Gently used or new appliances can be a real deal on Craigslist as executive producer Christa has found.
For those of you who don't know, Christa has had to replace all the major appliances in her home because of flood damage.
By diligently searching online everyday, she has been able to find brand-new stainless steel double convection ovens that were never installed or used in a home. She bought them from a man who planned to use them in one of his high-end rental properties, but couldn't install because the tenants wanted a different finish! So what retails for $2,850 cost Christa a mere $600.
In addition, she picked up a fancy six-burner gas range from an architect who bought it for a client who again opted for a different finish. It was never used and came in its box with warranty. Retail price: $3,200. Christa's price: around $600!
She also snatched up a Thermador hood that retails for $3,150 for just $500!
The hazard here is that people selling appliances on Craigslist could be doing so out of their foreclosed homes. Or worse yet, they may be selling stolen goods. (Editor's note: After meeting with the sellers, Christa is certain that she has not bought stolen appliances.)
Legally speaking, it's very murky on the question of whether or not you have the right to buy built-in appliances out of a foreclosed home. Fridges and washers/dryers, however, are considered to be the owner's property and can legally be sold even when the owner is in foreclosure.
Is your house in danger of being stolen right out from under your nose? A new kind of mortgage fraud known as "house theft" involves criminals assuming your identity and then cashing out the value of your home.
A July report from the FBI finds that there was a 36 percent increase in mortgage frauds of all types during 2008. Nearly 64,000 incidents have been reported, according to The New York Times.
The actual method by which crooks commit house theft is downright scary.
"Con artists target a property, then assume the identity of the owner by creating fake identification documents. They use real estate forms sold by office supply stores, then forge signatures and file new property deeds with government authorities," according to The Modesto Bee. "That fraud transfers the property's ownership, then the home can be sold or refinanced without the real owner knowing."
So what can you do to protect yourself? A website called ePropertyWatch.com has a solution. This free service will alert you if there's any change to public documents related to your home.
Clark has discussed in the past how banks are cutting or reducing home equity lines of credit (HELOC) because they're frightened of default. But the problem is apparently beginning to accelerate.
The consumer champ read one outrageous Chicago Tribune story that reported HELOCs are being cut right after they're issued in some cases! A circumstance like this speaks to the problem of redlining by geographic location or zip code, which is illegal.
Banks are required to do an individual assessment of your house. However, they now say they're doing individualized computer assessments, which sounds like something out of a conspiracy theory to Clark.
If you anticipate a need to draw on your HELOC, get the money out now and deposit it at another financial institution. Be sure to move all other accounts out of there too; you only want to have a HELOC at a bank, no other assets.
That prevents the bank from seizing any funds you may have on deposit if they decide to shut off your line of credit and call the loan due.
Over the last year, Clark has had more than two dozen people call in who either had done or were contemplating doing a loan modification to deal with a burdensome mortgage.
A common question arose: What does a loan modification do to your credit score and credit report? Until now, the consumer champ didn't have a good answer.
Syndicated financial writer Kathleen Pender now reports that FICO has adopted new guidelines to deal specifically with a loan modified under a federal government plan. The good news is that there will be no immediate change to your credit score.
However, FICO will revisit this question down the road. They need a year's worth of data about your behavior paying other debts after a loan modification in order to make a final determination on how it will impact your score.
It just goes to show that the whole loan modification deal is still a moving target that's evolving everyday.
Meanwhile, the attorney general of Florida is upset with Bank of America for the bank's alleged incompetence in handling mortgage modifications. Those who got BOA's approval for a mod are being mistakenly put into foreclosure or reported as delinquent to credit bureaus!
The Miami Herald reports those kind of shenanigans have prompted 452 complaints about BOA to the attorney general's office. By comparison, JP Morgan Chase only merited 69 complaints and Wells Fargo only 51.
Be sure to complain to your state attorney general if you're having a similar problem with your lender.
Thinking about doing a home renovation? There's never been a better time to hire a contractor.
During the peak of the housing market, contractors had a certain disregard for the customer simply because they were swamped with jobs. Very often, they would say they'd show up at a certain time and then never materialize. Now that coin has flipped.
The old rule of thumb about expecting a job to run twice as long and cost twice as much as initially quoted is out the window. Today, your job is likely to finish on or before schedule because all the subs that a contractor might use are available and waiting for work.
