WASHINGTON -- The regulator for U.S. housing finance giants Fannie Mae and Freddie Mac told the two firms Wednesday to provide more support to low-income Americans taking out mortgages and refinancing home loans.
The Federal Housing Finance Agency released goals for the two government-controlled firms for 2015-2017 that would advance agency chief Mel Watt's aim to widen access to housing credit.
The rules direct Fannie Mae and Freddie Mac to expand the number of loans they back for low-income families to 24 percent of the their purchases of single-family home mortgages over the period, up from a target of 23 percent in 2014.
FHFA also asked each firm to make mortgages refinanced by low-income families a bigger share of their refinancing purchases, and to increase the number of mortgages they buy for multifamily properties each year.
Fannie Mae and Freddie Mac have been controlled by the U.S. government since taxpayers bailed them out in 2008 during the housing market implosion.
The two firms don't lend money directly, but buy mortgages from lenders and sell them as packaged securities with a government guarantee. They back most new U.S. mortgages, and their purchases are a major driver of credit access.
Boosting support for low-income borrowers, however, could stir controversy in the U.S. Congress. Many Republican lawmakers think Fannie Mae and Freddie Mac contributed to the housing bubble and 2007-2009 financial crisis with policies aimed at supporting mortgage access for the poor.
Samuel Corum, Anadolu Agency/Getty ImagesFederal Reserve Chair Janet YellenBy MARTIN CRUTSINGER
WASHINGTON -- Federal Reserve officials in their July discussions appeared to move closer to their first interest rate hike in nearly a decade but expressed wide-ranging concerns about wages, inflation and a significant slowdown in China.
Minutes of their July 28-29 discussions released Wednesday show that officials believed they were close to achieving their goals on employment. But they were split on whether inflation had risen enough to justify an rate increase.
"Most judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point," the minutes said.
On China, Fed officials believed that a big drop in the Chinese stock market would have only limited implications for growth prospects in the world's second-largest economy. However, their discussion occurred before Chinese officials devalued their currency, a decision that roiled global financial markets.
China on Aug. 11 announced the biggest devaluation of the yuan in two decades. The action has raised new concerns about the dollar, which has been rising in value for a number of months. A stronger dollar can act as a drag on the U.S. economy by increasing America's trade deficit, as U.S. exports become less competitive in overseas markets and foreign goods take more market share in the United States.
The minutes said that Fed officials discussed the risks posed by a divergence in interest rates, which would occur if the Fed began raising rates while central banks in other nations kept their rates low. The Fed minutes said that this could lead to a further strengthening in the value of the dollar, which could cause further weakness in U.S. exports and drag oil prices even lower.
The central bank has kept a key rate that it controls at a record low near zero since December 2008. With the unemployment rate at a seven-year low of 5.3 percent, many private economists believe the Fed will finally start to raise interest rates at its next meeting on Sept. 16-17.
However, other economists argue that with inflation still so low, the central bank may decide to wait until December before beginning to raise rates.
NEW YORK -- U.S. stocks fell in choppy trading Wednesday as minutes from the latest Federal Reserve meeting highlighted concern over the state of the global economy, driving markets to question the likelihood that the Fed will raise rates next month.
The minutes showed policymakers continued to express broad concerns about lagging inflation and the weak world economy even as the U.S. job market improved further. Market expectations for a Fed hike in September fell from one in two to roughly one in three after the minutes were published.
Utilities stocks, sought by investors when Treasuries yields are seen remaining lower for longer, sharply outperformed the benchmark index with a 0.4 percent gain.
Energy stocks posted the most losses on the S&P 500 as crude oil fell 5 percent on the day, even as the U.S. dollar also weakened.
"It looks like based on commodity prices, China, wages not really picking up, that [Fed officials] are not getting any closer to meeting their inflation target and seems like they're probably not going to be willing to go in September" with a rate hike, said Don Ellenberger, head of multi-sector strategies at Federated Investors in Pittsburgh.
A delay in the start of the tightening cycle is seen as supportive of equities. However, concern about the strength of the global economy, specifically regarding China, kept pressure on commodity prices and weighed on stocks in the energy and materials sectors.
"Things are deteriorating in China and that's not good for global growth. That deterioration might be enough to impact our exports and manufacturing industry," said Ellenberger.
The Dow Jones industrial average (^DJI) fell 162.61 points, or 0.9 percent, to 17,348.73, the Standard & Poor's 500 index (^GSPC) lost 17.31 points, or 0.8 percent, to 2,079.61 and the Nasdaq composite (^IXIC) dropped 40.30 points, or 0.8 percent, to 5,019.05.
Major indexes had fallen more than 1 percent in late morning trading but the Nasdaq and Dow industrials briefly turned positive after the release of the Fed minutes.
Fed Concerns
Fed officials were concerned about "recent decreases in oil prices and the possibility of adverse spillovers from slower economic growth in China," according to the minutes.
Those concerns may have increased since. China devalued its currency nearly two weeks after the Fed meeting in a move seen by some as an attempt to energize exporters, while U.S. oil futures have fallen roughly 17 percent since July 29, the second day of the Fed meeting.
Materials stocks fell 1.2 percent as copper touched a six-year low on persistent concerns about slowing growth in China.
Declining issues outnumbered advancing ones on the NYSE by 2,274 to 766, for a 2.97-to-1 ratio on the downside; on the Nasdaq, 2,065 issues fell and 739 advanced for a 2.79-to-1 ratio favoring decliners.
The benchmark S&P 500 index posted 20 new 52-week highs and 28 new lows; the Nasdaq composite recorded 33 new highs and 128 new lows. About 7 billion shares changed hands on U.S. exchanges, compared with the 6.62 billion daily average so far this month, according to BATS Global Markets data.
What to watch Thursday:
The Labor Department releases weekly jobless claims at 8:30 a.m. Eastern time.
At 10 a.m., the National Association of Realtors releases existing home sales for July; the Conference Board releases its index of leading economic indicators for July; the Federal Reserve Bank of Philadelphia releases its Business Outlook Survey for August; and Freddie Mac releases weekly mortgage rates.
Earnings Season
These selected companies are scheduled to release quarterly financial results:
ShutterstockSocial Security provides essential income to the disabled and family members of deceased workers.
Social Security was initially a program that provided payments to retired workers when President Franklin D. Roosevelt signed the bill on Aug. 14, 1935. But the 80-year-old program has since been amended to include payments for the spouses and dependent children of workers who prematurely pass away and disability benefits for those who become unable to work. Here are some of the important features of the Social Security program.
How much you are paying in. Most workers contribute 6.2 percent of their paychecks to the Social Security system, and employers match that amount. Self-employed workers pay 12.4 percent of their income into the system. The Social Security tax applies to earnings of up to $118,500 in 2015. Earnings above this amount are not subject to Social Security tax or factored into retirement payments.
The age to sign up. You can sign up for retirement benefits beginning at age 62, but payments are reduced if you sign up before your full retirement age, which is 66 for most baby boomers and 67 for everyone born in 1960 or later. Your monthly payments will increase if you delay signing up past your full retirement age. However, after age 70 there is no additional boost in payments if you wait to claim Social Security. "Assuming you have normal health, try to claim Social Security as close to 70 as you can," says Alicia Munnell, director of the Center for Retirement Research at Boston College.
How much you will receive. Social Security payments are calculated using the 35 years in which you earn the most. If you don't work for 35 years, zeros are factored into the calculation. You can get a personalized estimate of your future Social Security payments at various claiming ages by creating a My Social Security account online at ssa.gov/myaccount and logging in to view your Social Security statement. These statements also list your earnings history and taxes paid, which you can check for errors. Paper Social Security statements are mailed to most workers who don't have My Social Security accounts about once every five years.
