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Apache is functioning normally

By David Piscatelli

Fed’s inflation fight tightens the U.S. housing supply and makes home buying even more difficult

Conventional wisdom dictates that U.S. inflation will continue to decline as the Federal Reserve keeps interest rates high. This action, which makes loans more expensive for businesses and consumers, should lead to less spending, less consumption and higher unemployment.

Or at least that’s Econ 101. Yet both consumers and investors have acclimated to the current market environment. Moreover the key driver of inflation — housing — cannot be adequately contained through the Federal Reserve’s usual tactics.

In fact, the Fed’s policies have created a Catch-22 in the housing market by creating “golden handcuffs.” Instead of easing consumer demand, the Fed’s actions unintentionally restricted U.S. housing supply, resulting in a stalemate between home buyers and sellers. Homeowners who locked into historically low mortgage rates before and during the pandemic are now reluctant to sell, which in turn is increasing the likelihood of persistent higher inflation.

The case for this condition to persist , which the market is mostly failing to consider, continues to grow stronger as the odds of a recession fade. This should be an alarm bell and a potential opportunity for investors to redeploy at least part of their capital into hard assets to serve as a hedge against inflation risk.

The recession that never was

Many economists have predicted that a recession would hit the U.S. Their reasoning was sound: aggressive monetary action by the Federal Reserve, investor dissatisfaction with inflation, loss of consumer confidence and reductions in home asking prices — all points that were hard to argue against.

Yet most of the key ingredients needed for a recession have not materialized. Investors have acclimated to inflation, consumer confidence is growing and the housing market has, by and large, entered a period of stalemate where prices remain high due to lack of supply.

In fact, the only relevant argument in the recession camp that remains is the Fed continuing its aggressive posture against inflation — now considered the fastest monetary policy tightening cycle in more than 40 years. Such action continues to lead many to speculate that recession is imminent, and the only questions left to answer are “when,” and “how deep it will be?”

Housing prices obey the laws of supply and demand

Housing is perhaps the most consequential category that makes up the Consumer Price Index (CPI), which markets track every month as a core measure of inflation.

The undersupply of housing in the U.S. is grounded in years of underbuilding and is not the result of a single federal policy, war, or external event. If anything, the power to create more housing supply rests with state and local governments, which often require working through a patchwork quilt of differing zoning and land-use regulations.

The high estimate of the country’s current housing shortage is pegged at about 7.3 million units, while the most conservative estimate shows it to be about 1.7 million. While the true shortage is most likely somewhere inbetween, the bottom line is that the United States faces a textbook housing shortage that cannot be solved overnight. Worse, the Fed’s current policies are making the prospect of home ownership even more difficult.

Nobody wants to move and reset their loans at much higher rates.

Central bank measures designed to clamp down on inflation by making borrowing more expensive (which theoretically should drive down the costs of homes), are having the opposite effect. This is because homeowners, who locked in historically low mortgage rates before and during the pandemic, are now reluctant to sell their home.

Simply put, nobody wants to move and reset their loans at much higher rates. Would-be sellers are therefore sitting on the sidelines, which has unintentionally created an even greater shortage in supply. Meanwhile, potential buyers, who cannot afford higher mortgage rates, are incentivized to rent instead.

To end this stalemate, the Fed would need to start cutting interest rates, which it has stated is unlikely this year. But if inflation is being driven by the cost of housing, as demonstrated in the Consumer Price Index, more attempts to tame inflation via rate hikes suggests homeowners will only become more entrenched as supply dwindles further As the labor market continues to prove surprisingly resilient, homeowners, and by extension everyday consumers, don’t seem to mind waiting it out.

Read: Nouriel Roubini says a return to 2% inflation is ‘mission impossible’

Also: Most long-term investors can ignore the Federal Reserve’s latest move

The case for hard assets

Seasoned investors know that during times of rising interest rates, restrictive credit and prolonged inflation, more investments flow into “hard” asset classes such as real estate. This hedging strategy is used almost like an insurance policy by investors to preserve capital from the depreciating effects of inflation. And according to research, it works. For example, a Stanford University study found that residential real estate is historically an investment haven during inflationary periods. Even during the inflation of the 1970s, home prices increased relative to the size of the economy. This is because housing is typically tied to consumer prices and rises with inflation.

