Jack Hirsch's Blog

At the start of the year, the “experts” made a lot of predictions about the U.S. economy and what to expect in 2009. 

• Some said housing would rise
• Some said housing would fall
• Some said mortgage rates would rise
• Some said mortgage rates would fall

And nobody predicted just how big the government’s stimulus package would be.

Now, on June 30, with the year officially half-over, it’s as good a time as any to remember that people are much better at interpreting the past than predicting the future.  Economists can make educated guesses about the future, but they’re guesses nonetheless. 

It’s like watching the Weather Channel.  A meterologist can look at the data and say it’s going to rain next week, but the forecast is never 100%.

So far this year, mortgage rates have been up and down, credit availability has been higher and lower, and home prices have varied immensely from neighborhood to neighborhood. 

There’s another 6 months until 2010 and there’s no reason to expect the current volatility and uncertainty to change. 

The world is unpredictable and so is the U.S. economy.  Therefore, consider making your personal finance decisions based on the information at hand today instead of on an educated guess about the future.

After all, the weatherman’s been wrong before.

If you only saw the headlines this week, you may have missed another positive sign in the housing market.

According to the Census Bureau, the supply of newly-built homes for sale fell to 10.2 months in May, its lowest level in 10 months.

Unfortunately, the New Homes Sales story wasn’t positioned as a positively by the press.  Instead, the most common headline on the data read “New Home Sales Dip 0.6%” with many journalists referring to the figures as “weak” or “disappointing”.

Only, that’s not completely true.

See, one of the nice elements of the monthly New Home Sales report is its footnote section in which the Census Bureau talks about statistical Margin of Error and that section tells us that if the Margin of Error is larger than the measurement itself, the report is useless.

And that’s exactly what happened in May.

New Home Sales were measured to have fallen by 0.6 percent but that data point was dwarfed by its 17.8 percent Margin of Error,  The “headline data”, in other words, was just a guess.

The press reported it anyway.

Nonetheless, as it relates to the economy, falling home inventories are a positive.  Having 10-plus months of homes on the market is still high historically, but a definite improvement over what we saw earlier this year.

So long as low mortgage rates and aggressive pricing persists from builders, we expect even less supply in the months ahead.

Moving to a new metropolitan area requires adjustments.  There’s new streets to learn, new weather patterns to get used to, and new social cultures to assimilate.

There’s also new costs.

Just like home values vary by area, so does the Cost of Living.  To visit a doctor in Chicago, as an example, costs a person more than to visit a similar-type doctor in Des Moines. 

Cost of Living adjustments can’t be ignored between two cities because it changes a household’s budget.

And while it’s a challenge to know exactly how far your dollar can stretch in a new town, Bankrate.com hosts a helpful Cost of Living Comparison Calculator to make the math a little easier.  With categories such as dry cleaning, groceries and beauty salon, the calculator goes extra deep into the typical costs to a household, and can help families to make more realistic budgets.

The calculator also shows the equivalent household income between any two metropolitan areas.

Americans are feeling better about their budgets right now, raising the possibility of a full economic recovery.

According to a University of Michigan and Reuters, Consumer Sentiment rose for the fifth straight month in June.

Consumer Sentiment is now at its highest levels since September 2008, the month in which Lehman Brothers failed, Fannie Mae and Freddie Mac were nationalized, and the global financial crisis is believed to have peaked.

Rising confidence levels are important to the economy — and to housing –because a confident consumer is more likely to make the big-ticket purchases that propel the economy forward. 

This includes buying new homes.

That said, the Consumer Sentiment Survey has its flaws. 

For one, the survey’s sample set includes just 500 families.  This is hardly a cross-section of America.  Secondly, when people feel better about their finances, it doesn’t always lead to additional consumer spending — it could lead to more saving.

What people say they’ll do and what they actually do can be two very different things, but if consumer spending does increase in the months ahead, expect home sales to benefit on the willingness of families to “take more chances” and expect mortgage rates to suffer on concerns for inflation.

When finances are tight, homeowners are often forced to choose between making home repairs right away, and putting them off until finances improve.

Some repairs, though, become more expensive if not tackled on the double.  The hard part is knowing which fixes those are.

