Housing Continues to Get Less Affordable for Many Americans
According to new research by Harvard University, almost 40 million Americans cannot afford to pay for housing. The report is titled the “How Housing Matters Survey,” and was commissioned by the nonprofit John D. and Catherine T. MacArthur Foundation and carried out by Hart Research Associates. The report points out that homeownership has gone down and rental prices keep going up, meaning that millions of residents are forced to pay far more than they should.
Homeownership keeps declining, according to the Joint Center for Housing Studies in a detailed and comprehensive 2017 State of the Nation’s Housing report, in part because homes prices in many markets have continued to go up while wages have not kept pace. In 2016, “the homeownership rate fell to 63.4%, marking the 12th consecutive year of declines.”
A lot of people who would like to buy are stuck renting, Harvard reports: “The surge in rental demand that began in 2005 is broad-based—including several types of households that traditionally prefer homeownership.” At the same time, renting is more expensive, as “rent gains across the country continue to far outpace inflation.” And adding to the difficulty, supply is tight. Since most of the new units being built are at the high end, “the number of modestly priced units available for under $800 declined by 261,000 between 2005 and 2015, while the number renting for $2,000 or more jumped by 1.5 million.”
Many Americans cannot buy and cannot rent. For a lot of people, especially in the pricey major metro areas where so many of the good jobs are, the situation looks grim. NBC News sums up the findings this way: “Over 38 million American households can’t afford their housing, an increase of 146% in the past 16 years.”
Over half of Americans (52%) have had to make at least one major sacrifice in order to cover their rent or mortgage over the last three years, according to the report. These sacrifices include getting a second job, deferring saving for retirement, cutting back on health care, running up credit card debt, or even moving to a less safe neighborhood or one with worse schools.
Even people lucky enough to own already are not immune. Harvard reports that “the typical homeowner has yet to fully regain the housing wealth lost during the downturn.” Although home values have gone up by as much as 40% in swaths of California, Florida and New England since 2000—and, in 12 metro areas, have even doubled—they have remained stagnant or even gone down by as much as 46% in much of the South and the Midwest.
Whether or not you can afford housing depends largely on where you are. In terms of purchases, only 19%t of residents of Honolulu, and only 25% of residents of Los Angeles and San Francisco, can afford to a buy median-priced home there. This situation is particularly hard on the working poor. Across the country, “70.3% of lowest-income households face severe housing cost burdens,” including “nearly nine out of 10 lowest-income renters” in places like Cape Coral and Las Vegas. That means more than 50% of their income must go toward housing and cannot be used to either pay down debt or add up to savings.
Citations
- http://cnb.cx/2vsedd0 CNBC
- http://on.mktw.net/1x6rHYp – MarketWatch
McDonald’s Makes Big Changes to Keep Customers Loyal
McDonald’s, the company that helped define fast food, is making supersized efforts to reverse its fading popularity and catch up to a landscape that has evolved around it. That includes expanding delivery, digital ordering kiosks in restaurants, and rolling out an app that saves precious seconds.
Much of the work is on display in an unmarked warehouse near the company’s headquarters in suburban Chicago, where a blowup of a mobile phone screen shows the app launching nationally later this year. McDonald’s estimates it would take 10 seconds for a customer to tell an employee their order number from the app, down from the 17-second average of ordering at the drive-thru, a difference that could help ease pileups. Elsewhere at the Innovation Center, the digital ordering kiosk shows how customers can skip lines at the register. “Five, 10 years ago, we were the dominant player in convenience, as convenience was defined in those days,” CEO Steve Easterbrook said last month. “But convenience continually gets redefined, and we haven’t modernized.”
The push comes as McDonald’s stock has hit all-time highs with investors cheering a turnaround plan that has included slashed costs and expansion overseas. Yet the asterisk on the headlines is the chain’s declining stature in its flagship U.S. market, where it is fighting intensifying competition, fickle tastes, and a persistent junk food image. In an increasingly crowded field of places to eat, the number of McDonald’s locations in the U.S. is set to shrink for the third year in a row. At established locations, the frequency of customer visits has declined for four straight years—even after the launch of a popular “All-Day Breakfast” menu. The chain that popularized innovations like drive-thrus in the 1970s acknowledges it has been slow to adapt, and is scrambling to better fit into American lifestyles. Lots of once-dominant restaurant chains are feeling the pressure of people having more eating options.