With housing assets so closely tied to inflation, as well as to the laws of supply and demand, investments in this hard asset class deserve due consideration. Strong economic growth, coupled with the one-two punch of resilient consumer spending and near record-low unemployment, is good news. It also means the Fed won’t be lowering rates soon. Housing will remain a key driver of inflation, and future rate-hikes will further entrench homeowners and push more would-be buyers into renting.

To achieve a return to 2% inflation, U.S. policymakers would be wise to work with state and local governments to incentivize development, which would drive down the greatest expense for most Americans. But even with decisive action, fixing the fundamental housing shortage that is responsible for sustaining stubbornly persistent inflation will be a longer process than most investors realize.

David Piscatelli focuses on research, economic analysis and strategy at Avenue One, a property technology service platform and marketplace for institutional owners, buyers and sellers of residential homes. Views of the writer do not necessarily reflect the views of Avenue One.

More: Meet the brave Americans buying and selling their homes, despite stubbornly high interest rates

Plus: 9 ways home buyers can stretch their dollars even though mortgage rates are high

-David Piscatelli

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

09-23-23 0837ET

Copyright (c) 2023 Dow Jones & Company, Inc.

Source: morningstar.com

Apache is functioning normally

Apache is functioning normally

If you think home prices are too expensive, you wouldn’t be the only one.

A new analysis from First American revealed that housing affordability is the lowest it has been in more than three decades.

In other words, it hasn’t been this expensive to purchase a home since the 20th century.

The title and settlement company’s Real House Price Index (RHPI) determines house-buying power using median household income, mortgage rates, and home prices.

And they found that real house prices, adjusted for these factors, were up nearly 17 percent year-over-year in July.

Blame Higher Mortgage Rates and Home Prices for a Lack of Affordability

As for why housing affordability continues to erode, it’s a combination of factors.

The first and most obvious issue is markedly higher mortgage rates, with the 30-year fixed mortgage now priced above 7%, assuming discount points aren’t paid.

Per Freddie Mac, rates on this most-popular loan program are up about 1% from year-ago levels. First American pegs the annual change at a higher 1.4 percentage point increase.

And if we zoom out a bit more, this key interest rate was in the 3% range to start out 2022.

So interest rates alone have wreaked havoc on housing affordability and home buying power.

Just consider a loan amount of $400,000 at a 3% rate versus 7% rate. We’re talking about a monthly principal and interest payment of $1,686 vs. $2,661.

That’s nearly $1,000 based on the interest rate increase alone. Then you have to factor in higher property taxes, higher insurance premiums, and so on thanks to a higher purchase price.

Yes, despite higher interest rates, nominal home prices have also risen year-over-year.

While people logically think there’s an inverse relationship with home prices and mortgage rates, this isn’t always true.

Per First American, nominal home prices (not adjusted for inflation) were also up 4% year-over-year.

This means a prospective home buyer faces both a higher purchase price and a significantly higher mortgage rate.

And though household income increased 3.7% since July 2022, it wasn’t enough to offset the higher costs associated with the jump in rates and rising nominal home prices.

Real Home Prices Are Now Above the 2006 Peak

If you recall the year 2006, you might remember that home prices peaked and then began to fall.

Back then, unsustainable home price gains were fueled by exotic financing.

Many home loans were underwritten via stated income or no documentation at all, while the products offered may have been option ARMs and other adjustable-rate mortgages.

Additionally, the typical down payment was at or close to zero, while the loan-to-value (LTV) ratio was often 100% when it involved a mortgage refinance.

In other words, home prices were too high, borrowers had little to no skin in the game, and many weren’t even qualified to be homeowners.

Without the widespread use of loose underwriting, home prices would not have been able to continue rising as high as they did.

As we know, the housing bubble burst set off the Great Recession, leading to double-digit home declines and scores of short sales and foreclosures.

Today, unadjusted home prices are 53.7% above those during the peak in 2006, while real prices are 0.7% higher than that housing boom peak.

While this might be reason to worry, consider the new mortgage rules that were born out of that crisis.

The Ability-to-Repay/Qualified Mortgage Rule (ATR/QM Rule) essentially outlawed much of what I just mentioned.

Borrowers today must be fully qualified when taking out a mortgage, and the vast majority are going with a 30-year fixed-rate mortgage.

Gone are the days of stated income underwriting and negative amortization. That makes the current situation more of an affordability crisis than a housing bubble.

It is driven more by a lack of supply than it is loose financing, with not enough inventory to meet demand.