What happens if you become disabled. "We started off with just a retirement program, and then in 1939 we added survivors benefits and in 1956 we expanded to include people with disabilities," says Carolyn Colvin, Acting Commissioner of the Social Security Administration. If you develop a physical or mental impairment that is expected to prevent you from working for a year or more, you may qualify for disability payments. Your Social Security statement will list an estimate of your monthly payments if you become disabled. You may need to provide documentation about your condition and why it will prevent you from working.
How much your family will get if you pass away. Social Security also functions as life insurance for workers who prematurely pass away. Children ages 19 and younger who are in school, disabled children and a spouse caring for children younger than age 16 will each be eligible for monthly payments from Social Security, which are subject to a maximum amount the entire family qualifies for. Your Social Security statement will list how much your family members are likely to receive if you die. "Social Security is designed to insure against lost wages," says Eric Kingson, a professor of social work at Syracuse University. "The premium that we pay is designed to insure against risk."
Getty ImagesUnplugging electronics and filling out surveys at the bottom of receipts can boost your bank account.
When it comes to money, every little bit adds up. That's what everyone always says, but everyone also has their limits.
For instance, if you see a penny on the ground, these days, you wouldn't necessarily pick it up, even though, hey, it's free money. You've probably also heard a dozen times the tired but true advice that if you gave up your daily drink from the local coffeehouse, you could save well over a thousand dollars a year.
There are all sorts of money-stretching strategies we can do -- but probably don't. If you're looking for little ways to improve the health of your bank account, here are five ways you could get some more bang for your buck, if only you had more time or energy.
Unplug electronics. While lights are easy enough to remember to switch off, it can be easy to forget (or to feel it's not worth the bother) that you could also be unplugging your laptop, your PC, your DVD player, your microwave oven, cellphone charger and an array of other electronics when you aren't using them. Because your electronics, when plugged in and turned off, are still using electricity.
Right about now you're thinking: No way am I going to unplug all my devices after I use them. Who does that?
Probably next to nobody, which is why you may want to consider buying a few power strips or a surge protector with multiple outlets that -- and this is key -- has an auto power sensor. (A quick window shopping trip through a search engine suggests they can be found for around $30.) Some of these outlet strips will turn off your appliance's power when it isn't in use, to stop energy from being drained.
How much you can save. According to the U.S. Department of Energy, if you turned off all or most of your electronics when they weren't in use, on average, you'd shave 10 percent off your electric bill.
Look at the bottom of your receipt. Almost every time you shop, some clerk is telling you that if you go to the bottom of your receipt and fill out a survey, you might win a coupon, gift card or perhaps more rewards points. Do you do it?
Probably not, but maybe you should.
Phil Benson, a Vietnam vet who retired about 10 years ago and lives in Bayonne, New Jersey, says that several years ago, he started filling out surveys at the bottom of the receipts he was getting at the office supply chain, Staples. He did it in part because he was a regular customer and was on friendly terms with the manager, who said it helped the store out when the surveys were filled out. In any case, it paid off for him: Six months after filling them out whenever he bought something, he won a $5,000 gift card.
"I bought my wife a laptop, so she would stop using my computer," Benson chuckles, "and we bought a really nice home safe, and then the next couple years, we just wound up spending the balance on little things. That was fun."
He still fills out these Staples surveys but hasn't won anything since. He now also fills out surveys on his receipts at the home improvement chain, Lowes, but so far, nothing has come of it.
How much you can save. Obviously, you can go all over the map here, earning nothing if you just fill out surveys in which there's a prize, but it really depends on the store and how strategic you are with those receipts. If you get in the habit of using any coupons that come with your receipts, you may save at least several bucks a week.
For instance, Carolyn Stone, a public relations executive in New York City, says her CVS drugstore receipts have CVS "cash" on them and coupons for cash off.
"I usually use them," she says, adding that she probably saves about $20 to $30 a month. "Sometimes more."
But she admits that's as far as she goes with her receipts. "If I have to email or call or do some effort, I won't do it," she says. She also issues a complaint that is likely shared by many shoppers these days: "My receipts can be more than one-and-a-half feet long."
Buy generic brands. So little effort here. You either reach for the generic or the name brand. You've been conditioned through advertising to believe the name brand is always the better product, and while that may sometimes be true, often there's no substantial difference, especially when the main ingredients in a product are the same.
How much you can save. Quite a bit, possibly as much as 20 to 30 percent, per several estimates from various studies. According to a study published last year by the National Bureau of Economic Research, American consumers are spending an estimated extra $44 billion a year on brand-name drugs, health care items and pantry goods.
Use perks you're already paying for. Your workplace may have certain benefits you aren't using. Your credit card may offer perks you never look at. If you're a member of a bulk warehouse store, or you have roadside assistance, such as AAA, you might have perks or benefits you'd want to use, if you occasionally perused the websites or brochures to remind yourself of what's offered.
Earlier this year, ThePointsGuy.com commissioned Princeton Survey Research, which interviewed 1,003 American adults, to see how people use travel rewards cards and what they do with those rewards after earning them. Seventy-nine percent of travel credit card holders said they had never transferred credit card rewards points to an airline or hotel loyalty program, despite presumably having those rewards points.
Granted, just because you have accrued credit card points, doesn't mean you should use them. If you can't afford to travel, for instance, unless you have a whopping amount of points, you're still probably going to be overspending. But nonetheless, it's a good reminder that everyone likely has some sort of perk that they're paying for, or entitled to receive, and don't.
How much you can save. Potentially hundreds and thousands of dollars, depending on what perks you're not using. For instance, many employees forfeit their paid vacations. Last year, the U.S. Travel Association commissioned Oxford Economics to determine how much vacation time Americans are giving up every year, and according to the study, in 2013, Americans permanently lost 169 million days of paid time off, effectively losing $52.4 billion in benefits.
Find strategies that help you remember the little ways to save. You probably would do more to save money if it were easier to remember to take those little steps that can add up. If the payoff isn't great, or doesn't seem great, it's easier to forget.
Which is how Donna Maurillo, a Scotts Valley, California, resident who works at a think tank, came up with an interesting strategy when she shops.
"At CVS," she says, "often they'll have a shelf tag that says, for example, 'Buy two of these, and get $5 in Extra Bucks.' If I just stuff the coupon into my wallet, I'll forget to use it," Maurillo says.
Instead, now Maurillo takes the two items immediately to the register, pays for them, receives her Extra Bucks coupon and continues shopping. "Then I use the Extra bucks as part of my payment for the rest of my purchase," she says.
How much you can save. At least a few extra bucks. And if you look for enough little ways to help you remember to save, maybe a lot.
It's called "dynamic pricing," and it's when online retailers change the price of a product depending on factors like your browsing or purchase history, operating system, and even your zip code.
For example, if you shop regularly at NeimanMarcus.com, a retailer could jump to the conclusion that you're more likely to buy at an expensive price point. Online retailers have even been known to use the income level of your zip code to determine the price they should offer. The fact of the matter is you leave a trail when you shop online, and retailers can tap into that trail in an effort to maximize their profits.
Here is what you need to know about dynamic pricing, along with ways to combat this legal pricing strategy.
1. Check If the Price Changes
So how do you go about determining if you're being duped by dynamic pricing? Here is one easy way to tell: After you look at an item online, decide not to buy it, but later return to the item, does the price get higher? If so, you're dealing with this pricing tactic.
