When consumers take on debt, eventually it’s paid off. Debt is not an asset people spend their lives accumulating, at least it’s not supposed to be. Paying off debt is a process known as deleveraging. In a growing economy, young people take on debts to buy cars and houses while old people pay off debts. In aggregate, debts should grow at a measured pace. When lenders make debts grow too fast, the economy becomes over-stimulated and debtors become insolvent. When large numbers of borrowers become insolvent, a credit crunch ensues, and the bills come due. This flushes out the Ponzis and mass deleveraging takes place.
When economists think about deleveraging, they envision people who got a little overextended tightening their belts and paying back their loans. This collective belt-tightening causes the economy to suffer because money that people previously spent buying goods and services is instead diverted to interest and repayment of debt. This conventional understanding may apply to some small sub-group of distressed borrowers, but the housing bubble created a much larger group of Ponzis who couldn’t possibly pay down their debts even if they wanted to. That is the bitter reality of deleveraging banks, economists, and the federal reserve don’t want to face.
U.S. families’ debt loads decline to pre-recession levels
The amount of home mortgages, credit card debt and most other consumer liabilities now stands on par with 2006 or earlier, according to Moody’s Analytics data.
By Don Lee, Los Angeles Times –October 15, 2012, 5:00 a.m.
WASHINGTON — After a long period of consumer retrenchment, U.S. families have cut their once-out-of-control debt loads down to pre-recession levels, largely removing one major obstacle to a faster economic recovery.
Bullshit. US Families haven’t cut anything. Banks have written down debts to pre-recession levels, but borrowers were not paying them back.
The amount of home mortgages, credit card debt and most other consumer liabilities now stands on par with 2006 or earlier, according to calculations by Moody’s Analytics. The notable exception is student loans, which have skyrocketed in recent years, with people flooding into schools and college costs soaring.
Overall, households today are paying less than 16% of after-tax income to cover debt payments and lease obligations, the smallest share since 1984, Federal Reserve data show.
Few experts are expecting a big ramp up in people’s spending any time soon: Consumers remain cautious because of what they’ve been through over the last five years and because of uncertainty about what lies ahead.
“It’s sort of a new reality that you have,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. “We’re going to try to live within our means because living beyond it didn’t work out.“
The reality of economic stimulus and deleveraging is not what economists envision. The housing bubble was part of a much larger credit bubble fostered by the federal reserve and eagerly lapped up by Ponzis looking for a free lunch. Debt burdens grew wildly out of control. When the first loan modifications came out, borrowers seeking aid had total debt obligations that exceeded 75% of their gross pay! Think about that. If 25% comes out for taxes, that leaves absolutely nothing for living expenses of any kind.
So how did people live that way? Easy. They went Ponzi. It doesn’t matter what your debt service ratio is as long as another lender comes along to give you more money to pay your debt service and cover your living expenses. That’s the essence of going Ponzi.
It’s easy to blame the irresponsible borrowers for this foolishness, but the banks are more culpable than the borrowers. The banks had the responsibility to make sure they were loaning money to people with the capacity to pay them back. Obviously, they didn’t take this responsibility very seriously, or they wouldn’t have loaned more money to someone who already had debt-service burdens far in excess of what’s reasonable. Banks did this to themselves, then they turned to the US taxpayer to bail them out.
So why do I say that Ponzi borrowing is the reality of deleveraging? Because deleveraging is only occurring when banks write off their bad loans. Very few borrowers are voluntarily paying down their debts. The banks inflated a massive Ponzi Scheme that can’t be repaid, and the slow deleveraging of bank write downs is what’s paralyzing our economy, and it will continue to keep us weak until the process is complete.
US Households Are Not “Deleveraging” – They Are Simply Defaulting In Bulk
Submitted by Tyler Durden on 10/15/2012
Lately there has been an amusing and very spurious, not to mention wrong, argument among both the “serious media” and the various tabloids, that US households have delevered to the tune of $1 trillion, primarily as a result of mortgage debt reductions (not to be confused with total consumer debt which month after month hits new record highs, primarily due to soaring student and GM auto loans). The implication here is that unlike in year past, US households are finally doing the responsible thing and are actively deleveraging of their own free will. This couldn’t be further from the truth, and to put baseless rumors of this nature to rest once and for all, below we have compiled a simple chart using the NY Fed’s own data, showing the total change in mortgage debt, and what portion of it is due to discharges (aka defaults) of 1st and 2nd lien debt. In a nutshell: based on NYFed calculations, there has been $800 billion in mortgage debt deleveraging since the end of 2007. This has been due to $1.2 trillion in discharges (the amount is greater than the total first lien mortgages, due to the increasing use of HELOCs and 2nd lien mortgages before the housing bubble popped).