Housing Is Overvalued Nationally, But Some Markets Remain Affordable

As noted, the July 2023 Real House Price Index (RHPI) increased about 17% from a year ago.

This meant the median sale price was roughly $345,000, while the median house-buying power was just $337,000.

Since house-buying power is below the median price, it means housing is overvalued. In an ideal world, it should be at or below the median.

However, that applies to the national median price of real estate. Only 24 of the 50 top markets tracked by First American are overvalued by this measure.

Granted, it has worsened over time, as only 15 markets were considered overvalued last July.

At the moment, San Jose, California is the most overvalued metro, with the median sale price nearly $1,440,000 and consumer house-buying power just $700,000.

San Francisco and Los Angeles were also quite overvalued by this measure, though to a lesser degree.

Meanwhile, some undervalued markets still exist, if you can believe it. The metros of Detroit, Philadelphia, and Cleveland are undervalued by roughly $126,000.

How Do We Fix the Unaffordable Housing Market?

We know home prices are out of reach for many, but how do we fix it? Well, the Real House Price Index (RHPI) takes into account home prices, mortgage rates, and incomes.

So if you want housing to be more affordable, you need relief via those three elements.

This means either mortgage rates need to fall, home prices have to come down, or incomes must increase.

Or you get some combination of the three, such as a 1% drop in mortgage rates and a pullback in prices, which boosts affordability.

The problem at the moment is mortgage rates might be higher for longer, and home prices are pretty sticky due to a major lack of inventory (why are there no homes for sale?).

Incomes also don’t look to be increasing by a material amount, making it difficult for prospective buyers to get in the door.

One exception is new home sales, which have relied heavily on temporary and permanent mortgage rate buydowns to tackle the financing piece.

But there are only so many new homes for sale, and such sales only typically account for 10% of the overall market.

This explains the current housing market dynamic. Ultimately, there aren’t many existing homes on the market, not a ton of demand, and not a lot of sales.

And until something changes, this will likely be the status quo.

Read more: Why are home prices so high right now?

Source: thetruthaboutmortgage.com

Apache is functioning normally

Apache is functioning normally

On top of sorting out whether you’re eligible for federal student loans and the difference between subsidized and unsubsidized loans, you may be wondering how student loans may impact your taxes and whether student loans count as income. In a nutshell, the answer is no, student loans are debt, and do not count as income.

Fellowships and other forms of financial grants, however, may be counted as income, depending on how the funds are spent. And loans that are forgiven have counted as income.

Read on for more about the tax implications of student loans, grants, and student loan repayment. Of course, this is just a helpful guide as you begin to explore the basics of student loans and taxes; always seek out a tax professional to help you with your specific situation.

Are Student Loans Taxable?

There are multiple types of student loans — each with their own unique terms. As noted earlier, though, student loans are not taxed as income.

This is true of other types of loans generally as well, like credit card spending, mortgages, and personal loans (unless the loan is forgiven) — basically most credit that needs to be repaid. The IRS considers student loans a form of debt — not income — therefore, it is not taxed.

The only time that student loans (or other types of debt) can be taxed is if they are forgiven during repayment. If you are eligible for a federal student loan forgiveness program and have met the requirements (which vary, and may include stipulations like making eligible payments for 20 to 25 years via an income-driven repayment plan or completing eligible public service work/payment requirements, and others), the remaining balance on your student loans (the amount forgiven) may be taxed as income, depending on the repayment plan. This could amount to a hefty tax bill.

Are Scholarships Taxable?

The high-level answer to this question is: it depends. There are many different forms of scholarships, grants, and fellowships that are awarded to students to cover the costs of studying and research. Some are need-based and some are merit-based. The basic difference between scholarships and loans is that a scholarship is given while a loan is borrowed. You won’t typically have to pay back a scholarship, but you do have to pay back a loan.

Most scholarships are not taxed when you are enrolled in a formal educational institution and the scholarship is directly used to cover the costs of tuition, fees, books, and supplies used for study.

There are some situations in which scholarships can be taxed, however. For instance, a scholarship can be taxed as income if you use it to cover what are considered “incidental” expenses related to your education such as travel, room and board, and supplementary equipment and supplies.

Another type of scholarship that can be taxed is a scholarship that has a service-related requirement to it. This frequently applies to scholarships for graduate students. If you are required to teach, provide research assistance, or perform other services as a condition of your scholarship, it can be taxed as income and you will be required to report the scholarship as part of your gross income.