Clark's wife recently had a small-to-moderate home improvement done, and the contractor wanted to start the very next day after she called to offer him the job! The whole job would have taken two months in the past. Now it was done in a little more than two weeks.
Economies go in cycles, and the housing market went from being turbo-overheated to being frozen in the tundra. That means materials come cheaper, labor comes cheaper and the quality of workmanship is better because people are hungry for work.
Ironically, those who can afford to do renovations are not doing them because there's so little payback. For every renovation dollar you spend, you're lucky if you get 50 cents back in resale value. But that misses the point of a renovation; you do it because it will improve your quality of life at home, not because you're expecting return on investment.
A slew of federal, state and local tax credits are making payback on energy-efficient upgrades to your home a great deal.
EnergyStar.gov has compiled a list of the federal tax credits. Contact your state and municipality for more granular details about local tax credits.
Energy-efficient upgrades can really help you reduce your monthly utility bills. In the past, we've always felt very passive about our utility bills, thinking that whatever they were, they were. But there is a lot you can do to lower them.
Clark is so into this idea that he even installed an energy-efficient HVAC system at one of his rental properties. He didn't have to do this; the tenant pays the bill. But he doesn't know any other way to think about energy! 2 comments | Permalink
MONEY-SAVING MOMENT: Wells Fargo is planning to raise interest rates on credit card customers across the board by November 30. They're rushing through an increase before a new federal ban on raising rates on existing balances goes into effect December 1.
So what does this mean to you?
Well, the giant monster mega-bank was a beneficiary of bailout money and your reward is that they boost your interest rate?! Your assignment is to reduce the amount of money you owe on credit cards. Go join a credit union and get one of their credit cards to do a balance transfer if you must. At least the credit unions are not pulling all these gimmicks like Wells Fargo.
And we have one more announcement for Wells Fargo customers. The San Francisco Chronicle reports the bank is doing blanket reductions in home-equity lines of credit (HELOCs) without doing individual property assessments.
(Editor's note: Wells Fargo gave us the following statement: "The fact is we conduct case-by-case reviews based on a variety of possible factors such as credit scores, debt levels, payment history, property value changes, etc. to determine if a customer’s home equity line of credit limit is in line with their financial condition. We also encourage our customers to call us if they believe we made our decision on incorrect or incomplete information.")
This is reportedly happening to 3.6 million people.
(Editor's note: Wells Fargo maintains the following: "We serve a total of 2.6 million home equity households across the country. And the majority of our customers have not had their lines reduced or restricted.")
If you are in midst of using your Wells Fargo HELOC, Clark advises you to draw it down right away and deposit it at another financial institution so they can't automatically claw it back from your account.
The Federal Reserve has announced its intention to scale back support for the mortgage market. No doubt that realtors and sellers are upset by this move. But it's a necessary step to heal the housing market.
Dow Jones reports there are almost three million homeowners who are 90 days delinquent, but have not yet been foreclosed on. Of course, it's only a matter of time before the axe falls. This will only flood the market with more foreclosures.
The key takeaway here is that if you are looking to buy a home as an investment, as a primary residence or as a vacation home, the opportunity to steal a deal is likely to get even better in 2010. The expiration of the $8,000 first-time homebuyer credit is another step in removing artificial support for the housing market.
This is one train you don't have to worry about leaving the station without you aboard it.
Meanwhile, Clark feels housing is not likely to fall much further in price. So if you're sitting in your house fretting over the market, it's important to know that you're only in trouble if you're trying to sell right now. Otherwise, hang tight and wait it out for the next seven to eight years until we get out of this cycle.
MONEY-SAVING MOMENT: New mortgage rates are just about the lowest they've ever been. The average 30-year fixed is around 4.97 percent and the average 15-year loan is at 4.4 percent.
Remember, these kind of marquee rates will go to those who have great credit, equity in their homes and who really know how to shop around for the best deal. (Editor's note: Rates accurate as of Sept. 24, 2009.)
Now is the time to take advantage of this opportunity because the Federal Reserve will be gradually reducing its support for the housing market. That will raise mortgage rates to where they would otherwise be. In fact, the Fed's artificial support may be gone as early as March.
The good news is that even those who are upside down in their homes can take advantage of this latest interest rate bonanza. The Making Home Affordable program has a special refinance provision for those who are up to 125 percent upside down.