Also, be sure to check the price on your mobile device, or conversely, on a laptop or desktop if you're already on a smartphone. Whether it's the price of an item on Amazon, or the price of a ticket on Orbitz, often retailers will offer a different price depending on your device. If the price changes, then you know you're also dealing with dynamic pricing.
Okay, so you've been able to determine you're dealing with a sneaky pricing tactic, so what can you do about it?
2. Browse in Incognito/Private Mode
By setting your browser to incognito or private mode, none of your browser history is stored on your computer. (Here is a good resource for learning how to set incognito mode on different browsers.) It should also be noted that just because you're in this mode you're not completely anonymous, as each website you visit still has access to your IP address. But they cannot change the price based on your buying and browsing history if you are in incognito or private mode.
3. Disable Third Party Cookies
By using browser cookies, which are tiny bits of information about your computer and browsing history, retailers can determine your likelihood to buy at certain price points. By disabling these third party cookies on your browser, you have essentially stopped online retailers from targeting you with advertisements and adjusting prices on items you've perused via those ads. Third party cookies can generally be blocked without causing any major disruptions in your browsing experience. This should be done in conjunction with browsing in incognito or private mode to maximize your results. Here is a good resource on how to disable cookies across multiple browsers.
4. Shop and Buy on Separate Browsers
Another easy way to avoid dynamic pricing is to simply shop from one browser and make your purchases from another. For example, read product reviews, do price comparisons, and search for coupons on your Firefox browser, then when you're ready to buy, fire up Google Chrome and make your purchase. By doing this you completely trick the online retailer as they think you're a brand new visitor, with no browsing history, and thus are less likely to jack up the price.
5. Enter a Different Zip Code
In recent years, retailers like Office Depot, Staples, and Home Depot have all used your zip code to track your geographical location in an effort to offer different prices to different shoppers. In other words, if you live in a zip code with a high median income, you stand a better chance of being hit by a higher price via dynamic pricing. A simple way to combat this is to enter a different zip code during the checkout process -- perhaps a neighboring zip code with a lower income level -- and see if the price changes. If the price does decrease, then clear your cookies, shop from a mobile device, or shop from a different browser. Only make your purchase when you have the lower price verified in your virtual shopping cart.
6. The Amazon Factor
Amazon is famous for constantly changing their prices based on the competition's price, your browsing and buying history, and a bunch of other factors they'll never disclose. Instead of trying to out-think the retail giant, learn to beat them at their own game. Do this by using the free website CamelCamelCamel which allows you to create "Amazon price drop alerts" on millions of products they sell. When the price drops on Amazon for a product you're tracking, you'll get an alert via email or Twitter. You also get access to the price history of over 18 million Amazon products to help you decide when the price is right. Don't let the strange name of this service fool you -- if you use it regularly, you'll never have to worry about getting overcharged by Amazon again.
As consumers, we have the right to shop with whomever we please. If you feel a website is dynamically raising the price on you, and you're unable to get the lower price, then simply boycott them and take your hard-earned dollars elsewhere. There will almost always be another website or brick and mortar store who can match or beat it.
Have you ever noticed a website changing the price on you? If so, did you decide to shop elsewhere or go ahead and make the purchase?
NEW YORK -- Four years after graduating from Syracuse University, Dan Kaplan's first priority each month is to pay his student loans, hindering his plan to save for an emergency fund or to buy a car.
After borrowing $25,000 for his bachelor's degree, the marketing and communications employee for a New York government organization shifted his spending and saving habits. Kaplan has maintained a "fairly strict, $300-a-month approach to my payments" and has allocated nearly all of his end-of-year bonuses from previous jobs and holiday gift money from family members toward the loan balance.
While this dedicated approach has helped him whittle down the amount of his debts so that they will be paid off by early 2016, Kaplan has also felt the strain of not having a personal rainy day fund for unexpected expenses or other goals such as buying a vehicle or "an eventual home of my own, which has really started to hit home as friends and family members around my age have begun buying these things."
Kaplan's struggle is becoming more commonplace as tuition costs have risen steadily and more students are borrowing money to fund their degrees, forcing many millennials to postpone purchases of a car or home or other milestones. A July survey conducted by Bankrate, the North Palm Beach, Florida-based financial content company, found that 56 percent of Gen-Yers with student loan debt delayed major life events because of their debt compared with 43 percent of older adults.
The most common event millennials were compelled to shelve was purchasing a home, followed closely by saving for retirement and buying an automobile. The survey also revealed that 28 percent of 18- to 29-year-olds have student loan debt compared with 41 percent of 30- to 49-year-olds.
Student Loans Affects Generation X, Too
"Student debt is often portrayed strictly as a millennial issue, but the truth is that Americans of all ages have put their lives on hold due to student debt," said Steve Pounds, a Bankrate.com analyst. "Delaying major life milestones such as buying a home or saving for retirement doesn't only affect the individual and his or her family, it also has effects on the overall economy."
Over half of the borrowers said they lacked receiving adequate information or advice about the ramifications of accruing the debt with 66 percent of millennials who voiced this sentiment.
Tips to Buy Your Car or First House
Waiting to conduct major purchases "may be a good thing actually and shows some solid restraint in our consumer-driven society," said J.J. Montanaro, a certified financial planner at USAA, the San Antonio, Texas-based financial institution.
Unfortunately, the weight of student loan debt could make additional obligations unrealistic or at least a source of financial stress.
"As a financial planner, my mantra is, 'If you can't do it right, it's not the right time to do it,' " he said. "Unfortunately, the weight of student loan debt could make additional obligations unrealistic or at least a source of financial stress."
Building up a savings account for emergencies or to fund other purchases down the road is critical for younger consumers, Montanaro said. Even nominal deposits help millennials get in the right mindset for the future.
"I'm a big fan of saving for the future and would love to see younger investors get things started, even if it's in a small way," he said. "Unlike the major budget commitments required to buy a home or car, it doesn't take a lot to start to build the savings habit."
Since his final student loan payment will be made early next year, Kaplan is already counting down the months until they are completely paid off and is already planning how he wants to allocate the extra money.
Budgeting Reduces Debt Faster
One unintended consequence of having student loans is that Kaplan learned to budget early on, "which is an essential life skill that I don't know if would have otherwise developed to the same extent."
"While the student loans can be frustrating in the short-term, the long-term benefits can't really be overstated," he said. "I think it's all been absolutely worth it, because there's simply no substitute for the experience I had at Syracuse. I simply wouldn't be where I am in my career today without those four years and to me, that's worth $25,000 any day."
Although student loans are a "roadblock" for millennials to save for larger purchases, the goal is to develop a plan to pay down the debt quickly, said Rachel Cruze, a Nashville, Tenn.-based author who educates students on staying out of debt.
"With some people facing $30,000 to $40,000 in student loan debt, it can be difficult to see past the loans," she said.
In addition to creating a budget and plan to pay off the loans, Gen-Yers need to make sacrifices. "Too many people keep student loans around for years, but I want millennials to get rid of them quickly," Cruze said. "By getting rid of these loans, you'll free up your money to buy a house or invest for retirement."
Paying off smaller debts first can help many millennials eliminate the debt, she said.
"Put all your extra money towards your smallest debt, while paying minimum payments on the other debts," Cruze said. "The 'debt snowball' gives you momentum and keeps you motivated."
Sacrifices such as eating out less or getting an extra job will give someone extra money to get rid of their student loans sooner, she said.