(For more about which types of scholarships are considered income and what scholarship-related activities are taxable, check out IRS Publication 970 .)
💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

Do Student Loans Come with Any Tax Benefits?

Student loans aren’t usually taxable as income, and in fact, may come with a tax benefit that is meant to make repayment a little easier on borrowers investing in their education.

The Student Loan Interest Deduction allows you to deduct the amount of interest you paid on both federal and private student loans, up to a maximum of $2,500 per year. In order to be eligible to deduct the full amount, your modified adjusted gross income (AGI) must be $70,000 or less (or $145,000 for married couples filing jointly). The amount you’re allowed to deduct is gradually reduced if your modified AGI is more $70,000 but less than $85,000 (or more than $145,000 but less than $175,000 for married couples filing jointly. Income above these thresholds renders you ineligible for the deduction.

As a tax deduction, the amount deducted helps to lower your overall taxable income, potentially resulting in a lower tax bill or higher tax refund. This deduction can also help defray some of your repayment costs.

Are Employer Student Loan Payments Taxable?

An increasingly popular benefit offered in some workplaces is help with education costs and student loan repayment. Employers such as Aetna, Fidelity Investments, Google, and more offer student loan assistance programs to employees.

Currently, employers are allowed to contribute up to $5,250 toward employees’ qualified education costs tax-free. Payments or reimbursements above that amount are considered taxable income for the employee. It’s important to note that this special tax treatment is temporary, however, and expires December 31, 2025. After this date, the full amount of any employer contributions toward education expenses or student loan repayment will be taxed as income.

How Can I Make My Student Loan Repayment Easier?

The cost of a student loan comes in the form of the interest you pay each month on the balance owed. Consider this example: Say you have a $30,000 loan with a 7% interest rate. On the 10-year Standard Repayment Plan, you would pay roughly $11,800 in interest in addition to repaying the $30,000 principal.

So what can make repayment easier, other than the student loan interest deduction? One option is to refinance your student loans with a private lender.

If you already have private and/or federal student loans, you may be able to refinance your student loans at a lower interest rate than you currently are paying. If you are eligible to refinance your student loans, you could shorten your term length, qualify to lower the interest rate on your loans, or possibly lower your monthly payment (by extending your term). But there can be some drawbacks to think about.

For instance, federal student loans come with several benefits and protections such as forbearance, deferment, income-driven repayment plans, and certain forgiveness programs that private loans do not offer. If you think you might need some of these benefits, or if you are eligible for student loan forgiveness, it might not be the right time to refinance.

However, if you have a steady income and good cash flow — along with other aspects of your financial picture that are appealing to a lender — and you are ready to focus on paying down your loans, refinancing might be the right solution for you.

SoFi is a leader in the student loan space, offering refinancing options to help you save on the loans you already have.

The Takeaway

Generally, student loans are not considered income, so they are not taxed. The exception is when some or all of your student loan balance is forgiven. In some cases, the IRS may count the canceled debt as taxable income.

Educational grants and scholarships, on the other hand, may or may not count as income. Typically, they are taxed when they are spent on expenses outside of tuition and fees, such as room and board and travel.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Student Loan Refinancing
If you are a federal student loan borrower you should take time now to prepare for your payments to restart, including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. (You may pay more interest over the life of the loan if you refinance with an extended term.) Please note that once you refinance federal student loans, you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans, such as the SAVE Plan, or extended repayment plans.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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Source: sofi.com

Apache is functioning normally

Apache is functioning normally

Are you struggling to meet your monthly mortgage payments? If so, you’re not alone. Between the impact of COVID-19 and fluctuating inflation concerns, many homeowners are struggling to meet their financial obligations. In fact, records show a 115% increase in the number of home foreclosures in the United States from 2021 to 2022. Unfortunately, many homeowners don’t realize there are various programs available to help them avoid losing their homes. This article covers the home affordability programs offered that may be able to help you avoid foreclosure or lower your monthly mortgage payments.

In This Piece

Finding Mortgage Relief Options

During the pandemic, the government created numerous home loan programs. These programs can help individuals and families overcome financial hardships. Each program has different eligibility requirements, but the home must be your primary residence. Many of these programs are also for homeowners with federally backed mortgages, such as VA, USDA, or FHA loans.

Most of these programs are for people who already have a home and have concerns about paying their mortgage. Those looking to buy their first home may wonder, “How do I know if I can afford a home?” The first step is to conduct a free credit check to find out what your credit score is.