In other words, instead of actual responsible behavior of paying down debt, the primary if not only reason there has been any “deleveraging” at all at the US household level, is because of excess debt which became insurmountable, not because it was being paid down, the result of which is that more and more Americans are simply handing their keys in to the bank and walking away, and also explains why the US banking system is now practicing Foreclosure Stuffing, as defined first here, as the banks know too well, if all the housing inventory which is currently in the default pipeline were unleashed, it would rip off any floor below the US housing “recovery” which is not a recovery at all, but merely a subsidized bounce, as millions of units are held on the banks’ books in hopes that what limited inventory there is gets bid up so high the second housing bubble can be inflated before the first one has even fully burst.
This is one of the most revealing charts to come from the housing bust. It completely refutes the idea that borrowers are voluntarily paying down their debts. The only major source of deleveraging is bank write downs.
Naturally, two concurrent housing bubbles can not happen, Bernanke’s fondest wishes to the contrary notwithstanding, especially since as shown above, US households do not delever unless they actually file for bankruptcy, and in the process destroy their credit rating for years, making them ineligible for future debt for at least five years. It is thus safe to say that all the other increasingly poorer US households (who are not getting paid more as we showed this morning with the chart showing Y/Y change in US household earnings) are merely adding on more and more debt in hopes of going out in a bankrupt blaze of glory just like everyone else: from their neighbors, to all “developed world” governments.
And why not: after all this behavior is being endorsed by the Fed with both hands and feet.
Source: NY Fed
The cycle of Ponzi borrowing will be repeated. We learned nothing positive from the housing bubble. The federal reserve is counting on this behavior to stimulate the economy through the “wealth effect.” We have an entire generation who sees housing as a breadwinner, and these people are signing up to buy again as soon as they can. Why not? Other than having to live in a rental for a while, it worked out well for them last time.
Banks keep putting off the Day of Reckoning hoping it will never come. They figure if they can get people through their productive years that perhaps they will pay off their debts as seniors, or at least die with enough assets to make lenders whole. As Ponzi age, they won’t change. The current generation of seniors came from the Great Depression and WWII Era. They believe they have a moral duty to repay their debts. The Baby Boomers and generations that followed grew up with consumer debts, and they will have a very different attitude in their senior years. They have been Ponzis all their lives, and you can’t teach an old dog new tricks.
Should seniors bother paying off debt?
Oct. 10, 2012, 3:24 p.m. EDT
At some point, is one too old to bother paying off a debt?
Yes. At some point, seniors should tell lenders to piss off.
Consider this Kansas couple saddled with $120,000 in debt on 13 credit cards. Jim Bostick, then 68, and his wife Francine, then 57, feared they’d spend their golden years in the red. Then “Jim was diagnosed with Alzheimer’s and I knew he wouldn’t be able to continue working,” Francine says in this interview with The National Foundation for Credit Counseling . “With the debt that we had there was no way we could pay it. I lay awake at night,” she says.
Who is to blame, the lenders that gave these people $120,000 in credit lines, or the borrowers themselves?
… the Bosticks didn’t have any medical emergency. “Everyone wants nice things,” Francine says; “we used credit cards to get them.”
Well, they apparently knew what they were doing, right?
The couple finally took action. Francine reached out to the non-profit Housing and Credit Counseling Inc. in Topeka, Kan., a member of the national foundation. In addition to her full-time job, she took an evening cleaning job and launched her own Avon business. Despite his condition, Jim, who was a maintenance and custodial supervisor at Kansas State University, worked 30 hours per week to help the couple stick to their household budget and $2,500 a month repayment plan. “It was probably the greatest thing I ever did,” Francine says.
But was it the smartest?
No. It wasn’t.
Based on their age, they should have explored filing for bankruptcy, some experts say. “I think the couple did the ethical thing, but it probably was not in their financial best interest to do what they did, especially at their age,” says Wade Westhoff, a financial adviser based in Danville, Calif. Couples facing retirement – especially if they have already paid off their mortgage – have less reason to worry about the impact of a bad credit rating, he says. “They could have wiped the slate clean.”