After serving in special operations in the Army with four combat deployments to Iraq and Afghanistan, Phillip Padilla, completed his undergraduate degree at UNC Chapel Hill. Since he had two years left on his GI Bill, the 30-year old Washington resident opted to continue his education by obtaining a master's degree at Georgetown University. Since the GI Bill only funds tuition at the "most expensive public school in a given state, the only public college is the city's community college," he said. This meant Padilla's tuition assistance was $5,000 a year even though Georgetown's tuition was $60,000 a year, leaving him no choice but to take on a large amount of debt to finance the degree.
While the advanced degree had "its rewards" since Padilla was recruited nearly immediately to work for a prestigious policy think tank, the choice has "come at a huge cost," he said. During the first two years one of the two paychecks Padilla received each month went "solely to paying off the student loans."
From 'Impossible' to 'Debilitating'
Although his monthly payments have been reduced to $1,200 from $2,200 due to the Pay As You Earn program, which is based on a borrower's income for federal student loans, Padilla said it has only changed his debt situation from "impossible" to "debilitating" as he continues to drive his 15-year-old truck and remains a renter.
"It has been a godsend, but it still hasn't changed the fundamental situation," he said. "The loan repayments effectively take away all of my disposable income. Buying a vehicle and saving money simply aren't possibilities."
The amount of his loans affected other decisions his wife and he made. While they were both eligible for unpaid parental leave after their first child was born recently, the loan repayments "keep us tethered to our desks," Padilla said.
Ensuring that his credit score is good is paramount for Padilla since he works in national security and a lapse in repayments could cause him to lose his job.
While it is not easy to gauge if his decision to take on such a debt burden was the right one, Padilla believes in the value of his education amid the setbacks.
"If I didn't take the loans, I wouldn't have gotten my position or my career in D.C.," he said. "However, my family and I have to forgo an awful lot."
That's the sacrifice of the student debt burden and the new normal many Americans are facing as they delay major purchases and get their financial house in order.
New Jersey homeowners pay a real estate property tax rate that's 8.5 times higher than that paid by Hawaii homeowners.
That's because New Jersey has the highest property tax rate in the country (2.8 percent of a home's value), and Hawaii has the lowest rate (0.28 percent), according to a recent analysis by the nonprofit think tank Tax Foundation.
The analysis of property tax rates on owner-occupied property is based on data from the U.S. Census Bureau and the Tax Foundation.
The states with the highest property tax rates according to the foundation's analysis are:
New Jersey: 2.38 percent of total home value
Illinois: 2.32 percent
New Hampshire: 2.15 percent
Connecticut: 1.98 percent
Wisconsin: 1.96 percent
The states with the lowest property tax rates are:
Before you relocate, though, keep in mind that property taxes are just one type of tax you will pay. Some states with high property taxes may have lower costs in other areas.
For example, while New Hampshire has the third-highest property tax rate in the country, it's one of the few states in the country without a statewide sales tax and one of the few that do not have an income tax, except on interest and dividends. (See "4 Things You Must Know About How States Tax Retirement.")
Additionally, the state you live in isn't the only factor that affects your property tax rate. For example, according to real estate data website RealtyTrac's latest annual U.S. property tax report, owners of both very high-end and very low-end homes often have the highest property tax rates:
Nationwide, the average effective property tax rate for all single family homes in 2014 was 1.29 percent, but the average effective property tax rate was 1.68 percent for homes valued $50,000 or below and 1.40 percent on homes valued between $50,000 and $100,000. Meanwhile the average effective property tax rate was 1.56 percent on homes valued $1 million to $2 million and 1.77 percent for homes valued $2 million to $5 million.
Ryan Remiorz/The Canadian Press via AP
Valeant Pharmaceuticals will pay about $1 billion in cash to buy Sprout Pharmaceuticals, the maker of the first prescription drug intended to boost sexual desire in women.
The deal comes one day after U.S. regulators approved the pill.
Valeant expects the pill, called Addyi, to be available in the United States in the fourth quarter. The acquisition of Sprout should close in this quarter.
The Food and Drug Administration's approval Wednesday of Addyi was a milestone long sought by drugmakers, which have made billions off impotence drugs for men.
For decades, pharmaceutical companies have tried unsuccessfully to develop a female equivalent to Viagra, the blockbuster drug that treats men's erectile dysfunction by increasing blood flow. But disorders of women's sexual desire have proven resistant to drugs that act on blood flow, hormones and other simple biological functions.
Sprout's drug acts on brain chemicals that affect food and appetite. The approval of Addyi, known generically as flibanserin, marks a turnaround for the FDA, which previously rejected the drug twice due to lackluster effectiveness and side effects.
Sales of the drug are expected to be affected by a strong warning label attached to it and an FDA-imposed safety plan for prescribing. The warning will alert doctors and patients to the risks of dangerously low blood pressure and fainting, especially when the pill is combined with alcohol.
Under the safety plan, doctors will only be able to prescribe Addyi after completing an online certification process that requires counseling patients about the drug's risks. Pharmacists also will need certification and be required to remind patients not to drink alcohol while taking the drug.
Valeant plans to pay about $500 million at closing for Raleigh, North Carolina-based Sprout. The Canadian drugmaker will then make another milestone-based payment of around $500 million in the first quarter of next year.
Privately held Sprout, which was spun off from Slate Pharmaceuticals, has been focused solely on developing a treatment for hypoactive sexual desire disorder. The drugmaker will become a division of Valeant. CEO Cindy Whitehead will join Valeant to oversee Addyi's global rollout.
Valeant Pharmaceuticals International (VRX) slipped $3.95 to $240.96 Thursday, shortly after markets opened amid a broader market sell-off.
David Paul Morris/Bloomberg via Getty ImagesFor Sale signs displayed in front of houses in San Francisco.By Lucia Mutikani
WASHINGTON -- Home resales rose to a near 8½-year high in July and factory activity in the Mid-Atlantic region picked up this month, fresh signs of steady economic growth that likely keeps the Federal Reserve on track to raise interest rates this year.
While other data Thursday showed a slight increase in the number of Americans filing new applications for unemployment benefits last week, the trend remained consistent with strong labor market momentum.
We continue to expect both economic growth and labor market activity to continue shifting higher...
"We continue to expect both economic growth and labor market activity to continue shifting higher, providing the justification for the Fed to begin the normalization in monetary policy in September," said Millan Mulraine, deputy chief economist at TD Securities in New York.
The National Association of Realtors said existing home sales increased 2 percent to an annual rate of 5.59 million units last month, the highest pace since February 2007.
Demand for housing is being boosted by a strengthening labor market. But supply remains tight, pushing up home prices and sidelining first-time buyers, who are a key part of a strong housing market. The share of first-time buyers fell to a six-month low of 28 percent last month.
There were 2.24 million unsold previously owned homes on the market in July, down 4.7 percent from a year ago. That pushed the median home price to $234,000, up 5.6 percent from the year-ago period. Although higher prices could curb sales, they are raising equity for many owners and boosting household wealth.
They also may encourage builders to ramp up construction, further boosting the economy. Housing starts rose to a near eight-year high in July.
"The market needs more new homes to be built to continue the momentum, so the trade-up buyers can find their next home and provide inventory for those looking to enter the home buying market," said Bill Banfield, vice president at Quicken Loans in Detroit.
In a separate report, the Federal Reserve Bank of Philadelphia said its business activity index increased to 8.3 this month from a reading of 5.7 in July. A reading above zero indicates expansion in the region's manufacturing. While demand for manufactured goods remained weak, shipments rebounded strongly and employment in the region's factories improved.
National manufacturing activity has been stymied by a strong dollar, weak global demand and the impact of lower oil prices on the energy sector.
Strong Data Streak
The data added to solid June employment, retail sales and industrial production reports that have suggested the economy got off to a strong start in the third quarter.