In this 5-minute piece from The Today Show on NBC, a Consumer Reports editor talks about important, must-make-them-now home repairs, including:

• Re-sloping soil for runaway rainwater
• Replacing curled and cracked roofing shingles
• Sealing damaged vinyl siding
• Replacing soft wood
• Treating mold issues — both major and minor

Maintaining a home preserves its long-term integrity and can help support resale value, too.  Not every minor fix must made today, but left unchecked, some minor fixes can turn into major ones — and that’s when costs can pile up.

Tighter mortgage guidelines since late-2008 are forcing home buyers to make bigger downpayments.  Anecdotally, the change has led to a surge in buyers taking gifts of cash from family members.

If you’re among those accepting a cash gift from family, it’s important to know that you can’t just deposit the money in your bank account. 

There is a proper way to accept a cash gift and it requires 3 distinct steps:

1. Complete and sign an acceptable gift letter
2. Document the gifter’s withdrawal of funds with teller receipts
3. Document the giftee’s deposit of funds with teller receipts

See, mortgage lenders pay close attention to gifts-for-downpayments.  For one, lenders have to make sure that downpayment cash is “clean” (i.e. not laundered).  And, secondly, they want the gift to really be a gift and not a loan-in-disguise.

This is why lenders will often require that a signed, dated letter accompany the home loan application. 

As an example:

I am the [relationship to recipient] of [name of recipient] and this letter serves as evidence that I am gifting [name of recipient] [amount of gift] to be used for the purchase of the home at [complete address of property].

This is a gift — not a loan — and there is no expectation of repayment.

Signed,
[Signature of gifter]

To further appease lenders, gift recipients should make sure that gift funds are not commingled at the time of deposit.  If the gift is for $12,000, for example, the bank’s deposit slip should indicate that a $12,000 deposit was made — nothing more, nothing less. 

Don’t add a random $50 check to the deposit, in other words.  If you have a separate deposit to make, make it as a subsequent transaction with its own receipt.

It’s also worth noting that gifting funds between family members can create both legal and tax liabilities.  If you’re unsure about how donating or receiving a gift may impact you, call or email me directly.  If I can’t help you with your questions, I can refer you to somebody that can.

When it comes to controlling pests, bugs and insects in the home, chemical deterrents are a common and effective remedy. 

Recently, however, because of environmental and safety concerns, electronic methods are growing in favor. Pest control chemicals can be very dangerous to humans.

Often, an electronic pest repellent is less effective than a similar, home-wide chemical treatment.  This is because of how electronic pest repellents work.

Rather than dosing pests with poison to kill them, the electronic devices work by emitting high-frequency soundwaves to disrupt insect communication patterns.

The soundwaves may also disrupt mating and reproduction.

There are a number of “name-brand” products for electronic pest control.  Among the more popular is Pest Offense, a plug-in device that retails for $30 and which has sold over 4 million units.  Black & Decker and Sunbeam have products in the space, too.

Electronic pest control isn’t perfect, but it’s safe for humans, pets and the environment.  It can also be less expensive than traditional pest control treatment.

In choosing its 2009 lineup of Top 100 Places To Live In America, Relocate America focused on areas with stable local economies and in which the housing market has avoided precipitous price drops.

It’s not a bad formula and topping the list of Top 100 Places To Live In America is Tulsa, Oklahoma, a city in which unemployment rates are 3 percent below the national average and the housing stock is, in general, considered affordable.

This was a common theme among the cities included, the Top 10 of which are:

1. Tulsa, Oklahoma
2. Dallas/Ft Worth, Texas
3. Pittsburgh, Pennsylvania
4. Raleigh/Durham, North Carolina
5. Huntsville, Alabama
6. Houston, Texas
7. Albuquerque, New Mexico
8. Lexington, Kentucky
9. Little Rock, Arkansas
10. Oklahoma City, Oklahoma

Relocate America notes that the cities on its 2009 list are poised to make a faster comeback from the economic recession than other U.S. cities, and few experienced the effects of the housing boom earlier this decade.

View the complete Top 100 Places To Live In America 2009 list at the Relocate America website.