Asset Planning, Inc Blog

If you have not been to www.zillow.com, I invite you to visit the site. Enter your own address and view the facts on your home. You may claim the home as your own and modify the facts the site has on record. You may have added rooms or had improvements to your home that are not reflected in the market value.

I listened to the CEO of Zillow speak this morning and heard some interesting things. He said that 50% of all current home sales are short sales or homes in foreclosure. Another fact: 30% of homeowners are ready to put their home on the market to sell but are still waiting for a better time. The average American homeowner moves every five to seven years. So, those homeowners that wanted to sell their homes up to two years ago are still hanging on, waiting to get a better price.

Zillow estimates are updated three times per week as home sales rise in value or nearby homes are sold.

21.8% of all homes are underwater right now, meaning the home value is less than the mortgage owed on the property. I have heard that banks are holding between 500,000 and 600,000 properties in inventory without putting foreclosure signs on them, for fear of flooding the market. The housing market is picking up but lending standards are very tight, with verification of every document and account. Rates on the 30 year mortgage are very volatile, moving up within the week.

People are out shopping for good deals. The LA Times profiled several couples trying to buy a home and some homes had up to 80 offers on them. Open house days are crazy with people filing in and out of houses, looking for deals. I have heard Dr Adibi say the next wave of foreclosures will begin this summer and this wave is the upper tier of mortgages. These loans were with documented incomes, and many were made with adjustable rates, now ready to reset to higher percents than the teaser rates they purchased.

While all of this is indicating the bottom of the housing market may not be near, I have ventured into the water and I am in escrow on a new house. The economy is looking better, the markets have improved and I will be able to walk to work from the new house. So, I am doing my part to reduce gas emissions from my car!

Sandy

March 6th was the low market point of the first quarter of 2009. We have had six weeks of gains since that low point in March. The S&P 500 has rallied approximately 29% from that low. It is nice to see companies begin to beat earnings estimates and they release sales numbers in this quarter. The rally has been led by the financials, and several banks have posted profits. American Express surged 21% after they released better than expected earnings. Even with the recent rally, we are still below where the year ended in 2008 and the S & P 500 is 37 points, or 4% below the December end.

We are not out of the woods yet and I expect a pullback from this recent rally. That said, it could be short lived if earnings estimates continue to surprise with good numbers. The mood of investors is starting to lean toward positive as things are progressing through Spring. As Treasury Secretary Tim Geithner released the bank stress test results, the market was relieved that more banks do not need more funding and that most US banks are well capitalized. The Federal Reserve released a white paper, saying "Most U.S. banking organizations currently have capital levels well in excess of the amount required to be well capitalized. However, losses associated with the deepening recession and financial market turmoil have substantially reduced the capital of some banks."
Several banks shares gained as the results of the stress tests were announced.

This weekend the meeting of G7 and G20 will be held in Washington. These are the leaders of the world who are shaping our response to the global financial crisis. May it be a productive meeting!

Sandy

Property Taxes
If your home has fallen in value, you can request a property tax reassessment if you think the appraised value exceeds the estimated market value. This may help you save on reduced property taxes. You may contact us for help on this or refer to a past blog posted by Carol, who outlines how to do it at no cost.

Travel
For those that are traveling, very good deals on hotels and airfares are plentiful. Check out www.kayak.com and www.yapta.com to watch airfares. You set the parameters of the trip you want to take and they watch the fares on multiple airlines and email you a summary when the price drops or increases. They also find flights, hotels, email alerts and help you get refunds from airlines when fares drop.

Refinance
Look at refinancing your mortgage as interest rates are very low. Several clients and staff have taken advantage of these new low rates but lending is still somewhat restricted. Be prepared to show all documentation of income, etc. This is the way lending should have been over the past several years.

Utilities
Talk to your service providers such as your cell phone, cable TV, Internet, and land line to see if you can bundle your services together for a cheaper overall price. Ask if your monthly service fee can be reduced to match any promotions currently being offered.

Memberships
Review your gym and other memberships and cancel, freeze or downgrade if you can save money. Costco offers two year memberships for 24 Hour Fitness that are cheaper than buying directly from 24 Hour. 24 Hour Fitness also offers a restricted membership for a cheaper price where you can work out only three times per week. I see many of my clients in the 24 Hour Fitness where I work out- all on a regular basis. It certainly helps combat the stress of the uncertain economy and stock market.