Gross domestic product expanded at a 2.3 percent annual pace in the second quarter. A strengthening economy could encourage Fed officials, who are worried about persistently low inflation, to tighten monetary policy this year.
Minutes from the Fed's July 28-29 policy meeting published Wednesday underscored policymakers' concerns about tame price pressures, and economists believe that has raised the bar for a September "lift-off" in the central bank's short-term lending rate.
Futures markets trimmed bets Wednesday for a rate hike next month.
U.S. stocks fell again Thursday on worries about global growth, with the housing index dropping 1.49 percent. Prices for longer-dated U.S. Treasuries rallied, while the dollar slipped against a basket of currencies.
In a third report, the Labor Department said initial claims for state unemployment benefits increased 4,000 to a seasonally adjusted 277,000 for the week ended Aug. 15.
The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose 5,500 to 271,500 last week.
It was the 21st straight week that the four-week average remained below the 300,000 threshold, which is usually associated with a strengthening labor market.
The claims data covered the week the government surveyed employers for the nonfarm payrolls portion of August's employment report. The four-week average of claims fell 7,000 between the July and August survey periods, suggesting another month of healthy job gains.
"These data show that companies are, for the most part, holding onto labor and reluctant to lay off workers," said John Ryding, chief economist at RDQ Economics in New York. "The data are for the August payroll survey week and suggest that the trend of solid job creation remains intact."
NEW YORK -- The biggest hurdle to a stronger economy is the lackluster wage growth during the current recovery, according to Richard Yamarone, a senior economist at Bloomberg.
Yamarone said the economy has been muddling along for years because the consumer isn't in the driver's seat. "Consumers are running in place," said Yamarone. "They're not making as much money and, adjusted for inflation, they're really not making a whole heckuva lot of money. And how do you facilitate trade or consumption? By how much money you bring in."
Yamarone said the lack of consumer spending power explains why GDP growth has been running in a range of 1.5 to 2.5 percent, which he believes is disappointing at this stage of the recovery.
"We're muddling along. It's not a strong thing, it's not a positive thing," he said. "We're just merely getting by." Ironically, consumers may have to shell out more for products and services in the months ahead.
Yamarone recently studied 300 quarterly earnings transcripts and found that companies are planning to raise prices because their own costs are going up. "They're facing higher price pressures from minimum wage legislation around particular areas of the country. They're seeing higher costs because of the Affordable Care Act," said Yamarone.
Admittedly, those higher costs may be offset by a drop in prices elsewhere, such as lower fuel costs. Still, Yamarone remains concerned about the pace of economic growth, especially as the Federal Reserve appears poised to raise interest rates next month.
Yamarone spoke with TheStreet's Rhonda Schaffler at Camp Kotok, an annual gathering of economists and money managers held each year in Maine. During Camp Kotok, an exclusive survey conducted by TheStreet found that 55 percent of those polled believe the Fed will raise rates in September.
Lionel Cironneau/APCoca-Cola Co. Chairman and CEO Muhtar KentBy CANDICE CHOI
NEW YORK -- NEW YORK -- Coca-Cola says it will start publishing information about its health and nutrition efforts after it was criticized for funding a group that many felt touted the company's message.
On Wednesday evening, Coca-Cola CEO Muhtar Kent said in an editorial published in The Wall Street Journal that he was disappointed that the company's actions have created "more confusion and mistrust." Moving forward, he said the company will publish "a list of health and well-being partnerships and research activities" the company has funded in the past five years.
That information will be updated every six months, he said.
The Atlanta-based company came under fire after a New York Times story on Aug. 9 that detailed how Coca-Cola Co. (KO) gave $1.5 million to help start the Global Energy Balance Network. The story said the group promotes the idea that people are overly fixated on how much they're eating, rather than how much exercising.
In a video announcing the group, Steven Blair, a professor at the University of South Carolina and vice president of the network, noted the media focuses on "eating too much, eating too much, eating too much -- blaming fast food, blaming sugary drinks, and so on. And there's really virtually no compelling evidence that that, in fact, is the cause."
Later in the video, Blair said people are getting fatter, but that the "we don't really know the cause, other than, well, too many people are eating more calories than they burn on too many days. But maybe the reason they're eating more calories than they need is because they're not burning many."
Yoni Freedhoff, a nutrition and obesity expert at the University of Ottawa, said that it has become common for food companies to deflect criticism about their products by talking about the need for physical activity.
" 'Energy balance' is a term that the food industry has been using for a while," he said.
Freedhoff learned about the group after noticing Coca-Cola's chief science and health officer mention it on Twitter. When he went to the group's website, however, Freedhoff said he couldn't find information on its funding source.
That information was posted soon after he pointed out the oversight to the group, Freedhoff said.
A disclosure at the bottom of the group's "About" page now states that it gets support from various entities, including an "unrestricted grant from The Coca-Cola Company."
After The New York Times ran its story, the network said in a statement that the suggestion that its work promotes "the idea that exercise is more important than diet in addressing obesity vastly oversimplifies this complex issue."
Coca-Cola also published a piece on its website by its chief technical officer, Ed Hays, calling the story's portrayal of the company "inaccurate." Hays dismissed the idea Coca-Cola funds research to convince people that "diets don't matter."
A representative for Coca-Cola said the company expects to release the first wave of information on its health and wellness efforts "within the next few weeks." The company said it will also post information about its work with individuals.
Earlier this year, The Associated Press reported that Coca-Cola worked with multiple health experts who wrote online posts for American Hearth Month in February, with each including a mini-Coke or other soda as a snack idea. At the time, Coca-Cola said it wanted to help people "make decisions that are right for them." Like others in the industry, it said it works with experts to "bring context to the latest facts and science around our products and ingredients."
In addition to outlining such relationships, Coca-Cola said it will form an oversight committee of independents experts to advise it on investments on academic research.
Buying fresh foods from the farmers' market doesn't have to spoil your savings. There are many great ways to preserve your food that go beyond freezing and pickling.
For instance, you can "heat shock" produce like berries, peaches and even asparagus. Simply fill a bowl with water that's 130°F and submerge the produce for about 30 seconds. Next, carefully drain the food and gently spin it dry in a salad spinner lined with paper towels. After that, just store the food in the refrigerator and you're done.
Doing this will keep your produce mold-free for several days longer than their unwashed counterparts. It's that easy.
Preserve your greens from the farmers' market and you can preserve the green in your wallet.
NEW YORK -- The S&P 500 hit a more than six-month low, closing in negative territory Thursday for the year, on concern a deceleration in China's economy would translate into slower global growth.
Consumer stocks led the decline on Wall Street with Disney down 6 percent after a brokerage downgrade, while Apple fell 2 percent after a report that overall smartphone sales in China fell in the second quarter.
Lingering concern over the Chinese economy was underscored by a near 8 percent slide in a major stock index so far this week and after the Commerce Ministry said Wednesday exports could continue falling in coming months.
The largest issue is certainly the fact that we don't know how much the Chinese economy is slowing.
"The largest issue is certainly the fact that we don't know how much the Chinese economy is slowing," said Art Hogan, chief market strategist at Wunderlich Securities in New York.
"That's manifesting itself in lower oil prices," he said, pointing to the correlation between stocks and crude futures.
U.S. crude edged higher after earlier hitting its lowest since March 2009, while Brent dropped 2.3 percent to hit its lowest since January.
The 14-day correlation between the S&P 500 and Brent prices is at a five-month high.