These people are working themselves to death in what should be their golden years. I suppose that’s the price Ponzis pay for the way they live. They either suffer an extreme loss of entitlement in their old age, or they work until the day they die. I hope I suffer neither of those fates.
Doubling the mortgage in seven years
The former owners of today’s featured property deleveraged like most other Ponzis. They walked away and forced the bank to take a huge write down. They consistently went to the housing ATM without regard to how they would pay back the mortgage or even service the debt. They were foolishly offered free money by a bank looking to generate fees, so they took the money.
- This property was purchased for $435,000 on 5/11/2000. They used a $391,500 first mortgage, a $21,750 second mortgage, and a $21,750 down payment.
- On 7/12/2000, after their mandatory two-month waiting period, they obtained a $22,000 HELOC and promptly withdrew their down payment. Obviously, this house was never intended as a reservoir of value. It was a workhorse.
- On 7/21/2000, a week later, they obtained another HELOC for $36,000.
- On 9/26/2002 they refinanced with a $427,000 first mortgage.
- On 11/4/2003 they obtained a $100,000 HELOC.
- On 7/20/2005 they refinanced with a $663,600 first mortgage.
- On 5/26/2006 they refinanced with a $700,000 first mortgage.
- On 7/18/2006 they obtained a $200,000 HELOC.
- On 4/2/2007 they opened a $204,330 HELOC.
- Assuming they maxed out the final HELOC, the total mortgage equity withdrawal was $491,080, and the total property debt was $904,330.
- They squatted for two and a half years.
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Proprietary OC Housing News home purchase analysis
2330 PURDUE Dr Costa Mesa, CA 92626
$575,000 …….. Asking Price
$435,000 ………. Purchase Price
5/11/2000 ………. Purchase Date
$140,000 ………. Gross Gain (Loss)
($34,800) ………… Commissions and Costs at 8%
============================================
$105,200 ………. Net Gain (Loss)
============================================
32.2% ………. Gross Percent Change
24.2% ………. Net Percent Change
2.2% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$575,000 …….. Asking Price
$115,000 ………… 20% Down Conventional
3.46% …………. Mortgage Interest Rate
30 ……………… Number of Years
$460,000 …….. Mortgage
$104,417 ………. Income Requirement
$2,055 ………… Monthly Mortgage Payment
$498 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$144 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
============================================
$2,697 ………. Monthly Cash Outlays
($319) ………. Tax Savings
($729) ………. Equity Hidden in Payment
$125 ………….. Lost Income to Down Payment
$164 ………….. Maintenance and Replacement Reserves
============================================
$1,938 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$7,250 ………… Furnishing and Move In at 1% + $1,500
$7,250 ………… Closing Costs at 1% + $1,500
$4,600 ………… Interest Points
$115,000 ………… Down Payment
============================================
$134,100 ………. Total Cash Costs
$29,700 ………. Emergency Cash Reserves
============================================
$163,800 ………. Total Savings Needed
The property above is available for sale on the MLS.
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Mortgage rates will rise next year, but slowly
By Amy Hoak, MarketWatch
CHICAGO (MarketWatch)—After reaching record lows in 2012, mortgage rates are expected to creep up slowly in the year ahead, the Mortgage Bankers Association predicted on Tuesday.
Rates on the 30-year fixed-rate mortgage are expected to average 3.8% in the fourth quarter of 2012, rising to 3.9% in the first quarter of 2013 and eventually rising to an average 4.4% by the fourth quarter of next year, the MBA said. The mortgage is expected to average 4.1% for all of 2013.
Granted, in these times, mortgage rates are increasingly difficult to predict. So take this forecast with a grain of salt.
Last year, the MBA rate forecast was way off. It predicted the 30-year fixed-rate mortgage would average 4.4% for 2012. Instead, rates plunged and hit an estimated annual average of 3.8%, spurring a flurry of refinance activity.
Underlying factors that economists would normally look at as those driving interest rates, including inflation, aren’t driving rates now, said Jay Brinkmann, MBA’s chief economist, during a Tuesday briefing with reporters at the association’s annual Convention & Expo in Chicago. Instead, it was uncertainty in European economies and actions taken by the Federal Reserve that moved rates so low this year.