Meanwhile, those in ARMs that are favorable right now may be tempted to sit out these great rates. But if you think you'll stay in your house beyond the period when your rate resets, you should take advantage of these new low mortgage rates.
Just don't be one of those people who doesn't refinance because it's a royal pain. Refinancing today can put a lot of money back in your pocket in the long run. To prepare for the paperwork requirements, dig out your tax returns; your last 2-4 pay stubs; and be sure to have a clean credit report and a solid debt-to-income ratio.
We are three years away from traditional incandescent bulbs being banned in the United States. As of Sept. 1, new European Union rules made it illegal for many Europeans to buy a traditional bulb -- except for those that were still on the shelf.
Will the new crime du jour become smuggling traditional bulbs into the EU?
The International Herald Tribune reports that Germans were panicked about the Sept. 1 regulation and have been stockpiling traditional bulbs. Meanwhile, other European countries reacted to the ban with a shrug of the shoulders. So much of our behaviors and reactions are culturally influenced!
Compact fluorescent lights are one of the new options for lighting available in the United States. CFLs use a quarter of the energy of traditional bulbs and can put $80/year back in your pocket.
One reason people haven't embraced CFLs, however, is the fuss over their mercury content. But it's negligible compared to a traditional thermometer -- something in the range of one-four hundredth. You can also recycle CFLs at Home Depot stores across the country.
When traditional bulbs are banned stateside, halogens may be good compromise for some people.
Meanwhile, in totally unrelated news, Clark's 10-year-old daughter had possibly come down with swine flu, though it wasn't officially diagnosed. She had fever as high as 102.6 degrees, chills, nausea, cough, lethargy and didn't want fluids.
Yet it was nothing to panic over. She made a full recovery. Those who have contracted the H1N1 strain vs. the number who have actually died from it indicate that this is a mild strain compared to other influenza outbreaks. Of course, Clark realizes that's little comfort if you have actually lost someone to swine flu.
But he wants to emphasize that swine flu is generally not a death sentence.
Elderly people are one group you might expect to contract H1N1 that generally hasn't. The thinking now is that they may have been exposed to a similar flu early in life and have some level of immunity.
Pregnant women, however, should not take this outbreak lightly. The warnings from the CDC are very clear on this.
Reader's Digest recently ran an article titled "13 Things a Burglar Won't Tell You" that offers some sobering caveats from convicted burglars.
Below are excerpts:
• Of course I look familiar. I was here just last week cleaning your carpets, painting your shutters, or delivering your new refrigerator.
• Hey, thanks for letting me use the bathroom when I was working in your yard last week. While I was in there, I unlatched the back window to make my return a little easier.
• Love those flowers. That tells me you have taste … and taste means there are nice things inside.
• Yes, I really do look for newspapers piled up on the driveway.
• If it snows while you’re out of town, get a neighbor to create car and foot tracks into the house.
• If decorative glass is part of your front entrance, don’t let your alarm company install the control pad where I can see if it’s set.
• A good security company alarms the window over the sink. And the windows on the second floor, which often access the master bedroom—and your jewelry.
• It’s raining, you’re fumbling with your umbrella, and you forget to lock your door—understandable. But understand this: I don’t take a day off because of bad weather.
• I always knock first. If you answer, I’ll ask for directions somewhere or offer to clean your gutters.
• Do you really think I won’t look in your sock drawer?
• Here’s a helpful hint: I almost never go into kids’ rooms.
• You’re right: I won’t have enough time to break into that safe where you keep your valuables. But if it’s not bolted down, I’ll take it with me.
• A loud TV or radio can be a better deterrent than the best alarm system.
ING Direct is helping to restore the private mortgage market with a new 5/1 ARM at 3.99 percent. That rate is good on loans up to $750,000, which should be a boost to those in jumbo loans.
Did you know that the federal government now writes some 90 percent of all loans? You may think you're dealing with a private lender, but that private lender turns around and sells its loans to federal entities like Fannie Mae and Freddie Mac. Or else you're talking about a VA or FHA loan to begin with.
This is not a scenario for long-term health in the mortgage marketplace.
As you probably know, ING Direct is an online-only bank that can offer some innovative deals because of its unique business model. Their 3.99 percent offer is a little lower than the market at this time, but there are some other more compelling reasons why this deal is so remarkable.
