Tidbits® - October 2006Credit insight from Credit.comWelcome to the Credit.com newsletter!Each month, this free email newsletter delivers easy-to-read tidbits about credit directly from personal finance experts. In this issue we're focusing on recovering from credit problems. We'd love to hear from you! Send an email to tidbits@credit.com with your credit questions or comments anytime! Quick TipThe average consumer spends about $1,000 on the holidays each year. Are you ready? Start putting some money from each paycheck into a savings account now. $100 a week for the next 10 weeks would give you $1,000 in time for the holidays. When December rolls around, you'll know exactly how much you can afford to spend. Plus, you'll avoid starting the new year burdened with credit card debt! Download our savings worksheet - http://www.credit.com/r/tidbits_investing_smarts/ Introducing our Mortgage GuruWe are pleased to introduce Randy Johnson, our mortgage industry insider, who will demystify loans and real estate for you. Randy has financed over $1 billion in properties as a mortgage broker and has authored several books on the real estate world. "May you live in interesting times." This alleged Chinese saying was thought to be more of a curse than a proverb. Do we live in interesting times? Is it really a curse? I look back over my twenty-five years in the real estate and mortgage business and I think that all my years have been interesting, but every five year period was interesting for a different reason. In the first five year period, 1980-1985, we saw inflation hit 14% and prime rate went to 23%. Zounds! Fixed rate loans were 16%. In the late 80's, the savings and loan industry was disintegrating. Interest rates fell consistently and we did a lot of adjustable rate mortgages. This was good for homeowners because rates adjusted down automatically. The early 90's were particularly troublesome. The economy took a few hits and people who wanted to move couldn't sell their homes. Property values ended up declining anywhere from 10%-20% in southern California. But when interest rates dropped in 1994, people who could got to refinance into fixed rate mortgages for the first time in years. The late 90's brought the big explosion in the stock market. Those who had invested correctly, particularly in dot com and other high tech stocks, made a bundle. Home prices increased modestly, and interest rates had a short period of rates, in the 6% range, in 1999.
In the 2000-2005 period, the dot com era ended with a bang and millions
of people saw their stock portfolios and retirement accounts savaged.
Capital was re-deployed into harder assets, The mortgage industry also made two big contributions. First, it significantly relaxed mortgage underwriting criteria, allowing many who would never have qualified before to buy homes. Additionally, the subprime side of the business expanded. They lent to people with bad credit, and they found a lot of takers. The result was a huge spike in demand. This produced dramatic home value appreciation, as much as 20%-30% per year in some markets. Everyone who had good credit refinanced into a 5% loan, a loan that could be good for the rest of their lives!
This brings us to the present period, 2005-2010. The Fed has raised
rates some seventeen times in the recent past, and prime rate
is now 8.25%, up from 4%. Everyone expected this to be the However, the market forgot to read these predictions. The yield on the 10-year Treasury note, which closely follows mortgage rates, is still at a low 4.59% today, while the yield on 6-month T-Bills is 4.77%. That's an inverted yield curve.
Thus, 30-year fixed rate mortgages are again available to borrowers
under 6% today! Three years ago, rates like that touched off a
frenzy of buying! But not today. We seem to have a bunch of These were all interesting times, but I never saw the curse.
So what happens next? I don't know, and neither does anyone else.
The question is, "What are YOU going to do?" That depends
on YOUR market and YOUR needs. But whatever is likely to happen,
it makes Whatever "interesting times" are ahead, you will be ready! Randy Johnson Ask JohnDo negative records expire from credit reports automatically? What is the best way to rebuild credit? Our credit expert, John Ulzheimer, answers your questions from last month online! Read his replies and submit your credit reporting question online. Find out more - http://www.credit.com/r/tidbits_askjohn_vol13/ On the BlogWhat is considered a good deal on a credit card? How can you tell if you are getting good rates on your credit? In this post, we show you how to check in on your credit cards, what rates are good for your credit and what you can do to negotiate better terms. Take control of your credit cards today! Read more about giving your credit cards a check-up - http://www.creditbloggers.com/2006/10/credit_card_che.html Quote of the Month
Ask about your neighbors, then buy the house. Tidbits® - October 2006
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