In fact, continuing purchases of mortgage-backed securities through the Federal Reserve’s QE3 program will likely keep the 30-year fixed-rate mortgage below 4% through the middle of 2013, he said.
“The Fed has committed to buying $40 billion of agency mortgage-backed securities per month until the labor market shows significant signs of improvement,” he said. “Based on MBA’s originations estimate, the Fed will be buying 36% of all mortgages originated in 2013, and a much higher percentage of those swapped into agency mortgage-backed securities.”
Despite the Fed commitment to an open-ended purchase program, the MBA forecast assumes the program will last 12 to 18 months, said Mike Fratantoni, MBA’s vice president of research and economics. The “aggressiveness, open-endedness and focus on the mortgage market” that came with QE3 led to the highest refinance volume in four years, he said.
In the meantime, high refinance activity will likely carry over into next year.
“Applications that come in November we aren’t going to see close until sometime after the first of the year,” Brinkmann said. The “long tail of refis” will extend through the middle of the year then drop off, he said.
Indeed, things are looking at least somewhat better for the industry.
Mortgages to finance a home purchase are expected to rise by 16% in 2013, compared with 2012, as the economy grows modestly and more owner-occupied home sales occur, as opposed to cash purchases by investors, Brinkmann said.
Also helpful to driving home purchases are the 1.5 to 1.8 million private-sector jobs expected to be created next year, though the growth is below what would be needed for a “robust” home-sales market, he said.
Single-family housing starts are expected to reach 586,000 in 2013, up from 527,000 in 2012, according to the forecast. The median existing-home price is expected to rise to $186,000 next year, from $179,400.
While the improvement may be slow, it’s also worth pointing out that the country has added 4.8 million renter households since the end of 2006, while losing 1.7 million owner households, according to the MBA. And that net household growth could spell home-buying demand in the future.
“People with jobs are moving on their own some place,” Brinkmann said. And while some of them might be renters now, “eventually we would expect some of that household formation to go into homeownership.”
Few people think interest rates will rise. Bernanke has promised they won’t, and that is a problem. Banks need people to believe rates are going up to provide urgency to refinance. Therefore, we get stories like this one planted in the press to motivate borrowers to act.
Consumers in No Rush to Borrow in Extended Low Rate Environment
The Federal Reserve’s recently-announced commitment to keep interest rates low until 2015 isn’t doing much to persuade consumers to borrow, according to Bankrate’s Financial Security Index for October.
The survey bounced from 96.6 in September to 99.2 in October-a solid increase, but still short of positive territory (a number less than 100 indicates falling financial security compared to the same time last year).
Most telling was consumers’ response to Bankrate’s “wild card” question of whether or not the Fed’s pledge on interest rates would spur them to borrow money: 74 percent of consumers said they are not interested in taking on debt, while 23 percent said they are more inclined to borrow. Three percent said they did not know.
While the Fed’s announcement was intended to stimulate economic activity, it may have had the opposite effect, one expert told Bankrate.
“If anything, the effect of the announcement itself would be to reduce borrowing today,” said Bill Hampel, SVP of research and policy analysis and chief economist for the Credit Union National Association. “Some people may want to borrow now because credit is so cheap, but you’ve just told them you don’t need to rush out and borrow now because it’s going to be cheap next quarter, next year, the year after that and the year after that.”
Hampel added that, even in normal times, consumer loan demand is rarely affected much by interest rates. Rather, demand tends to be influenced by consumer confidence, which is still limited by an uncertain economic climate and falling household income.
“In today’s environment, it’s upside down: Incomes are falling. So, when incomes are falling, people worry, ‘How am I going to pay it back if I borrow?’ no matter what the interest rate is,” said Robert Barone, economist, portfolio manager, and partner at Universal Value Advisors in Reno, Nevada.
Adding to the problem is the amount of debt accrued in the household sector. The most recent numbers from the Fed show total household debt—including mortgage and nonmortgage—is at 103 percent of disposable income.
With debt so high, the Fed is hoping to free up spending by giving consumers a low mortgage interest rate at which they can refinance, Hampel explained. However, with the bank committed to keeping rates low until 2015, Bankrate says customers may not be motivated to borrow until the 2015 deadline is almost up.