Sandy

Yesterday, the Federal Reserve announced its plan to buy up to $300 billion of long term government bonds and $750 billion in additional mortgage-backed securities plus they are keeping the federal funds rate between 0% and .25%.  This is likely to produce a drop in mortgage rates.  The rates today are under 5% and might go to 4%.

What does this mean?  Basically, if you have a good job, solid credit and you have 20% equity in your home you should consider refinancing.  You need to consider how much it would cost to refinance – points paid, appraisal fees, title insurance, etc. vs. how much you would save in the long run.  How much longer is the term on your current home? Does it make sense to start a new 30 year term loan?  Every situation is unique.  For example, it makes sense for me.  My current loan is only 3 years old and if I just refinance my current balance (and not take any cash out) I will lower my monthly payments by $1,000/month.  The extra cash flow will be great as my expenses will be increasing as my children get older and enter college in the next few years.  Every situation is unique and should be evaluated as such.

This also is a good time for 1^st time home buyers to take advantage of the low rates and the $8,000 tax credit.  The criteria for getting a loan is much harder because the banks learned their lesson and don’t want to be stuck with bad loans.  This is good because that should keep home prices from rising as dramatically as they did from 2004-2007.  Prices should rise gradually now.

This action by the Fed will also likely weaken the dollar and increase inflation in the future.  Commodity prices will likely rise as investors anticipate the rise in inflation.  Prices for gold and crude oil have all risen sharply since the Fed announcement.

This brings a very nice close to this week. We had four positive days (green numbers) in a row. For the week, the S&P and NASDAQ were up 10%, the Dow was up 9.%.

Healthcare stocks were leading with merger news of several large pharmaceuticals. Banks rebounded off their lows this week when Citibank and Bank of America both released news that they have made a profit in the first two months of the year. The financial and housing recovery is key to the market recovery.

Even better news is that GM will not need another 2 Billion dollars in bailout money as their restructuring is beginning to work. So, signs of life are beginning to show, like seedlings poking up through the snow in early spring. There is still much thawing needed but maybe Spring really is around the corner.

Bernacke made a statement on Tuesday that growth may resume by year end. That would be the best present Santa could bring.

Sandy

As headlines persist that the Dow is going up, down or sideways,  I have begun to hear some optimistic comments here and there. One such comment was today by Federal Reserve Bank President Jeffrey Lacker. He was interviewed on CNBC this morning as said the US economy looks dismal in the short term but should return to growth by year end, as the housing markets finally reach some sort of equilibrium. 

"I'm expecting a bottom at the end of the year and a little bit of positive growth," Lacker said. "It does seem likely that we're going to see some sort of equilibrium emerge in the housing market in the latter part of the year." He is a voting member of the Federal Open Market Committee in 2009. He said he is fine with the Fed's current stance on monetary policy and expects the fed funds rate to be near zero for some time.

I continue to believe the root of the problem is the housing market and that is where the primary focus from Washington should be. I think the banks need to adapt and quickly rewrite the loans of their clients to keep the people in their homes. The banks do not want to own any more foreclosed properties than they already have. Re-write the loans to a new forty or fifty year loan if that is what needs to be done to make the fully amortized payment  a cost the consumer can afford to pay. Let the focus be to keep the consumer in their home.

Sandy

There is a theory called Dogs of the Dow that has you buy the 10 lowest value stocks of the Dow at year end and hold them one year. The theory is that those ten stocks will rise to the top over the following year. 

What has happened to the Dow 30 this year? Why had it fallen so far? Well, for roughly $75, you can buy one share of Alcoa, Bank of America, Citibank, General Motors, GE, Intel, Micorsoft, Pfizer and Disney. All of them are worth less than a collective $75. How can that be? Well, the financials have fallen to the bottom because we don't know if the banks are viable or not.  They have to undergo a stress test by Dr Tim Geithner to tell us if they are alive or dead. Those will not be finished until April. GM is dead, along with Ford and Chrysler. Tech spending is cut back for Intel and Microsoft as companies conserve. Disneyland is busy and attendance is good, yet Disney stock is cut in half.

The funny thing is that I went to the mall twice over the weekend. I hate shopping and hate going to the mall. The mall was packed both days. The parking was at the far end of the parking lots. I went to brunch on Sunday morning and it was overflowing with a 30 minute wait.  I don't cook so I do eat out a lot and the restaurants that I have been in have all been busy. I see consumers spending yet the news and the market seem to indicate we are all hoarding dollars, afraid to spend. A client I saw this morning told me of a store with women waiting in line to buy shoes that cost $6,500. That is insane to pay that, in good times or bad.