How Can I Save My Home From Foreclosure?

The government has several foreclosure assistance programs to help you avoid losing your home. These government programs may be able to pay a portion of your overdue mortgage payments or pause these payments until you’re back on your feet.

It’s important to explore all your options to determine how these programs can help. You can start by contacting your lender to see what options they have available. 

Homeowner Assistance Fund (HAF) Program

As part of the American Rescue Plan Act of 2021, the Homeowner Assistance Fund (HAF) Program helps eligible homeowners impacted by COVID-19 avoid foreclosure. This program can give homeowners money to make past-due mortgage payments and other related costs, such as property taxes, homeowners insurance, home repairs and utility bills. The goal is to ensure homeowners financially impacted by the global pandemic don’t lose their homes.

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While the distribution of these funds began in 2021, many states still have funds available. To be eligible for the HAF Program, homeowners must earn less than 100% of the median income of the United States or less than 150% of the median income for their specific area (whichever is higher).

You can check your income eligibility with the U.S. Department of Housing and Urban Development. In most cases, homeowners aren’t expected to repay these funds. However, you are expected to continue making on-time payments. 

This program is only for those who already own a home. If you’re considering purchasing a home, you want to make sure you have enough money in savings. How much money you need to buy a house depends on various factors, such as your down payment and closing costs.

CARES Act

The Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted to provide economic assistance to individuals and families affected by the pandemic. For eligible homeowners, this act gives them the ability to request forbearance from their mortgage servicer or lender. A forbearance enables homeowners impacted by COVID-19 to pause or reduce their regular mortgage payments for a set period of time.

With the CARES Act, you can request an initial forbearance of up to 180 days. If necessary, you can also request an extension of up to 180 days. The maximum forbearance amount is 360 days.

You’ll need to make up these missed payments—but not in one lump sum. Most lenders allow borrowers to pay this back in installments or to defer these payments to the end of the loan. However, it’s important to understand your obligations prior to entering into a forbearance agreement.

Under the CARES Act, only homeowners with federally backed loans, such as Fannie Mae, Freddie Mac, USDA, VA and USDA loans, are eligible for guaranteed forbearance. Homeowners with private loans should check with their mortgage servicer or lender to see if forbearance is available.

The CARES Act program is ideal for homeowners who are struggling to make their monthly mortgage payments. To be eligible for this program, the global pandemic must have financially impacted you. However, no documentation is required to prove this impact. 

To see if you qualify, reach out to your specific mortgage servicer or lender. You should find this contact information on your latest mortgage statement.

Refinance with Your Lender

Refinancing is another option homeowners should consider. Depending on the specifics of your current home mortgage, you may be able to obtain lower monthly payments. Fortunately, the recent housing boom has significantly increased home values for many people. This means homeowners may qualify for refinancing after just a few years of homeownership.

Homeowners with an FHA, a VA, a USDA or another federally backed loan may qualify for a Streamline Refinance process. With this process, eligible homeowners can refinance their home mortgage without a credit check or proof of employment. In fact, with a Streamline Refinance, you may not even need to go through the appraisal process. This means you may be able to refinance your home even if you have little or no equity.

Even if you have a private loan, you may be able to refinance your home loan to lower your monthly payments. If you’re not able to refinance your current home loan, you may be able to request a loan modification. For example, you may be able to change the terms, interest rates or structure of your current mortgage. 

When seeking a new home mortgage, it’s important to understand how credit works when buying a house. Before you start the process, you should request a free credit score.

What Other Options Do I Have?

If you’re struggling to make your monthly mortgage payments or looking for a way to lower your monthly payments, compare your home affordability options. Be sure to talk to your mortgage servicer or lender to see what options are available.If you’re considering refinancing your current mortgage, be sure to compare various lenders. Compare current mortgage rates now.

Source: credit.com

Apache is functioning normally

Apache is functioning normally

This article originally appeared on RickOrford.com and has been republished here with permission.

Car owners throughout the U.S. almost always need to have a car insurance policy. With the financial considerations involved and the risks drivers face on the road, it’s important to weigh the cost of car insurance carefully. Do you think your car insurance is too high? If so, you can find cheap car insurance by shopping around. 

In certain ways, your car insurance costs may be a reflection of you and your driving habits. Auto insurance providers often base the rates they charge on important factors. Some of these include your credit score, where you live, your driving record, and the type of car you drive. Therefore, if your premiums recently shot up or seem too high, you need to determine the possible reasons for it. 