As further proof the Fed intends lower rates to be with us for a while…
Bernanke Seen Attacking Jobless Rate With QE Through 2013
Federal Reserve Chairman Ben S. Bernanke says he’ll stoke the economy until the job market recovers “substantially.” That promise may force him to keep buying bonds until the final months of his term ending in January 2014, according economists in a Bloomberg survey.
Sixty-eight percent of 60 economists said the Fed chairman’s third round of quantitative easing will last until late next year or beyond. Just 51 percent of them said the strategy will help boost employment, with a median estimate of 116,000 jobs over the course of next year.
“The recovery in the labor market is probably going to be more sluggish than the Fed recognizes” said Michael Hanson, senior U.S. economist at Bank of America Corp. in New York and a former Fed economist. He said policy makers have “painted themselves in a bit of a corner, waiting to see a significant improvement in the labor market.”
Bernanke said in August that new bond buying, while spurring growth and generating jobs, may erode confidence the Fed will exit smoothly from record accommodation, including the first two rounds of bond purchases totaling $2.3 trillion.
LOL! I need to be less trusting of an article from the Mortgage Bankers Association.
Get a loan now or be interested rate out forever!
Yes, the Mortgage Bankers Association, like the NAr, has an agenda. Everything they write must be read with a eye toward their biases.
Finally, someone in the MSM acknowledges the real reason homebuilding is getting better. Hint: it’s not increasing demand.
Shrinking Supply of Distressed Homes Makes Room for Homebuilding
A steady drop in distressed home sales may spell a better future for builders, Capital Economics analyst and property economist Paul Diggle says.
In a US Housing Market Update released by the firm, Diggle notes that while “a substantial overhang of properties still in the shadow inventory” will keep distressed sellers in the market, the peak in distressed supply appears to be well behind us, giving homebuilders more room to grow with less competition from discounted existing homes.
“The continued drop in the supply of distressed homes on the market is encouraging homebuilders to break ground on more sites,” Diggle said.
Distressed sales made up 22 percent of all sales in September, down from 33 percent at the start of 2012, the update says. Furthermore, September’s share of distressed sales is the lowest reading in the five-year history of the data.
Meanwhile, starts shot up in September by 15 percent, hitting a four-year high of 872,000 annualized.
Diggle notes that a shift in distressed sales has also been helpful for builders. Short sales—typically sold at a smaller discount than foreclosures—have been gaining traction as foreclosure sales drop, creating “less of a depressing influence on the new-build market.”
While the shadow inventory may threaten the balance currently forming, the impact isn’t expected to be severe.
“Even after the signing of the foreclosure agreement, foreclosure timelines are still measured in years rather than months, and banks are showing little appetite to swamp the market with repossessed homes,” Diggle said. “So it seems unlikely that the shadow inventory is going to drive a large enough surge in supply to seriously dent housing starts.”
In addition, tightening supply in the new homes market has created a foothold for growth, Diggle remarks. September saw a 4.5 months’ supply of unsold new homes on the market, down from the long-run average of more than 6 months. While the current tight supply “has been a necessary corollary of the overbuilding in the boom years,” it provides a boosts for starts as demand improves.
While a resumption of normal homebuilding volume—in the region of two million yearly starts—looks unlikely in the near future, Diggle expressed confidence that the homebuilding recovery will continue to gain strength over the next few years.
“Our forecast for 750,000 housing starts during 2012 as a whole, first made in 2011, looks broadly on track. But our current forecast, for 850,000 starts in 2013 growing to 950,000 in 2014, may now be on the low side,” Diggle concluded.
As the cartel tries to artificially inflate prices, home builders re-enter, re-supply and thus will re-oversupply. The future is commit suicide or be murdered for the cartel.
So far the cartel has responded by restricting inventory even more to make up for the lost sales to homebuilders. The more the cartel restricts supply, the better homebuilders will do. That will have the stimulatory effect on the economy Bernanke is looking for, but the durability of that recovery depends on the cartel continuing to restrict inventory.
It’s also arguable that as the crisis wears on, year after endless year, the condition of the distressed inventory gets, well, considerably more distressed! If the price points are comparable but one house is a toxic dump while the other is brand spanking new, who will win? Yes, you may have a longer commute but otherwise this is a no-brainer.
Builders usually get a 10% premium for new construction despite its often undesirable location. Lately, the premium has been closer to 20%, and in Las Vegas, it’s 25% to 30%. The huge premium is a result of low interest rate affordability and the fact that REO are often really beat up.