I know jobs have been lost by some of my clients and those around me. But I still see a disconnet. I did a triathlon in Los Alamitos two weeks ago. It was their first time putting on the triathlon with the 5k and 10k races they hold. Triathlon is an expensive sport and the entry is usually $85 to $115 dollars. This first time event drew a crowd of 700 triathletes, paying an average of $90. Sponsorship for the race was higher than last year instead of businesses in the area cutting back, as I expected.

I feel a market move to the upside. I think the fear on Wall St has taken over a rational view of valuations. Really, when you can buy 9 of the 30 Dow stocks for $75, the market is oversold. Or crazy. Or both. Or is it just me?

Sandy

The most common question I hear right now is "should I keep putting money into my 401k or 403b? It has lost 40% or more and I will just lose the money I put in. Why should I keep adding money to it?"

Yes, you should keep your contributions going into your tax deferred accounts. You can change your allocation within the account and have your new contributions go into a safe choice. You might have a money market option or a guaranteed cash option - something that does not have market risk. Choose that and continue to save for your retirement. Now, more than ever, we need to continue to save for our own retirement.

Our government is burdened with tremendous debt, taken on to bail us out of this financial mess. That debt load may impact Social Security for those under 60. I don't think they have a chance of taking away benefits from those people that are already near or over age 60 but the rest of us are subject to changes in our full retirement age and/or benefits we may have been depending on.

Remember that your taxable income is reduced, thus reducing the income taxes you pay, when you defer income into your 401k or 403b, 457 or SEP IRA account. Keep putting away the most you can save. We need to become a nation of savers once again.

Sandy

As I write this I don't know all the details of the budget that was passed by the State Legislature but here are the major provisions:
California will now have the highest sales tax in the nation. The state hopes to generate up to $13 billion in revenue by raising sales taxes one percentage point. That means Orange County will have a 8.75% sales tax rate and Los Angeles County will be 9.25%. This will probably lead to more on-line purchases. If an on-line company does not have a brick-and-mortar presence in California then they do not have to collect sales tax.

The budget also adds a surcharge on state income taxes of .25% and that would drop to .125% once California gets its share of the Federal Stimulus money. Currently, California has a top income tax rate of 9.3% - one of the highest in the nation. The new budget also increases the vehicle license fee from .65% to 1.15%. I think this will lead to more retirees to flee California to states with no income tax like Nevada and Florida.

The budget also has $15 billion in spending cuts of which $8.6 billion is in education. To save $1.4 billion from state payroll costs, the government will eliminate 2 state holidays, change overtime rules and furlough workers at least one day a month.

The final budget does NOT have a 12-cent-a-gallon hike in the gas tax. That was the compromise that was reached to get the one vote needed to pass the budget.

The market did not think highly of Tim Geithner's new proposal, delivered live yesterday. The Dow finished down 381 points at the end of his speech. All the chatter going on last week involved creating a "bad bank" or a "bridge bank" and most on wall street expected that to be done. Instead, he spoke of a new concept that will be created with the private industry, hedge funds and 500 billion to begin with. The concept was there, the details were missing.

The market was waiting to see how the bad loans and distressed assets would be removed from the banks balance sheets, thus improving the banks positions. That was the concept of the "bad bank". The bad assets of a bank would be moved to the newly created "bad bank" that the government would thus own and they would hold the mortgages or assets to maturity.

Geithner, however, came to market with a new concept and gave no direction in how the assets will be priced or who would actually be buying them or details on how this new concept would actually work. The market wants concrete details and a path to guide us out of the financial black hole the banks have created by the CSOs, leverage and bad loans.

The plan needs to succeed so the banks do not need a continued bail-out , funded by the frustrated the tax payers. I am anxious to read the details when they are released in the coming weeks.

By the way, why was Geithner doing his taxes himself with Turbo Tax? Did this lead to the careless errors which caused him to owe payroll taxes to Social Security and Medicare? No, he underreported income. It seems as though the IRS picked up the errors in 2006 and sent him a bill for taxes owed. Geithner did not pay the taxes due until he was selected to be the Treasury Secretary (chief of the IRS) by President Obama. Ironic, I think.

Sandy