The Dow Jones industrial average (^DJI) fell 358.04 points, or 2.1 percent, to 16,990.69, the Standard & Poor's 500 index (^GSPC) lost 43.88 points, or 2.1 percent, to 2,035.73 and the Nasdaq composite (^IXIC) dropped 141.56 points, or 2.8 percent, to 4,877.49.
The S&P 500 and Dow posted their largest daily percentage drops since Feb. 3, 2014, while the Nasdaq had its biggest loss since April 10, 2014.
The S&P 500 is now down 1.1 percent year-to-date. It also traded below its 200-day moving average for the full session, something not seen since last October.
At Thursday's session low, the S&P 500 was down 4.6 percent from its record intraday high set in late May.
Media Slump
Disney (DIS) slumped 6 percent to $100.02 and Time Warner (TWX) fell 5 percent to $73.90, leading a rout in media stocks after a Bernstein downgrade that cited a massive structural upheaval in the industry.
"The pattern didn't change overnight but it got called by Disney for the first time on their earnings," said Hogan.
Disney shares have fallen 17.8 percent since reporting earnings earlier this month.
Apple (AAPL) fell 2.1 percent to $112.65 after a Gartner (IT) report said China smartphone sales fell for the first time ever on a quarterly basis in the second quarter. Apple counts China as a key growth market.
One bright spot in tech stocks was NetApp (NTAP), up 3.4 percent to $30.78 after the data storage equipment-maker's results beat expectations.
NYSE declining issues outnumbered advancers 2,612 to 457, for a 5.72-to-1 ratio; on the Nasdaq, 2,396 issues fell and 437 advanced, for a 5.48-to-1 ratio favoring decliners.
The S&P 500 posted 4 new 52-week highs and 40 new lows; the Nasdaq composite recorded 16 new highs and 208 new lows. About 7.9 billion shares changed hands on U.S. exchanges, above the 6.7 billion daily average so far this month according to BATS Global Markets data.
What to watch Friday:
Markit releases the manufacturing purchasing managers flash index for August at 9:45 a.m. Eastern time.
Earnings Season
Deere & Co. (DE) and FootLocker (FL) are scheduled to release quarterly financial results before U.S. stock markets open.
Getty Images
I don't just write about money matters. I also teach and perform improvisational comedy. It started out as a fun escape, an entertaining way to improve my public speaking skills and keep my mind sharp. It evolved into a passion, and now I'm one of the five owners of Just The Funny, the largest dedicated improv theater in Miami.
Improv isn't just for folks hoping to get on "Saturday Night Live." I've taught lawyers, college students and even fellow financial writers performance skills that can extend beyond the scenes crafted on the fly based on audience suggestions. Improv comedy has plenty of real-life applications -- and that also includes making smart investors even smarter.
Let's go over a few of the improv tenets that can also apply to mastering the market.
1. Yes, and...
These are the two words that folks typically associate with a two-person improv scene. You don't deny your fellow improviser. Whatever is said on stage is immediately true. If he says that you're an army private in Peru with a case of the munchies, that's who you are. If you kick off a scene by telling your partner to beware of falling rocks and you call her your mother, then you're in an avalanche with your mom.
The key at that point is to take your scene initiation and build on it. If you're a militant in Peru and you're hungry, you might start looking for a place to eat or start rummaging through your pockets for that protein bar. Ideally, you would also flesh out your partner's character, returning the favor.
It's easy to see how "Yes, and" can play a part in assessing any investing situation. The market's going to throw some unexpected things at you. A company whose stock you own can lower its financial guidance. Your mutual fund's manager can quit. It's all true; build on it. Do you follow your fund manager to her next post? Do you stick it out because the co-manager's still there? Do you cash out and start your own fund? As long as you don't deny the reality offered, there is no wrong answer. There are no mistakes in improv.
2. Bring a Brick, Not a Cathedral
Improvisers will be quick to point out that they don't like to perform with people who hog scenes. You don't want to share the stage with someone who initiates a scene by offering a dozen nuggets of information before you get a say. The two of you are supposed to build the scene together. You bring a brick and together you build the cathedral.
That's another meaty morsel that can serve you well as an investor. Don't try to go it alone. Don't just rely on your own perspective. Fish out other vantage points, even if they differ from yours. Spend time on online forums. Read what different financial writers have to say about a stock that you own or are considering owning. Respect opposing views, and actively seek them out so you don't fool yourself with confirmation bias. You can't assume that you know everything; you don't. Nobody knows everything.
3. Stay in the Moment
Improvisers often remind one another to be present. "Stay in the moment," one might advise before going on stage. Don't think too far ahead in a scene, since nothing is scripted. Don't dwell in the past, because that's been merely the buildup to where a scene is in real time. Let go. React to what's happening in the here and now.
This also applies to investing. You can't fall in love with a stock based on what it did in the past. Microsoft (MSFT) did some pretty amazing things in taking PCs to the masses, but is Windows as relevant now in an era where the vast majority of smartphones and tablets run Android or iOS? McDonald's (MCD) revolutionized the restaurant industry, but after several quarters of negative comps, it's now more of a laggard than a leader. Always value the current situation more than historical tendencies. Wall Street's short-term memory makes the here and now more critical than anything else.
The kids are all right -- or at least they will be. The oldest of the millennials, loosely defined as those born between 1981 and the turn of the century, are approaching 35. And as the generation matures and enters its prime wealth-building years, reality is setting in about long life expectancies and the solvency of Social Security. According to Bankrate's latest survey of investing professionals, three-quarters of the market gurus polled agree that millennials are ready to take on more risk and invest in stocks in order to afford the things they want, including eventual retirement.
In fact, TD Ameritrade reports that among its customers, two-thirds of the typical millennial portfolio is already invested in individual stocks. "Young investors are stock pickers," says Nicole Sherrod, managing director of the trader group at TD Ameritrade. "And from what we see of the stocks that they've been investing in en masse, they're doing pretty well."
Which stocks do they like? It turns out that, despite reports of their many differences, millennials and baby boomers have similar investing tastes. According to Openfolio, a social media network where investors can share and compare their portfolios, six of the top 10 stocks held by people ages 25 to 34 are also favorites of folks 50 to 64: Apple, Facebook, Walt Disney, General Electric, Microsoft (MSFT) and Google (GOOG).
Popular Stocks Among Millennials
Apple (symbol AAPL, $115.15) is the top holding across all generations, according to both Openfolio and TD Ameritrade. Millennials seem particularly enamored. Apple is often the first stock trade for investors of this generation, says Sherrod. Its popularity should be no surprise to anyone who has noticed that the stock has more than tripled in value over the past five years. Less expected: It remains relatively affordable. The stock sells at 12 times estimated year-ahead earnings. That's cheaper than the 17 forward price-earnings ratio of Standard & Poor's 500 stock index (^GSPC).
Apple promises to continue its rise as the company consistently churns out upgrades, as well as new products. Anthony David, a Washington, D.C.-based financial adviser with Morgan Stanley, points to high demand for both the iPhone and new Apple Watch to support Morgan Stanley's 12- to 18-month price target of $155, an aggressive one-third above the stock's mid August price of $115. In the quarter that ended in June, the company sold more than 47 million iPhones, now in its 10th iteration. That's 35 percent more than during the same period in 2014. Those sales totaled $31.4 billion, 59 percent more than the product earned the year before. The Apple Watch is off to a good start. After being introduced in the U.S. in April, it sold 20 percent more pieces than first-generation iPhones did in its first six weeks.
Facebook (FB, $93.43) is the second-most popular stock among millennials, according to TD Ameritrade. (According to Openfolio, it's second among 25- to 34-year-olds and third among investors under the age of 25.) Like Apple, its popularity is evident in the skyrocketing price. Since its initial public offering at $38 in May 2012, Facebook's stock sank to a low of $18 that September but has since soared to near $100. And it still might have room to run. The site may be relatively old in the social media world, but "it is still early days in the company's effort to grow as an industry-leading global advertising business," says David.