“…The Baby Boomers and generations that followed grew up with consumer debts, and they will have a very different attitude in their senior years. They have been Ponzis all their lives, and you can’t teach an old dog new tricks…”
Absolutely true.
What is so fascinating about this situation is that these new Ponzis are consciously / unconsciously committing themselves to enslavement.
When I grew up (mid 1950′s, upper-middle class, Long Beach) the mere idea of going into debt (except for a reasonably priced home) was completely unknown.
When did this shift occur? It must of happened over a fairly long period, much like the reversal of the north and south poles millions of years ago.
The potential to succumb to instant gratification lies within all of us, but about 40% of the population routinely gives in to their impulses and sells themselves into slavery. Prior to credit cards being introduced in the 1950s, there was no way for the masses to enslave themselves. Once credit became widely available to everyone, those prone to “live for today” did, and in the process, they sold themselves into a lifetime of slavery and servitude.
As this generation ages, it will be interesting to see how the credit card companies deal with them. Do they still extend credit to people in their 70s with no assets who may die before repayment?
in case you haven’t noticed it… Pepsi Co.’s campaign to the young’uns is…. “LIVE FOR NOW”.
Take THAT with all your antiquated passe concepts of saving and planning! HA!
If Pepsi really wanted to increase their sales, they would issue teens a Pepsi credit card.
What a missed opportunity for the ColaCos.
Larry, you really should not give away such valuable advice in public!
I nominate you for marketing guru/consultant to the PEPSI/COKEcos.
“…Prior to credit cards being introduced in the 1950s, there was no way for the masses to enslave themselves….”
Credit cards to the masses would not be possible without modern era computers. In fact, I believe IBM’s biggest customers in the 1960′s for the then new IBM 700 series was to finance / insurance companies.
One of the perverse side-effects of the ever decreasing cost of computer / network power is that the number of ways to creatively enslave the masses has increased exponentially.
If there is such a thing as a growth industry in the USA, “creative financial enslavement specialist” must be a whole new job category.
So, today instead of simple credit cards of the 1950′s/60s’ we have non-traditional mortgage products, HELOC’s, sliced and diced MBS’, derivatives, and other financial products so complex that no one understands them.
So, the monster is out of the box and has left the building.. Will it ever be put back?
The only way the monster is controlled is through education. We have eaten the forbidden fruit, and now we have to live with the power of free will.
Debt is very similar to drugs. We will never make drugs go away, and no amount of regulation will control them. The only way drugs are controlled is through educating potential users to the dangers and hoping they make the right choices. The same is true of debt. I think most forms of consumer debt should be banned, but since that isn’t going to happen, I write about the problems and evils of debts hoping people won’t enslave themselves.
That was a nice post Larry…
To go along with your drug analogy, there will be another innovative business solution to invest and make loans.
That will be similar to a new drug introduced to cure addition to another drug (using heroin to treat cocaine addiction, c.a. 1895-1920 and later methadone to treat heroin addiction, c.a.1970). Remember all the news proclaiming that the US has never experienced a cocaine problem or any drug with similar properties?
When I head a a business innovation/investment, I either will quickly invest and cash out, or joint the party too late and lose my money. People seem to repeat the same mistakes, but that just fallen human nature.
It seems like this cycle, there was essentially very little lessons learned other than party early and have someone else pay the bill.
This blog will be around for years. Or an alternate title.
Speak up! I can barely hear you blogging.
More Americans Delaying Retirement Until Age 80
By Blake Ellis | CNNMoney.com – 19 hours ago
As they struggle to save for retirement, a growing number of middle-class Americans plan to postpone their golden years until they are in their 80′s.
Nearly one-third, or 30%, now plan to work until they are 80 or older — up from 25% a year ago, according to a Wells Fargo survey of 1,000 adults with income less than $100,000.
“It is so tough for Americans to save for retirement that the answer seems to be to work longer,” said Joe Ready, director of Wells Fargo Institutional Retirement and Trust.
Overall, 70% of respondents plan to work during retirement, many of whom plan to do so because they simply won’t be able to afford to retire full time.
But working well into your 70′s, 80′s or even 90′s, isn’t always realistic, said Ready. Nearly three-quarters of those who plan to work into their 80′s say their employer won’t want them working when they’re that old, for example. Other roadblocks, like health issues, could arise as well.