Reason #1: You Have Bad Credit

In most states, auto insurance companies use your credit score when calculating your car insurance premiums. Therefore, if you have a poor credit score, you may end up having to pay higher insurance premiums. However, the cost increase may depend on the auto insurance provider you choose and where you live. 

According to the Insurance Information Institute, credit-based insurance scores are confidential ratings based on the insured individual’s credit information. Many insurance providers use credit scores in combination with other factors to help determine premiums. This is typically the case for insurance lines such as personal car insurance. 

Reason #2: Poor Driving Record

Before giving you a car insurance policy, all insurance providers will want to know your complete driving record. This includes your traffic violations and accidents you had in the past. Even if the handful of accidents you had did not happen recently, you might still have to pay higher insurance premiums. The same applies to traffic violations. 

However, if you have a clean driving record, you should enjoy lower insurance premiums. When it comes time to renew your policy, your insurance provider will check your driving record for DUIs, accidents, speeding tickets, and other traffic violations. 

Your premiums may increase by as much as 20% after a speeding ticket. A DWI or DUI will cost you significantly more. You will also have to pay steep fines and attorney fees, in addition to an average premium increase of up to $800. 

The reason for this difference in rates is that drivers with poor records are more likely to make more claims in the future. 

Reason #3: Coverage Levels and Types

The type of coverage you choose and the level of insurance you have can greatly influence your insurance rates. Every state decides its own rules and requirements for minimum coverage requirements on any type of policy. 

For example, some states have basic minimum requirements for property damage and bodily injury coverage. Others require additional coverages such as underinsured and/or uninsured motorists and personal injury protection or medical payments coverage. 

A state like South Carolina, for instance, requires drivers to carry the following:

  • A minimum coverage of $25,000 per person for bodily injury
  • $50,000 per accident
  • $25,000 in uninsured motorists’ coverage and property damage coverage within the same limits

Since the minimum requirements for drivers differ by state, you may start with different rates and coverages just on a basic liability insurance policy alone. Furthermore, if your car has a lien, you may need to have additional coverage or higher limits, which would affect your annual rates. 

The answer to the question “Why is my car insurance so high?” may lie in the type of coverage you have. Generally, the more coverage your car has, the more you should expect to pay.

For example, do you have a full coverage insurance policy, which includes collision and comprehensive coverage? If so, it may cost you about 170%  more in premiums than a policy with liability coverage only. 

Reason #4: Your Claim History

Even if you only have a couple of accidents on your driving record, the resulting payouts will impact your insurance premiums. Of course, a driver with a couple of minor fender benders is a significantly lower risk than one who previously totaled several cars. 

Whether the accidents were your fault or not, the number of claims you file will have an impact on your insurance rates. A no-fault accident can lead to a 10% increase in your premium and remain on your record for up to three years. 

However, some states do not allow insurance providers to increase premiums after a no-fault accident. However, filing a claim for such an accident will still count towards your total number of claims. 

Related read: How an Accident Can Affect Your Credit Score

Reason #5: Your Car

When setting premium rates, car insurance providers consider the type of car to be insured. Some types of cars are more likely than others to keep occupants protected in the case of an accident. This results in lower insurance rates.

However, drivers of high-powered cars such as sports cars are statistically more likely to drive recklessly. This makes these drivers more likely to cause accidents, resulting in higher insurance rates. 

According to some studies, safer and bigger cars, such as small SUVs and minivans, tend to have the most reasonable rates of insurance. Smaller cars, on the other hand, have surprisingly high rates. One reason for this could be because they tend to sustain more extensive damage in a crash. 

Reason 6: Where You Live

Car insurance costs vary widely across the United States. If you reside in Michigan, one of the most expensive states for auto insurance, you can expect to pay several times more than people living in Maine, for example. 

Various factors affect insurance rates in each state. These include the number of uninsured drivers, condition of the road network, minimum coverage amounts, and more. That said, you need to understand that insurance rates can vary within a state or city as well. 

For example, if you live in an area with narrow roads that frequently lead to accidents, you may have to pay more for insurance than you would if you lived elsewhere. Those who live in areas with high rates of auto thefts tend to pay more for car insurance as well. 

Reason #7: Your Age or Gender

“Why is my car insurance so high?” This is a question many younger drivers tend to ask. According to the Insurance Information Institute, mature drivers tend to have fewer accidents than less experienced drivers, especially teenagers. This is the reason less experienced drivers pay more for car insurance. 