An estimated 613,000 places were selling either food or drink in the U.S. last year, up 17% from a decade earlier, according to government figures.
Supermarkets and convenience stores are offering more prepared foods, and meal-kit delivery companies have been expanding. “Better burger” places like Shake Shack and Habit Burger Grill do not come close to McDonald’s roughly 14,000 U.S. locations, but they are growing. And even if Starbucks and Dunkin Donuts do not serve burgers and fries, they are among those promoting food more aggressively. “They’re still taking customers from the same market pool,” said Nick Karavites, a McDonald’s franchisee with 22 locations in the Chicago area and chairman of a regional leadership committee.
Still, McDonald’s needs to make changes to keep customer visits from continuing to fall. One main focus is the drive-thru, where McDonald’s gets roughly 70% of its business. Customers who place orders on the mobile app, for instance, could also pull into a designated parking spot where an employee would bring out their order. That would theoretically ease backups at the drive-thru, which in turn might prevent potential customers from driving past without stopping during peak hours. Then there is the partnership with UberEats to offer delivery. McDonald’s gives an undisclosed percentage of the sale to UberEats, in addition to a fee of about $5 that customers pay. So a risk is that delivery could draw from in-store sales, eating into profitability. So far, however, McDonald’s says delivery is bringing in new business during slower times at the roughly 3,500 locations where it has rolled out since the start of the year.
To bring more people in over the short-term, the company is promoting $1 sodas and $2 McCafe drinks. Glass cases displaying baked goods are also popping up in stores. And at about 700 locations, the company is testing “dessert stations” behind the counter where employees can make sundaes topped with cake or brownie chunks. Those stations could eventually handle an expanded menu of sweets. At the same time, McDonald’s is still trying to shake its image for serving junk food, especially since its appeal to families with children has long helped keep it ahead of rivals like Burger King and Wendy’s.
It’s made changes to its Happy Meal, and made a high-profile pledge to offer healthier options. It plans to start using fresh beef instead of frozen patties in Quarter Pounders. But as other chains emphasizing quality or health keep emerging, it may get harder for McDonald’s to hold onto families or change perceptions. Larry Light, a former chief marketing officer at McDonald’s, says the company strayed in recent years by chasing customers who may have been going to places like Chipotle, but that it is refocusing on burgers and fries. He thinks that will help get people visiting more often. “You cannot build an enduring, profitable business on a shrinking customer base,” Light said. And Bernstein analyst Sara Senatore cited the changes the company is pursuing said “I wouldn’t underestimate the power of scale.”
Citations
- http://wapo.st/2thp3WL – Washington Post / AP Associates
- http://bit.ly/2tYSnQA – Forbes
The Good News Is . . .
- Core consumer prices rose (CPI) just 0.1% in June. This is the third straight 0.1% rise for the index which excludes volatile food and energy prices. Total prices were unchanged in the month with food neutral and energy down 1.6%. Housing, which is a central category, continues to moderate, also rising only 0.1% percent following a 0.2% gain in May. Apparel and transportation prices fell for a second month. Medical care prices gained 0.4% and prescription drugs rose 1.0%. Year-on-year, the core CPI is steady at 1.7% with total prices, indicating that inflation remains under control.
- Pepsico Inc., a leading diversified food and beverage company, reported earnings of $0.91 per share, an increase of 42.2% over year-earlier earnings of $0.64 per share. The firm’s earnings topped the consensus estimate of analysts by $0.10. The company reported revenues of $12.0 billion, an increase of 1.6%. Management attributed the results to global volume growth, operating efficiencies and positive net price realization across its businesses.