First, the closing costs with ING are much lower than with a traditional bank. Second, the size of the loan is the real clincher. This is first real initiative since the banking crisis began over a year ago to provide real money at decent rates for those in jumbo loans. Jumbo loans are defined as anything over $417,000.
Other requirements for this particular ING loan include having a down-payment or equity of 25 percent. For many people, that's not realistic. But it's a way for ING to insulate itself from risk of default.
Finally, you must make bi-weekly payments. That is, you must make half a payment every 14 days. This will actually get you out of debt quicker, and it's not a rip like so many other bi-weekly payment plans!
Of course, after 5 years, the loan will adjust and you'll likely have to get out of that ARM.
But for now, Clark hopes other competitors follow in ING's footsteps and continue to open up the private loan market again.
Mortgage rates are down again after the lows of late spring. Right now, 15-year loans will save you as much as three-quarters of a point over a 30-year loan. 15-year loans are running about 4.5% or lower right now. (Editor's note: Rates accurate as of Aug. 31, 2009.)
Of course, you'll need to have good credit and a substantial amount of equity in your home.
Let's say you only have good credit but no equity. You still may be able to refi through the MakingHomeAfforable.gov program -- even if you owe up to 125% of your home's current value.
The biggest problem right now is that it takes longer to get loans closed and you may see more junk fees. Good rates are a mirage if a bank can't execute your refi or they fee you to death in the process.
Speaking of fees, the giant banks continue boosting theirs on savings and checking accounts. You may see a monthly fee of $6-$12 if you have a low balance. That's when you should consider firing your bank and using a smaller bank or credit union.
Ditto for the low CD rates from the giant banks. The online banks, meanwhile, may give you up to 2% on a 1-year CD and 1.5% on a savings or money-market account.
Looking for a better deal? Clark has two other options for you. Costco has a new special deal on savings for its members. And AAA motorists are eligible for another such deal.
A few caveats, though. First, don't go for 5-year CDs with their current terrible rates. Visit MoneyAisle.com to let the banks compete for your CD business.
Second, do not put more than $235,000 in any account. That will help ensure you're well under the $250,000 limit of FDIC protection. This is especially important for businesses, non-profits, charities and wealthy individuals.
Finally, Clark is sad to say he's read the number of banks in severe financial trouble has risen by a gigantic number. More than 400 banks are reportedly at risk now. But the list is kept secret by the government so it doesn't become a self-fulfilling prophecy. Again, heed the FDIC limits to stay safe.
CLARKONOMICS: In an era of bad economic news, there is one great side-effect that Clark has to report. What you pay to heat your home will likely be lower this winter.
Natural gas is the predominant method of home heating for most Americans. This clean-burning fuel is mostly domestically sourced and has a considerable oversupply of available inventory.
It's the complete opposite of what happened after Hurricane Katrina put a big crimp in supply and drove up the price. Four years later, the price has completely collapsed to around 28 cents per therm at wholesale. (Editor's note: Figure accurate as of Aug. 21, 2009.)
Meanwhile, the current supply is at such an all-time high that The Houston Chronicle reports sellers are running out of places to store their excess! At the same time, demand is down, particularly among industries forced to shutter factories because of the recession.
Natural gas has traditionally been used simply to heat homes, for cooking and for hot water. But with the air pollution problems associated with coal, more power companies have taken to building natural gas power-plants to generate electricity.
Now the power for your lights, TV and computer comes from natural gas at much lower prices vs. coal-generated electricity.
So if your power bill is not going down, somebody's ripping you off, according to Clark! Both home heating and normal electricity should be a lot cheaper now and throughout the coming winter.
Finally, Clark used to own a natural gas powered vehicle. But he sold it for a handsome profit at the height of T. Boone Pickens media push for natural gas powered vehicles. He intends to buy another one when prices on such vehicles become cheaper.
Reverse mortgages have been very popular as of late with seniors. With a reverse mortgage, an elder gets to stay in his or her home and collect a check each month from the mortgage company.
You essentially turn your house into an ATM. It's been particularly attractive to seniors who can't afford to sell at a loss and are in need of supplemental income.
But what seems good in concept has not been good in reality. Reverse mortgages have historically come with exorbitant fees and expenses. The forthcoming September issue of Consumer Reports has a write-up on why they stink. Keep an eye out for it shortly on a magazine rack near you.