The social network does hold the attention of a growing number of users. In the second quarter of 2015, the site reported 968 million people actively using it on a daily basis, up 17 percent from the year before. The number of daily visitors using a mobile device has grown at an even faster pace, 29 percent to 844 million. All those eyeballs mean big money for the company. Advertising revenue totaled more than $3.8 billion in the second quarter of the year, up 43 percent from the same period of 2014. Mobile ads count for 76 percent of those dollars; in 2014, it was 62 percent. Analysts expect sales to increase 38 percent this year and another 35 percent in 2016. Morgan Stanley raised Facebook's 12- to 18-month price target to $110 from $94.
Old Favorite
A surprisingly popular stock among millennials is General Electric (GE, $25.79). Founded in 1892, it may not be the sexy company you'd think would attract young investors. It's more like the stable suitor their parents might keep mentioning at family dinners. According to TD Ameritrade, it's the third-most popular stock among millennials and second-most popular with boomers. "I think probably it's a brand that their parents have recommended to them, a company that their parents have been invested in for a really long time," says Sherrod. (Openfolio ranks GE sixth in popularity among investors under 35.)
It just goes to show that sometimes your parents really do know what's best for you. With the ongoing sale of its financial-services unit, GE Capital, the company is returning to its industrial roots and raising cash in the process. The company has reached agreements to sell about $78 billion worth of its financial-services assets so far in 2015, putting it on track to hit $100 billion in asset sales by the end of the year. GE's core industrial operations demonstrated year-over-year improvement during the second quarter. Analysts expect earnings will increase by about 19 percent in 2016. The stock sells at 18 times estimated year-ahead earnings, versus a P/E of 17 for the S&P 500. Plus, even if young investors aren't all that interested in income at the moment, GE's current yield is 3.5 percent.
Our younger investors tend to look for companies that are a little bit more socially responsible.
One company that younger and older investors don't quite agree on is Tesla (TSLA, $242.51). According to Openfolio, it ranks second in popularity among investors under 25 and third for investors ages 25 to 34. Yet, it's just 24th for 50-to-64-year-olds, and it doesn't even appear in the 25 top stocks for investors over age 65. "Our younger investors tend to look for companies that are a little bit more socially responsible," says TD Ameritrade's Sherrod. "Tesla is doing a lot in the green space with electric cars."
Given each generation's investing time horizon, Tesla's popularity, or lack thereof, makes sense. In the short term, Tesla expects losses as it invests in developing new technology and ramping up production. And the stock is very pricey at 181 times year-ahead earnings. But, says David, analyzing the stock based just on near-term expectations won't work.
In the long run, the company is poised to transform the energy and auto industries and to boost sales exponentially. Morgan Stanley expects Tesla could multiply its revenues by 18 times by 2029. The company expects its Gigafactory outside Reno, Nevada, to be fully operational by 2020. At that time, the facility, where Tesla is set to make its lithium-ion battery packs, will boost production to 500,000 vehicles a year. In 2015, it expects to deliver 55,000 vehicles. Tesla's base Model S sedan starts at $75,000, though options can easily push the price tag into six figures.
A Word of Warning
While the stock market is the place to build wealth over very long periods of time, buying individual stocks comes with risks. "I wouldn't recommend young people touch individual stocks," says David. "They usually won't have sufficient funds to diversify properly." Indeed, you'd need nearly $500 in order to buy just a single share of each of the four companies listed above.
And you would be nowhere near a well-diversified portfolio. After all, a large position in any single company allows it to have a great impact on your wealth. If that company tanks for any reason, so do you. For a proper mix, you should limit your stake in any one company to between 2 and 5 percent of your portfolio, meaning you'd need to invest in at least 20 holdings. John Sweeney, executive vice president of retirement and investing strategies at Fidelity, recommends a minimum of about 40 stocks to build a well-diversified portfolio.
A high concentration in a single sector can also be a concern. Millennial investors have nearly one-third of their portfolios in technology companies, according to TD Ameritrade. Baby boomers and seniors have just 26.9 and 19.2 percent of their investments, respectively, in tech. By comparison, 19.8 percent of the S&P 500 is composed of tech companies. "I think that's a function of the brands that they're really familiar with do tend to be tech brands," says Sherrod.
Investing in mutual funds is a simpler way to reap the benefits of the stock market. With a single purchase, you can invest in hundreds of stocks and dampen the risk. Plus, you can still buy a stake in a company you like. "When I have someone really interested in investing in, say, Apple, I let them know there are a whole host of low-cost mutual funds and ETFs that hold a piece of Apple along with a lot of other companies," says Karen Carr, a financial planner with the Society of Grownups, based in Brookline, Massachusetts. "So you're getting the best of both worlds there."
Take a look at the Kip 25 to see our favorite low-cost, no-load funds. No matter what your age, it's a great place to start.
If you're thinking now's the time to pull the trigger on a home purchase, you'll be jumping in at a time when housing prices are rising, and in some markets, you may find yourself competing with other buyers for a property you want. All the more reason to think carefully about how much house you can afford.
Consider this recent email:
Dear Stacy,
Like most Americans, my dream was to own a house. My goal was to do it before 30. Well, I turned 30 this January and still have not gotten my first house. After reading your book "Life Or Debt 2010," I have slowly climbed out of deep student debt -- I had over $15,000 on just one loan.
My question is: Do you think a house that's $110,000 with yearly taxes in the $4,200 range is too much for a person making $34,000 a year? I currently have $10,000 saved for closing costs and hopefully some down payment. The VA loans don't require a down payment, but I never want to be in debt again!
My parents told me that's a normal tax range here in Buffalo, New York. I am going back to school towards a degree in accounting, so I'll hopefully make more after school is over. (I'm going back to school free on GI Bill.)
Also, with the VA loan there is no PMI. Should I keep saving until I have a more sizable down payment? Or buy the amazingly priced 1,900-square-foot home or one of the others like it in my area?
-- Chris
Now let's add more detail on Chris' situation, as well as my advice.
How to Figure Out How Much House You Can Afford
No matter how good the deal or strong the desire, buying anything you can't afford is traveling down the road to ruin.
Let's start with one of a plethora of online calculators available to answer this question. I used this one from Bankrate, but there's also one at Zillow and many other sites.
Here are the questions it asked, along with the answers I provided for Chris:
Income and expenses: Annual Income: $34,000; monthly child support: $0; monthly car loan: $0; monthly credit card payments: $0; monthly association fees: $0; other monthly obligations: $0.
Mortgage assumptions: Annual interest rate: 4 percent; mortgage term: 30 years; down payment: $5,000 (I assumed he'd use half his available savings for the down payment, half for closing costs); annual property taxes: $4,200; annual insurance: $500 (I pulled this number out of the air).
Result: The maximum house Chris can afford is $89,134. As you can see, the $110,000 house Chris has his eye on is a bit out of reach. And that's in the best-case scenario, since I assumed he has no other debts or monthly obligations.
This occurred because most lenders cap the maximum you spend on a mortgage payment (including taxes and insurance) at 28 percent of your gross monthly income. Chris' income is about $2,800 monthly, and 28 percent of that is about $790, which would allow Chris to support a mortgage of around $84,000. Add his $5,000 down payment, and you end up with $89,000.
What should Chris do?
