Friday Financial Five – July 24, 2015
Friday, July 24, 2015
The combination of a limited supply of housing and a rush to beat an impending rate hike may have contributed to best housing numbers in over eight years. Sales rose 3.2 percent in June and are up almost ten percent from a year ago as the industry expects to have its best year since 2007. This is occurring even as mortgage rates continue to creep up ever so slightly. The average 30 year loan is approaching 4.25%, according to Bankrate.com, and the average 15 year rate is around 3.15%.
Jobless claims at lowest level in over 40 years
Also showing strength are last week’s jobless claims which were at the lowest level since 1973. The Department of Labor pointed to a drop in claims of 26,000 to a seasonally adjusted number of 255,000. While labor participation is also at a 40 year low with many workers completely exiting the workforce, the jobless claims and June unemployment rate of 5.3% continue to indicate strength in the labor market. As with the housing numbers, stronger employment heightens the probability of an interest rate hike before the end of the year.
Details of weak 1st quarter GDP numbers
It wouldn’t be a complete financial report without detailing the bad with the good. While housing and employment are strong, the most important indicator of economic strength, Gross Domestic Product, was weak in the first quarter and should end the year near 2.5%. The Bureau of Economic Analysis identified the manufacturing sector as leading the downturn, as 15 of 22 industry groups all contributed to the drop from the 4th quarter of 2014. While consumer spending remains consistent, the government, business, and export components of GDP are showing weakness.
Purchasing real estate as an investment
Those trying to decide what to do with extra money will often consider purchasing a property for investment purposes. There are several things to consider before leaping into a landlord position. The investment needs to be treated as part of an individual’s portfolio. The money put down, which is often higher than that needed to purchase an occupied home, is part of the “equity." The net income after expenses helps to determine the rate of return on that equity. Owning real estate equates to having a real estate business and involves active management. There will also be improvements, repairs, and vacancies that will drive down the bottom line. Just like any business, buyers must take in all of these variables to calculate the investment’s true return.
Students may be allowed to default on loans
If your alma mater enters bankruptcy, there may be a benefit: the forgiveness of your student loans. Bloomberg profiles the possibility that thousands of students might have their loans forgiven when the for-profit institutions they attended ceased to exist. The concept of loan forgiveness gained momentum earlier in the year when Corinthian Colleges, Inc went bankrupt. Federal law appears to favor the students, but they may have to prove they enrolled under false pretenses. The estimate for those borrowing to attend all Corinthian schools in the past five years is $3.5 billion.
Dan Forbes is a regular contributor on financial issues. He is a CFP Board Ambassador. He leads the firm Forbes Financial Planning, Inc in East Greenwich, RI and can be reached at [email protected].
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