Another good resource to check is Reverse.org -- a service of the National Center for Home Equity Conversion -- which offers free, unbiased advice on reverse mortgages.
Meanwhile, the Federal Reserve is taking a look at the main part of the mortgage market. There are new proposed rules now open to comment from the mortgage industry through November.
In short, the Fed is trying to force mortgage lenders to lay out in plain English what will happen to you in a loan or home equity line. The proposals would also outlaw kickbacks where lenders purposely put you into a higher cost loan to earn compensation.
Clark hopes the Fed stands up to the mortgage business and doesn't weaken its proposals. We need the industry to have fiduciary duty and work for us, not against us.
And remember to always get several mortgage offers before making a final decision.
The federal government has expanded its Home Affordable Refinance program to include more Americans who originally were ineligible because they were too far upside down in their homes.
The first incarnation of the program only applied to those who were 105% upside down. But now that limit has been raised to 125% of a home's current value.
The government is doing this to give an incentive to hang in there to struggling homeowners. Mortgage rates have dropped recently to about 5.35% on 30-year loans and 4.85% on 15-year loans. (Editor's note: Rates accurate as of June 30, 2009.)
Speaking of 15-year loans, there's a special new incentive from the feds. Under the new rules, the government will cover much of your closing costs if you shorten the length of your loan and go for a 15-year note.
Clark says this is a real triple threat -- in the good sense. First, you have the expanded opportunity to refinance. Second, you have the incentive to go into a 15-year loan, which automatically has a lower rate. Third, you have the feds absorbing some of your closing costs on a 15-year refi.
It's win, win, win.
Why would the feds work extra hard to get you to shorten the length of your loan? You start hitting more of your principal from the start on a 15-year mortgage, which ultimately lowers the risk to taxpayers.
Yet there's a lot of resentment from people who have been able to pay their mortgages. They wonder why we are paying to subsidize those who are drowning.
Clark's response? You're missing the bigger picture. Stopping foreclosures helps preserve everyone's property values -- including yours.
While much of the world has embraced alternative forms of energy, we're still playing catch-up in America.
The problem for homeowners has been figuring out how to implement technologies like solar, wind and geo-thermal. You can't exactly just call around for quotes.
That's where the power of the Internet comes in.
Sungevity.com allows you to enter your street address and get a guaranteed quote on installation of a home solar system. The assessment is done by satellite mapping, so no visit to your home is required. (Editor's note: This service may only be available in certain areas of the country.)
In addition, there's federal and state money available as part of the stimulus law to install alternative energy at your home or business. Clark predicts this will be a real growth area for entrepreneurs who can do energy-efficient retro-fitting on homes.
Mortgage lenders across the nation are seeing a trend of people opting for 15-year refinances instead of 30-year refinances.
This is a huge reversal back to the ways of an era when we didn't want to be in debt. For too long, Americans heard the hotel ballroom pitches about using "other people's money" (OPM) as a way to get rich through leverage by borrowing, borrowing, borrowing.
Now, the pendulum has swung the other way.
15-year refis don't have the same dramatic savings they once did vs. 30-year refis. In fact, the typical monthly payment on a 15-year refi is now 50% higher than on its 30-year counterpart.
So why the sudden appeal?
Homeowners know that the equity comes from paying down debt. Of course, have a narrow focus on wiping out your mortgage if you're not maxing out your retirement accounts is not advisable either. You've got to strike a healthy balance.
No matter how you slice it, people are getting more reflective about their finances. Christa and her husband like to have what they call "money movie night" each week where they put a film on for their children and pore over their finances.
Questions about refinancing a mortgage are among the hottest we're getting on the show right now. Today Clark spoke to one caller and shared a few tips to make the process as smooth as possible.
If you're in the market for a refi, begin by visiting myFICO.com and getting your true credit score. In the example of today's caller, she had a score of 703 and her husband's score was 824. Clark recommended they try to qualify for the refi on his income alone; most lenders will base your rate on the lower score if you're a couple.
Who can you go to for a refi? Clark recommended checking with a local bank or credit union. You'll want to get quotes from multiple lenders. And you may even want to get an online quote to use as leverage in negotiations. Whatever you do, be sure to get all quotes within a 14-day window to avoid damaging your credit.