Those who are unable to work as long as they intend could therefore face a very grim reality. In fact, more than one-third of Americans could wind up living at or near poverty in retirement, the survey found.
About 34% of middle-class Americans expect their retirement income to be 50% or less of their current annual income. Given Census Bureau data showing a median household income of $50,054 in 2011, this would mean living on roughly $25,000 or less per year — which is near the poverty line for a family of four, the report found.
Retirement saving on the backburner: Half of middle-class Americans report that their most pressing financial concern is paying their monthly bills, up from 37% a year ago. Saving for retirement is second on the list.
Respondents also said that home remodeling and vacation planning have taken precedence over saving for retirement over the past 12 months.
As a result, there’s a huge disparity between what people need and what they have saved. While respondents said they will need a median of $300,000 in total savings to support themselves in retirement, the average amount saved is only $25,000.
Overall, 53% of Americans say they don’t know whether they will have enough saved for retirement — up from 42% last year.
Despite falling short of expectations, half of respondents said they consider themselves responsible for funding their own retirement through saving and investing. Another 27% said they will fund their retirement through their employer’s plan, while 24% said they will mainly rely on Social Security benefits.
Aside from putting daily bills and current financial needs ahead of retirement saving, many Americans aren’t in the position to adequately fund their own retirement because they have no idea how much to save. Only 22% say they have calculated the amount of money needed for retirement — whereas 75% of respondents said they guess. (Find out how much you will need for retirement).
And guessing can be dangerous. While respondents estimated that the median cost of their out-of-pocket healthcare in retirement will be $47,000, for example, industry estimates put those costs closer to $260,000 or more, according to the report.
“People tell us that retirement preparation should be on their shoulders but they are grappling with financial pressures each day,” said Laurie Nordquist, director of Wells Fargo Institutional Retirement and Trust. “As a result, retirement has become a guessing game.”
That’s the price Americans pay for their debt addictions.
“Respondents also said that home remodeling and vacation planning have taken precedence over saving for retirement over the past 12 months.”
This is so sad but true. I’m socking away about 10% per year, down from 20% before I had kids. So many of my friends don’t have kids, and yet can’t seem to save a dime. They can go down to Fletcher Jones and buy a certified pre-owned Mercedes, but they can’t save for their future.
The thought has crossed my mind wondering if these friendships will be strained when I’m retired and living in a paid off house, while they are still spending 110% of every dollar and faced with no end to their working lives. That’s not the outcome that I want to see, but how do you wake people up?
Most people are set in their spending habits from a young age.
“while they are still spending 110% of every dollar and faced with no end to their working lives. That’s not the outcome that I want to see, but how do you wake people up?”
Unfortunately, most of these people won’t wake up until late in life when they are faced with the prospect of working until their death. It will be a very crushing defeat when they wake up to that fact. It will be one of the sad stories of the Baby Boomer experience.
Perhaps we will get some good TV commercials and testimonials like the lung cancer commercials from old Ponzis working at McDonalds when their 85.
MR,
I feel the same way.
They learned for PC public school teaching the ants and grasshoppers. The ants worked very hard to save and store food for the winter, while the grasshoppers played all day and saved nothing. Winter came and the ants when underground to enjoy the fruits of their hard work. The queen ant felt sorry for the grasshoppers and like their music, so she invited all the grasshoppers in for the winter. That’s what was taught to my daughters in N. Cal. public school. But it is surprising that there seems to be less HELOC abuse in N. Cal than in So Cal.
This has the potential to put RealtyTrac and ForeclosureRadar out of business.
Once-Invisible Inventory Can Be Seen on Zillow
Instead of finding clever ways to chase shadow inventory, Zillow has decided to make things easy for thrill-seeking homebuyers and investors who are trying to track down unlisted, invisible inventory.
The real estate data provider announced Thursday it is now providing information on 1.8 million pre-foreclosure and foreclosed properties at no cost. The homes provided through Zillow are not yet listed and apparently, are yet to be found on any Multiple Listing Service (MLS).
Before, only certain investors were privy to such information.
“For the first time, home shoppers are able to see the entire scope of housing inventory in their area, both pre-market and for-sale, side by side,” the company said in a release.
According to Zillow, 55 percent of homebuyers have considered purchasing a foreclosure, but the problem was where to find the information.