- Worldpay Group, the British payment processing company announced that it had agreed to be acquired by Vantiv, an American rival, for $10 billion. Worldpay, based in London, provides payment processing for mobile, online and in-store transactions in 146 countries and is the largest payment processor in Britain, where it accounts for about 42% of all retail transactions. The acquisition is one of the most significant in the field since the financial crisis. Payment processing has become increasingly important for financial institutions as more people shop online and move money using cellphones or other digital devices. Under the terms of the deal, including a dividend, investors would receive $5.04 in cash and shares for each share of Worldpay they own.
Citations
- https://bloom.bg/2eVhfSb – Bloomberg
- http://cnb.cx/2lwnm3s – CNBC
- http://bit.ly/2tZqpCU – Pepsico, Inc.
- http://nyti.ms/2tYTi3I – NY Times Dealbook
Planning Tips
Guide to Understanding the Types of Mortgage Refinancing
If you are in the market to refinance your current mortgage rate, you will most likely be asked if you want any “cash out.” Loan officers and mortgage brokers ask this question to determine what type of refinance you want or need. And it is important to know because the pricing and qualification will differ depending on which type you choose. Below is a brief guide to understanding the difference between a “rate / term” refinancing and a “cash out” refinancing. Be sure to consult with your financial advisor to determine the refinancing option that is most appropriate for your situation.
Rate / term refinancing – The simplest and most straightforward type of refinancing is the rate/term refinance (refi). No actual money changes hands in this case, outside of the fees associated with the loan. The size of the mortgage remains the same; you simply trade your current mortgage terms (interest rate and length of the mortgage) for newer, presumably better, terms.
Cash out refinancing – In a cash-out loan, aka cash-out refinance, the new mortgage is bigger than the old one. Along with new loan terms, you are also being advanced money—effectively taking equity out of your home, in the form of cash or to pay off other debts.
Qualifications – You can qualify for a rate/term refi with a higher loan-to-value ratio. It is easier to get the loan, in other words, even if you are a poorer credit risk. Cash-out loans come with tougher terms. If you want some of the equity you have built up in your home back in the form of cash, it is probably going to cost you. How much depends on the amount of equity you have built up in your home and your credit score. For example, the lender might add 0.750 points to the up-front cost of the loan, or require you to pay a higher interest rate–0.125% to 0.250% more depending on market conditions. This is because cash-out loans carry a higher risk to the lender. Statistically borrowers are much more likely to walk away from a home if they get into trouble if they have already pulled equity out of it. It is particularly true if a borrower has pulled out more than he or she initially invested in the down payment.
Tax consideration on cash-out refinancing – You are not getting free money via the refinance transaction. You are taking out a new loan with a larger balance and you must pay it back (with interest) over time. So there is no income tax to worry about. Even better, it is tax deductible, though there are limits of $100,000 ($50,000 if married filing separately). So if you pull $150,000 cash out, only the first $100,000 is fully tax deductible. However, if $50,000 of that amount is used to improve your home (a new bathroom, kitchen renovation), that portion would be deductible via your “Home Acquisition Debt” and the remaining $100,000 would be deductible under your “Home Equity Debt.” So you could deduct everything, assuming you stay under the separate limits on the “Home Acquisition Debt” and otherwise qualify per the many IRS tax rules.
How your refinancing is categorized – A refinance will likely be considered cash-out if a borrower refinances a non-purchase money home equity line of credit. That is, if you open an equity line behind your existing first mortgage after the original purchase transaction and then later want to refinance it, it will be treated as a cash-out transaction even if you are not taking cash out at that time. What this may mean to is another pricing adjustment when you refinance, which will result in a higher interest rate. Many borrowers also feel if they are not getting cash in their pocket, their refinance is not considered a cash-out refinancing. This is false. If you pay off credit cards or auto loans and receive zero cash in hand, the bank or lender will still consider it a cash-out refinancing, and it will be underwritten as such.
Citations
- http://bit.ly/2tvrH6N – Zacks.com
- http://bit.ly/2fm15ie – Bankrate
- http://bit.ly/1fb0hMr – Investopedia
- http://bit.ly/2vrXYNe – TheTruthAboutMortgage.com
- http://bit.ly/2tZ66XP – LendingTree.com
