantage of the terms of a contract; and especially one written by the lender. Your son took a risk, but so did the bank.
This is why I don’t worry too much about inflation. House prices falling and interest rates falling are not compatible with inflation. However, given this idiot’s ignorance of economics (is there any evidence that he ever took an economics course?) and ability to blunder, I don’t rule it out. He makes Jimmy Carter look as statesmanlike as Bismarck.
A “sound” dollar would profit China as much or more than us. It would lower US exports and increase imports.
Wouldn’t that destroy his credit rating?
Sorry to hear about your boy’s dilemma, but it may be the least costly alternative to rent. Losses are tax deductible and depreciation on the house should run about 20Gs per year so those factors alone should cut his losses somewhat.
While I have often said you should have your head examined if you are considering being a landlord, he may have no choice. Prices will not recover for a decade as far as I can see. Have him look into IRS rules with regard to rental real estate.
Home prices are a double edged sword... they are still to expensive to sell but if they lower the asking prices that will just trigger more foreclosures as more loans are put under water and that will finish off the banks that are holding on...
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