New-home sales drop to record low in January
To heck with the house, I need that credit card
| When more owners are “underwater” (paying more on their mortgage than they could sell their house plus lot for), those consumers are choosing to pay credit cards rather than their mortgage. We trim, blend, and append two 2010 articles from (1) AP Feb 24 on home sales by Martin Crutsinger and (2) MarketWatch, March 5 on credit cards by Jennifer Waters, with a solution offered by British politicians. |
by Martin Crutsinger and by Jennifer Waters
- New-home sales drop to record low
Sales of new US homes plunged 11.2% last month from December to January, lowest level on records going back nearly a half century.
The sales decline in January marked the third straight monthly drop following decreases of 3.9% in December and 9.5% in November.
The drop in sales pushed the median sale price down to $203.500. That was down 5.6% from December's median price of $215,600, and off 2.4% from year-ago prices.
New-home sales for all 2009 fell almost 23% to 374,000, worst year on record.
A $1.25 trillion program from the Federal Reserve which has held down mortgage rates is set to end March 31 and tax credits to bolster home buying are scheduled to expire at the end of April, so the slowdown could continue.
- More consumers pay credit cards, not mortgages
A small but growing number of US consumers are skipping mortgage payments in favor of paying their credit-card bills.
In an unprecedented shift, for some consumers having a credit card in good standing appears to have taken priority over having a roof over one's head.
While overall consumer debt rose unexpectedly in January, consumers continued to pay off their credit cards that month -- a record 16th straight month of lower credit-card debt -- with such debt dropping about $1.7 billion to $864.4 billion.
Yet the number of consumers delinquent on their mortgages but current on their credit cards rose to 6.6% in the third quarter of 2009 from 4.3% in the first quarter of 2008. Meanwhile, the portion of those who fell behind on credit-card payments but paid their mortgage dropped to 3.6% from 4.1%.
The new "payment hierarchy" first began in the fourth quarter of 2007. “Experts” thought the pattern would reverse itself once the worst of the recession passed. But the new behavior is becoming more prevalent and stretches across all income groups.
The trend is more common among consumers with the lowest credit scores. But mortgage-payment problems are moving up the credit-score ladder. Mortgage-default risk for consumers with high scores now exceeds their credit-card-default risk, reversing a long historic trend.
While the numbers are small, the trend is disturbing, said Mark Greene, chief executive of FICO, since these “counter-intuitive trends in consumer behavior have never been seen before."
Blame those trends on a deep economic slump that's pulled the rug out from under long-held jobs, home-plus-home-site prices and retirement accounts. And, in the wake of a new credit-card law as banks tighten the screws on who gets credit and how much they get, some consumers are getting more protective of their credit cards. Plus, with the unemployment rate at a hefty 9.7%, people are worried about losing their job and perhaps needing their plastic to get by.
Credit performance generally lags economic performance. If the job market doesn't improve soon and in a big way, the fallout will continue. Though the US jobless rate held steady at 9.7% in February, the portion of workers who classify themselves as underemployed is inching up.
JJS: So, what to do? Some Brits, testifying in the Westminster Hall debates, February 24, on Property Taxation have a pretty clear idea:
David Drew (Stroud, Labour): Henry George would have said that the answer was to have land value taxation. I know that the Liberal Democrats are not unsympathetic to that argument.
Andrew George (St Ives, Liberal Democrat): I have much sympathy for that argument, having kept in touch with my namesake through the Henry George Foundation. I welcome the Government's introduction of the community infrastructure levy. When a field worth £3,000 is allowed to be turned into unfettered domestic property worth, say, £1 million an acre, that is the gift of society through creating the planning rules and of the local community through the assent of the local authority. It is not unreasonable to ask for a proportion of that money, although the impact on the agricultural sector is a separate issue.
JJS: As a tax on land rises, the price for land falls, so mortgages shrink. As an overhead on speculators, the land levy spurs those owners to get busy and put their vacant and under-used prime sites to good use, which increases construction, employment, and business, making it easier for mortgagers to find the income to pay debt. Plus, government could return some recovered rent as a dividend, making it very easy to pay debt.
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Jeffery J. Smith runs the Forum on Geonomics.
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Also see: Mission Shrink --
America's Backdoor Layoffs
The losses hurt families but leave the rich only less rich |
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