Also, your insurer will charge you more if you let teenagers and young adults below 25 drive your car. If you have young drivers on your insurance policy, you may end up paying higher premiums.

Your gender may also affect how much you pay for car insurance. Statistically, men tend to get into more accidents and have more DUI-related accidents. Furthermore, they tend to have more serious accidents than women. These are the reasons why women tend to pay less for car insurance than men. 

Young men are likely to pay a lot more for auto insurance. A 20-year-old man, for example, may have to pay about 16% more on his insurance premium than a woman of the same age.

However, as drivers age, the difference in rates tends to even out. Often, older women pay slightly more for car insurance than men of the same age. However, in this case, the difference in rates is quite small. 

Reason #8: Your Insurance Company

Your car insurance may be expensive because your insurance provider charges higher rates. Rates vary dramatically among different insurance providers. Therefore, you could be paying significantly more than necessary. 

According to one study, among the top ten auto insurance providers nationwide, the average price of basic coverage for a good driver is about $440 for six months. However, that same driver could be paying just $309 from one company or as much as $625 from another of the top companies.

Therefore, if you have a good driving record, you could save up to 51% in insurance savings by switching companies. 

Reason #9: Your Driving Patterns

Simply put, you and your insurance provider are at higher risk the more often you’re on the road and the further you drive. If you travel great distances to and from work, driving your car may eliminate some of the inconvenience. You just listen to your favorite music or podcasts to pass the time as you drive to work every day. 

However, you may be paying a higher insurance premium for that convenience. When you apply for insurance coverage, your insurance provider will want to know where you work and where you live. This will help them have a better idea of how far you drive regularly. 

Reason #10: You Have Low Deductibles

When buying car insurance, car owners typically choose a deductible. This is the amount they would need to pay before the insurance provider picks up the tab in the event of theft, an accident, or any other type of vehicle damage. 

Depending on the type of policy you choose, your deductibles may range from $250 to $1,000. However, there’s a catch. Generally, the lower your deductibles are, the higher your annual insurance premium is. 

Reason 11: You Pay for Coverage You Don’t Need

If you think your car insurance is too costly, you need to take a closer look at your policy. Do you need to pay for things such as car rental coverage and roadside assistance? Although such coverage can provide some convenience, they are not the most important things to pay for. 

Reason #12: You Have Gaps in Your Car Insurance

Many auto insurance companies consider the continuity of a car owner’s auto insurance. If you’ve had lapses or gaps in your car insurance history, you may be pegged as a high-risk car owner. As a result, your premium rates may increase by as much as 8% per year. The rate increase goes up to 35% if the coverage lapse extends beyond 30 days.

These penalties may also vary depending on your auto insurance provider. Make sure you ask your provider about how an insurance lapse would affect your premium rates.

The Bottom Line

To find out why your insurance rates seem to be expensive, you must first understand how auto insurance companies determine your rates. Fortunately, in most cases, you can do something about your unnecessarily high car insurance premiums. This may involve adjusting your driving habits or filing fewer claims, if possible.

In addition to shopping around for the best auto insurance rates and the right policy, you should look for discounts as well. These discounts may be applicable to drivers with good records, student drivers, and members of the military. Check your provider’s website to determine the types of discounts they offer. 

The more information you have, the easier you can identify the factors contributing to your car’s high insurance rates. 

Source: credit.com

Apache is functioning normally

Apache is functioning normally

A website popped up today selling “I Hate Mortgage Brokers” t-shirts and other various products such as baseball hats and teddy bears to foreclosure victims looking for a little bit of payback.

While I’m not sure why one would purchase a teddy bear with the message, “Mortgage Brokers SUCK!” on it, this clearly reveals the mortgage crisis’s firm foothold in pop culture.

The site selling the t-shirts asks if you’re “angry at the mortgage industry,” and offers pissed off Americans a chance to stick it to the man by donning a t-shirt with the message, “Beware of the Mortgage Broker” emblazoned on the front.

If that’s not clever enough for you, you can grab a t-shirt with the phrase, “I hate Lawyers Mortgage Brokers!”

Of course, if you’ve “lost everything” as the site mentions, you’d have to mull it over before spending what little you have left on a t-shirt that costs $20, but hey, that’s your decision.

I must say it’s a bit sad that the mortgage broker continues to get slammed for the mortgage crisis, as it’s clearly more complicated than that.