Make sure you're prepared with all the paperwork that will be required of you…and it's going to be a lot. At the very least, you'll need to have your tax returns handy.
Finally, if you're waiting on the sidelines for rates to drop another quarter of a point, stop it! Even Clark's own predictions of months to come of ultra-low interest rates look like they're not going to pan out. Now is the time to strike.
Did you buy your house in 2000 or even more recently? The Washington Post now reports that you stand a chance of losing money if you were to sell today. In fact, more than 6 out of 10 people are selling for less than what they paid for their homes.
That means there's enormous opportunity for buyers.
Clark has been following our youngest producer Joel's quest to buy a home. In late winter, Joel put a bid on a short sale. He expected to get a response within a week; it took 3 months for the lender to even acknowledge his offer, and they countered with a price that was greater than the original listing price!
Meanwhile, those selling non-distress real estate are finding that it's hard to gain any traction in a market awash with foreclosures. And consider that the recent moratorium on foreclosures in the aftermath of the presidential election is set to run out soon. We'll soon be seeing a new wave of foreclosures as the ban lifts.
Joel is now looking to put a bid on a foreclosure. As a first-time homebuyer, he'll qualify for $8,000 in federal money, in addition to local money from his county. Even the Federal Home Loan banks have their own offers of "gimme" money. (Editor's note: You don't have to be a first-time homebuyer, actually. You only need to meet certain qualifications. Check with your lender for more details.)
And when will the housing market finally recover? Clark doesn't have a specific timeline to share, but he is noticing that the latest thinking suggests in-town and close-to-town markets will recover faster than suburban and exurban markets.
Residential housing starts have hit a 50-year low. That's actually very central to the housing market recovering. The pitiful pace of new construction means we're one step closer to supply and demand being back in sync in the housing market.
The average price of a home in the United States year over year is down by 13.8%. Now, you can look at those numbers and feel glum. Or you can realize the actual selling prices have been so heavily depressed by what's going on the bubble states and with all the foreclosures.
The truth is that the home market can not recover until supply and demand are in sync. The oversupply of houses means there's no market for houses that were bought at or near the peak. So they go into foreclosure and are snatched up by first-time homebuyers or investors. That creates a temporary floor to the market. Over time, month after month of depressed stats on home building means that household formation will soak up the inventory. The very act of the lack of building helps that happen. Clark predicts that the healing in the housing market will be anytime later this year to 2012 depending on your location in the country.
The one tough thing right now is if you have a house you want to sell or have to sell. We're not talking about the foreclosure crowd here. A new Home Gain survey of real estate agents finds that those on the market who are not in distress are overwhelmingly overpricing their homes. They're relying on old comps. Some 6 out of 10 are overpricing! Only 19% of people are pricing realistically.
The consequence is that you tend to get a lower final sale price if you overprice upfront.
Also, beware of the "hero" real estate agent. That's the person who comes in with the highest estimate of what they can sell your house for. Don't fall for it.
Be realistic about the price and you'll improve the odds of selling in an imperfect market. The best answer if you don't have to sell is to hang tight, though there's one exception. If you want to move up in house, now is the time to get a bigger foreclosed house. It will make be worth it to take hit on the sale of your house to move up in house.
CLARKONOMICS: There's much confusion over the federal bailout for homeowners and Clark wants to clear some of it up.
There are two scenarios under which the "Making Home Affordable" program could possibly work for you. The first is if you're behind on your mortgage, and the second is if you're current.
Let's examine the first scenario. If you can not afford payments and can not refinance for whatever reason, you will have the opportunity to have your loan temporarily reduced to 31% of your monthly income. This applies to homes valued at up to $759,750 in most areas of the country. Your interest rate may drop to as low as 2% for the next 5 years!
Under the second scenario, those who are current on a mortgage held by Fannie Mae or Freddie Mac will also be allowed to refinance -- as long as they're not more than 5% upside down in their home. (Note: This does not include a second mortgage). The new loan you'll get will likely be re-written to an interest rate of around 5.125%.
To determine if you're loan is held by Fannie Mae or Freddie Mac, simply follow our web links or call them directly. Contact Fannie at 1-800-7-FANNIE and Freddie at 1-800-FREDDIE from 8 a.m. to 8 p.m. ET. Start with Fannie Mae -- they're the larger of the two.