“This is another tremendous step forward in consumer empowerment. Zillow is taking information that was really only available to a select group – in this case, savvy investors – and making it more easily available to interested home buyers,” said Spencer Rascoff, Zillow’s CEO. “What’s more, bringing this information to light, and taking this inventory out of the shadows, can help bring these homes to market faster than ever before.”“
The pre-market inventory includes more than 1.5 million pre-foreclosure properties, or homes that have begun the foreclosure process or have been scheduled for auction.
In addition, Zillow’s inventory has 250,000 unlisted foreclosed properties.
Zillow will also include its own estimate of the sale price of the home if sold as a foreclosure with the percentage and dollar discount based on fair market value. Foreclosure details will also be included, such as the timeline of the foreclosure process, unpaid balance, and the lender.
Another added feature will be 147,000 Make Me Move properties. For this feature, homeowners name a price for which they might sell their home.
Users can view pre-foreclosure, foreclosed, and Make Me Move inventory by visiting Zillow.com and conducting a search using the pre-market filter. Foreclosure details are available for those who sign in.
Seattle-based Zillow is a real estate information marketplace and provides information about homes, real estate listings, rental listings, and mortgages through its mobile applications and websites.
In my city, zillows is showing more than triple the number of housing than redfin when including foreclosure and preforeclosure. The number of houses should be even bigger when considering all the people that gave up trying to sell their house and not in foreclosure.
Great website. Also can filter thru rentals.
I hope people use this feature to see just how large the inventory of distressed property is. What most won’t realize is that for each home they see, there are two to five more that haven’t been served a notice but are delinquent on their mortgages.
I wonder if Zillow will be pressured to remove this feature because it makes part of the shadow inventory visible, and lenders and realtors don’t really want people to see that.
Reality is, the current RE market is being supported by 1) the fed, 2) big-money HF’s/speculators and flippers. Problem is, big-money is fickle and once a trend ends, it’s gone.
Bond bubble in search of a pin.
I just stapled the hole in my sock and grabbed my sack lunch. I’m so glad the economy recovered in summer 2009 because I’d hate to think we’re still in recession.
This latest uptick in homebuilding is the first glimmer of recovery for the land development and homebuilding industries. They have endured the deepest of deep depressions imaginable.
Dave…
what a lucky guy!!! you can still afford socks and a stapler!
i just had to staple the hole in my lunch sack!
ha! realistically, we are in the ongoing 2nd great depression masked by money printing – welfare takes many forms.
this ‘in and out of recession will we see a double dip’ talk is a bunch of bullshit. if you believe the unemployment numbers, inflation numbers, etc you are a gullible, counter-educated, mindless american.
The borrowing, printing, and spending by the fed and government are masking the ONGOING DEPRESSION by subsidizing asset prices, wages, jobs, GDP. Centrally planned interest rates are a mechanism for subsidizing the current economy at the expense of the future economy.
Did the fed cause the crash?
It seems incredible that the fed could have been involved in a massive contractionary balance sheet liquidation in the midst of the unfolding crisis, but that’s exactly what happened.
Note that the fed had been increasing its balance sheet throughout the decade right up to the top tick in the S&P, then begins a massive contraction of liquidity, removing 40% of the treasuries and MBS right along with the market crash.
http://jahhou.blogspot.com/2012/10/did-fed-cause-crash.html
The Fed has already released a number of whitewash papers disavowing any responsibility for the crash. They weren’t directly responsible, but they certainly worked to foster the circumstances that resulted in the debacle we all went through.
read ‘tales of an economic hitman’. central banks exist to siphon wealth. they achieve this by holding a monopoly on issuing fiat currency.
Unfortunately, they succeed at doing just what you describe.
Larry, did you see this from today’s listing?
“Days 0-7: No offers considered. Calendar Days 8-12: Will consider offers ONLY from NSP buyers, municipalities, non-profit organizations and owner-occupants. Calendar Days 13+: We will consider offers from all buyers.”
What is that all about?
Those are standard provisions on a GSE or HUD sale. It’s how our government gives owner-occupants a first chance at any of their properties. I see these notices on most properties in Las Vegas. They’re less common here because so few of our properties were GSE insured during the bubble due to the higher price points.
its regulatory fluff. the listing agent drags feet during the owner occ offer period and then waits for an all cash, 20 day close. “Shortening the sales cycle”
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