Here are several options Chris could consider:
Get a Partner
I bought my first house in 1978 at the age of 22. It was a four-bedroom, two-bath home with a pool. The cost was $85,500 and my income was -- believe it or not -- $12,000 a year. How did I do it? I went in on the house with a friend. Together, we were able to come up with the down payment, and because the seller owned it free and clear, they carried back the mortgage so we didn't have to qualify for a loan. After we moved in, we rented the remaining bedrooms to other friends to make ends meet.
I'm still using a version of that technique today. In 2012, I bought a house with a friend. This one was more expensive, neither of us will live in it, and we paid cash. But the principle is the same: Bringing in a partner requires half the money and results in half the risk.
The potential nightmare of choosing the wrong person for any financial partnership should be obvious and therefore approached with extreme caution. (My rule of thumb: Never partner with anyone with less money than you.) But at least it's something to consider.
Buy a Cheaper House
If Chris can buy a 1,900-square-foot house for $110,000, he can surely find something livable for less. He doesn't say whether he needs that much space -- we don't know if he has a family, for example -- but that's a lot of house for one person.
One of the dumbest things Americans do is buy the biggest, fanciest things they can possibly afford. And nowhere is this mistake more evident than in home shopping. When you work with a real estate agent, the first thing many do is what I did with Chris above: use a formula to determine the most expensive house possible. They then proceed to show you houses at that upper limit and often above it. Result? You let vanity replace common sense, buy more house than you need, leave no margin for error, and end up furnishing, heating, cooling, maintaining and paying taxes on rooms you don't use. Dumb.
Granted, because of the leverage offered by real estate, there's an argument to be made for buying as much property as you can, especially if your goal is to maximize returns. But if you're buying simply because you want your piece of the American dream, determine what you need (as opposed to want) and spend as little as possible to get it. There's no reason to create unnecessary risk by over-leveraging.
Wait
Housing prices are going up, and going up more quickly than others in some places, but sometimes it's better to wait. It gives you time to save more for a larger down payment, and maybe get a promotion at work that comes with a bigger paycheck. Something to think about, especially considering houses require time, and he'll soon be working and going to school.
Bottom line? My advice to Chris is to either somehow share the cost, set his sights a bit lower price-wise, or wait until he has more money and more time.
Ari Cetron contributed to this report.
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There's nothing you won't do for your pet -- but wait until you see the vet bill. Americans will spend nearly $16 billion on veterinary care in 2015, according to the American Pet Products Association. The industry group's annual pet owners survey found that an average of $235 goes toward routine vet visits for dogs and $196 for cats.
The total doesn't include non-routine expenses such as surgical vet visits: $551 and $398 a year on average for dogs and cats, respectively. Although pet insurance is an option, most pet owners pay for everything, from screenings to major surgery, out of their own pockets. If veterinary expenses have left you feeling a bit ill yourself, try these money-saving tips.
Shop around before choosing a vet. Veterinarians charge a surprisingly broad array of prices for the same services, even in the same location. Cheapism.com found that the fee for neutering a pet in southern Connecticut, for example, ranges from a couple hundred dollars to nearly $1,000. Before settling on a vet, make calls and ask plenty of questions regarding prices for a variety of services.
Look for wellness care packages. Keeping pets healthy is the easiest way to avoid costly problems and save money in the long run. Annual checkups and yearly vaccines are a must, but look into money-saving options first. Pet insurance may cover some preventative care, and some vets offer wellness packages that save a good chunk of change compared with paying separately for each vaccine or exam. Some wellness plans, such as those from PetSmart's Banfield Pet Hospital, include discounts on products and services not covered by the plan.
Look into veterinary discount programs. Depending on the age and stage of your pet (in particular, very young or elderly), visits to the vet may pile up. With a discount program, pet owners pay a monthly or flat fee to get reduced prices on services and visits at participating providers. Pet Assure is one of the better-known discount programs and offers packages for as low as $7.95 a month. Beware, though -- Pet Assure and similar programs may not apply for major medical problems, and not all veterinarians participate.
Give pets plenty of exercise. Aside from preventing problems such as obesity, regular exercise can keep pets from becoming bored, a state that can lead to destructive behavior, such as eating things they shouldn't. (Seems we all know of a pup that's downed a sock or devoured a piece of furniture.) This can prompt exorbitant emergency medical bills and surgery that could have been prevented.
Keep up on heartworm, flea and tick treatments. Regular doses of preventative treatments can help avoid the cost of actually treating problems such as heartworm disease, Lyme disease, or fleas (which can spread throughout the home). These medicines are available at the vet's office, but Amazon and Costco also sell them, so compare prices before stocking up.
Feed your pet well. In the interest of your pet's long-term health, don't just pick up the cheapest bag of food at the grocery store. Like humans, pets need a balanced diet. Cheapism's guide to the best budget dog food includes both canned and dry varieties. The website Dog Food Advisor maintains a comprehensive list of highly rated brands.
Look for vets with emergency hours. Should an after-hours pet emergency arise, owners may get stuck at the local animal ER, which can cost a small fortune. To avoid these types of bills, do some advance research to find out if any vets in the area have emergency, weekend, or late hours, where a visit may end up costing much less than the ER.
Question recommended treatments. In addition to the basics (e.g., vaccines and diet), there are a host of other treatments that may or may not be necessary for optimum health. Question the vet thoroughly on any recommendations before jumping in. For example, a canine influenza vaccine was recently introduced, but the American Veterinary Medical Foundation advises it is not necessary for every dog.
Don't be shy about saying 'no.' X-rays, ultrasounds, and the like can be extremely expensive, and your pet may not always need them. Some vets may recommend the most expensive course of action first, so always ask about alternative, less costly treatment options.
Request an itemized bill. Ask the vet for an itemized quote at every appointment and take a close look at the charges. Even if you can't dispute the bill this time, you'll have a better idea of services or fees that seem to be "extras" you can refuse next time.
Do you feel as if you'll be in debt forever? You're not alone. According to a survey commissioned by CreditCards.com, 13 percent of Americans say they'll never pay off all their loans, and another 8 percent say they won't pay off what they owe until they're at least 71 years old. That's a discouragingly large number of people who consider themselves stuck in debt with no way out.
If you're in this situation, step back, set aside the despair and ask yourself how you got here in the first place. Here are 10 common reasons people fall deep into debt and can't get out of it. Identify the reasons that apply to you, then formulate a plan using our effective strategies to conquer the root causes of your debt.
Fabrizio Costantini/Bloomberg via Getty Images2008 Honda Accord
DETROIT -- U.S. auto safety regulators are investigating reports that air bags on some older Honda Accords may not inflate in a crash.
The probe by the National Highway Traffic Safety Administration covers about 384,000 cars from the 2008 model year.
The agency says in documents posted Friday that it received 19 consumer complaints that the air bag control computer failed in the Accord, which then was Honda's (HMC) top-selling model.
A driver in Belleview, Florida, was injured when his car hit a concrete wall at 50 miles per hour and the air bags didn't inflate, according to a complaint filed with the agency. Several others complained that the computer had to be replaced to fix the problem and they were charged around $500.
"This also means that the safety of the vehicle passengers and operators are in jeopardy and potentially face serious injury or death," another complainant wrote. People filing complaints are not identified in the agency's database.
The agency says the malfunction causes the air bag warning light to illuminate on the dashboard and disables the air bags until repairs are made. Investigators will look into how often the problem happens and decide if a recall is needed.
Honda said it is cooperating with the investigation and will continue an internal review. The investigation is based on a small number of complaints, the company said in a statement.
Buying fresh foods from the farmers' market doesn't have to spoil your savings. There are many great ways to preserve your food that go beyond freezing and pickling.