And you may also be eligible for assistance even if your loan is not with Fannie or Freddie. That's up to your individual lender, so get in touch with them to find out if you qualify.
Meanwhile, it looks like the idea of empowering bankruptcy court judges to cram down mortgages is gaining momentum -- despite Clark's worries that this would undermine some of the basic tenets of capitalism. We'll keep you updated.
CLARKONOMICS: There's frightful news about housing everywhere you turn. Existing home sales have dropped to a 12-year low. Meanwhile, almost half of all homes sold across America in January were foreclosures. That's a startling statistic.
The home construction market is also in disarray. Housing starts are down 60% from just a year ago. Then there are the drops in the Case-Shiller home price index. Las Vegas is down 33%, Miami 29% and San Francisco 31%. The least-affected cities include Denver and Dallas, which are both only down 4% year over year.
Out of this ugly scenario comes the possibility of real opportunity. During the worst excesses of the housing bubble, the relative cost per month to rent was just a tiny fraction of what it cost on a monthly basis to buy. Yet now The Wall Street Journal reports the relative affordability of renting vs. the cost of buying is once again coming into synch.
That makes this a great time to buy a house, according to Clark.
Remember, the only important long haul factor for housing is supply and demand. Builders have stopped building, and that sets the stage for the excess in the market to be soaked up. Opportunists will be a necessary part of the correction. They start the healing by coming in and establishing a pricing floor that creates the stage for recovery.
Of course, "inertia bias" dictates that psychologically we feel home values will always be in decline -- because that's the way things are now. But that's not the case. Most of the bad news (and the decline) has already happened -- though it may not be over yet in every market.
CLARKONOMICS: The cold winter much of the nation is experiencing at the moment would traditionally mean high costs for heating your home. But right now, there is an oversupply of natural gas. In fact, the cost at wholesale is down around a third of what it was in the fall of 2005 leading into 2006. Clark even saw a recent trade at 48 cents per therm!
This means there is tremendous opportunity to save on your home heating costs -- especially if natural gas is a deregulated industry with multiple marketers competing in your state. The smartest move right now is to have a floating rate -- not a fixed rate -- so you can benefit from the current low prices.
On the gasoline front, there's currently a huge disconnect between the extremely low price of a barrel of oil at wholesale ($35) and the price of a gallon of gas at wholesale ($1.06). So there's definitely some wiggle room there for prices at the pump to drop again. In fact, Clark thinks we may routinely see a gallon selling for somewhere in the 90-cent range again.
But he wants to remind people this should not be a reason to get SUV crazy. In fact, OPEC and the Saudis are doing everything they can to reduce the supply coming out of the ground. Don't expect the new lower prices at the pump to stick around forever.
With the recent rise in crime, Clark wants to take a moment to revisit his advice about burglar alarms.
Nothing makes you feel more invaded than coming home to a break-in. Burglar alarm salespeople often read local police reports and may show up with an emotional sales pitch seeking to capitalize on your fear and anxiety.
Of course, it's better to search for an alarm-monitoring company before you need them. Clark recommends looking in the YellowPages and starting to call companies from the back of the listings -- not the ones at the front with the big ads.
First off, ask if they require a contract. You never want to sign a long-term contract. If you do, you open yourself to the danger of hidden rollover provisions.
Your second question should be about their monthly monitoring fees. You want something in the mid-to-high teens -- no more than $20/month.
Then you have equipment installation costs. You can usually get a preliminary quote over the phone by counting the number of doors and windows you have to protect. Consider adding an internal motion sensor as well. Initial equipment installation costs can be anywhere between $600 and $800 for a typical home.
Finally, make sure your monitoring station is UL approved.
We in America have historically enjoyed cheap energy prices. Of course that's all reversed now. There's a lot of evidence to suggest that energy could be costly in the future. While people are clamoring about finding more supply, what we really need to do is reduce our demand for energy.
One way to do that is build efficient structures. Architects who focus on "green" building can create savings of about 30% to 50% for the end user.
One American city that knows all about energy costs is Houston. In the heart of oil country, they're requiring commercial builders to construct energy-efficient properties. They're also trying to put those same standards on residential builders. The pushback from the residential sector has been intense so far. Montgomery County in Maryland is one place that has already successfully established mandatory green building standards.