There were certainly scores of bad brokers and loan officers out there, but without the opportunity to push incentive-laden option arms and other toxic mortgages offered by banking giants and mortgage lenders, the crisis would not be where it is today.

Oh yeah, and the site also has an online petition aimed at lobbying for stronger mortgage industry regulation, with the goal to gather 1.5 million signatures by December 31.

Source: thetruthaboutmortgage.com

Apache is functioning normally

Apache is functioning normally

Mortgage rates actually recovered a bit on Friday as the underlying bond market experienced a modest correction after spiking to the weakest levels in more than a decade over the past 2 days.  Despite the improvement, mortgages are also still near multi-decade highs.  Why is this the case when the Fed didn’t hike rates this week?

This counterintuitive movement is fairly common when it comes to the 8 Fed meetings each year.  Rates have fallen on several occasions when the Fed hiked throughout this rate hike cycle.  There are several reasons this can happen.  Some are complicated, but two of the simplest reasons are all we need this time around. 

First off, the Fed only has 8 scheduled opportunities to update rates every year while the bond market has thousands of opportunities every day. Because of that, a Fed rate hike is often just a lagging development that the market has already priced in.  The Fed actually tries to avoid surprising the market when it comes to hikes/cuts.  Via speeches and press conferences, it effectively preps the market for potential changes. 

The market can trade these expectations in a variety of ways.  The most direct is via Fed Funds Futures, which give traders a way to bet on the level of the Fed Funds Rate on any given month well into the future. Traders haven’t budged in their expectation of this week’s meeting resulting in a 5.375% Fed Funds Rate for months!

In other words, when the Fed held rates steady this week, it wasn’t a surprise to anyone and the market was already priced for it.  We can thus rule out the rate decision as the catalyst for the mortgage rate volatility and look elsewhere.  We won’t need to look far.

On 4 out of the 8 Fed announcements per year, and at the exact same moment as the Fed Funds Rate decision, the Fed also releases a “summary of economic projections.”  Among these forecasts is a dot plot showing where each Fed member sees the Fed Funds Rate at the end of the next few years.  These so-called “dots” have become a big deal for financial markets despite Fed Chair Powell’s requests to avoid reading too much into them.

The market doesn’t care about the dots due to some amazing track record of accuracy from the Fed.  Rather, they simply offer a very detailed update as to how the Fed’s decision-making process is evolving  when it comes to future rate hikes/cuts.  If the average Fed member expected rates to be almost 1% lower by the end of 2024 and now only sees them being 0.25% lower, that would tell the market a lot about the Fed’s intention to keep rates higher for longer, all other things being equal.

That is exactly what happened.

Markets expected the dots to rise, but not by this much.  Neither stocks nor bonds (aka rates) were happy about it.

Traders had already been pricing in a “higher for longer” path for the Fed Funds rate based on recent economic data.  In the bigger picture, this week’s revelation didn’t materially alter the trend in those expectations, but it did give them a noticeable bump.  Here’s how the market’s outlook for the Fed Funds Rate in September 2024 has been evolving.

The “bump” just happened to hit when rates were already near long-term highs.  The average 30yr fixed rate didn’t technically break above the highest level seen last month, but it came within 0.01% based on the more timely data from Mortgage News Daily.  We expect Freddie’s weekly numbers will challenge multi-decade highs next week.

Why is all this happening?  In a nutshell, the Fed Funds Rate is a blunt instrument tasked with fighting inflation.  Inflation has been coming down, but it’s still high and a bit of a rebound can’t be ruled out due to things like higher fuel prices, auto worker strikes, and an adjustment in the way certain health care costs are calculated.  In addition, the Fed is not yet seeing the type of downturn in economic data that would suggest impending disinflation.  

That last point is a matter of debate as some critics say the Fed has already done enough and simply needs to give their policy more time to have an impact.  The Fed admits that this economic cycle is different than past cycles and that there’s no way to know with certainty when it’s time for a friendly shift.

Regardless of who’s right about the timing of a policy shift and whether enough has already been done, most can agree that it will be economic data that serves as the trigger for a change.  Not just any economic data will do.  The Fed and the market are both focused on several of the highest impact reports.  Most of them will be released on the first week of October.  If they take a turn for the worse, rates would likely recover.  If they continue to surprise to the upside, so will rates, unfortunately. 

Source: mortgagenewsdaily.com