Clark applauds Houston's efforts and hopes the city extends the standards to new residential homes. This can make a huge difference in energy costs. It's not about whether you buy into the idea of global warming or not; the reality is we're spending a fortune on energy. Green building is not about the environment, it's about your wallet.
Clark's been receiving a lot of calls from listeners who had HELOCs (home equity line of credit) shut off with no notice -- sometimes in the midst of a renovation!
Now it turns out this practice is illegal. New federal guidelines* have been issued that forbid banks from redlining via zip code, via state or any other blanket method. They are not allowed to arbitrarily shut down HELOCs in a neighborhood where home values are dropping.
If a bank wants to curtail your HELOC, they must look at your house and circumstances on an individual basis. So if you got the squeeze, go talk to your loan officer and get it rectified. They are required to restore your HELOC -- unless they have individual proof for your address or your situation that compelled them to cut it in the first place. Get in there and fight for your rights!
Clark is excited by the idea of installing fake grass for the purpose of conserving water. Today's fake grass is a far cry from the AstroTurf of yesteryear. In fact, you can't tell today's fake grass isn't the real deal; manufacturers even weave in some decoy weeds!
In Las Vegas, homeowners are actually paid to dig up their yards and convert them to desertscape. The stunner is that the Las Vegas Strip only uses 3% of the city's water. That's because casino owners are good capitalists and have used every possible water-saving technique in their buildings.
The Los Angeles Times now reports that California is offering a similar deal. Golden State homeowners are being encouraged to convert to landscaping that requires less water. But some local municipalities are fining homeowners when they make the switch. Talk about state and local governments working at cross purposes!
Several states are doing some things that Clark sees as a sign of the times.
Hawaii is banning traditional water heaters in all new construction. The Aloha State is now requiring solar water heaters. While solar water heaters cost about 7 times what a traditional heater does, you can make your money back in a couple of years. This move should save homeowners $50/month on average.
But there's so much more we can do. Clark read a very disturbing story in Business Week that detailed how the coal industry is trying to use political influence to virtually outlaw windmills in the Great Plains states.
We as a nation should not allow dirty money to prevent us from having clean sources of energy.
The Business Week story focused on a Kansas rancher who overcame dirty money to get a windmill operation up and running. Clark salutes this determination to make a change.
Meanwhile, California is putting stickers on cars that provide a smog rating and a global warming rating. Whether you believe in global warming or not, no one can deny that smog exists.
Under the current system, a score of 10 represents the lowest levels of pollution and a score of 1 the highest.
Car manufacturers are obviously not happy about this -- unless they make what are called "super ultra low-emission vehicles." For example, the Honda Civic Hybrid has a smog rating of 9 and a global warming rating of 10.
These stickers are voluntary for now until next January when a law mandating them throughout the Golden State goes into effect.
CLARKONOMICS: Clark is not a man who's afraid of the condo market. He knows the value of a condo typically fluctuates like an EKG -- up and down in rapid cycles. Single-family homes, by contrast, tend to rise slowly but steadily over time, barring a bubble market. The problem is that people usually buy condos the wrong way. They own them for short periods of time and then can't get the value they paid when they resell.
Because of general market malaise, lenders are increasingly getting spooked about making loans for condos. New rules and requirements are being established that reflect the fear. It's getting tougher to refinance a condo loan or get one in the first place. Some lenders have even begun redlining -- that's where they take whole zip codes and refuse to make loans in them regardless of credit score.
Other lenders won't make loans in condo communities where there are more than 25% rentals. Some owners have become unwitting landlords so they can meet their monthly payments. Yet if a condo association allows a high percent of rentals, the condo community won't be exempt from future financing.
Compounding the problem are new Fannie Mae and Freddie Mac guidelines. Lenders are being required to make a decision about whether or not a condo association has solid books before making a loan. The practice hurts lenders who may want to sell out their loans out of portfolio, and Clark says it will have a further chilling effect on condo lending.
The pendulum swung too far with irresponsible lending; now it's swinging too far the other way. It all creates a hardship for those condo owners who want to sell. The good news is that there's great opportunity right now to buy a condo for cash or if you're able to get a loan. Condos go through phases of incredible pessimism followed by ill advised optimism. Right now we're in a pessimistic cycle, so look for the deals and pounce. Do you smell what Clark is cooking?
