Personal Finance Blog By MoneyRates - December 2010
December 29, 2010
Amid consistently cheery reports about holiday spending, it was a little surprising to see consumer confidence dip in December. With rates on savings accounts, money market accounts, and CDs badly needing some sustained economic strength in order to get moving upward again, is this lapse in consumer confidence a setback for depositors?
About the Consumer Confidence Index
The Consumer Confidence Index is a monthly survey of 5,000 consumers overseen by the Conference Board, which is an independent business research organization.
The survey asks consumers whether they feel positively or negatively about various aspects of the economy, and the results are compiled into an index to see if optimism is increasing or decreasing over time. While the December result means that consumer confidence is no worse than it was a year earlier, it was a little jarring to see the Consumer Confidence Index decline from November's level in the midst of what seemed to be generally positive news about the economy.
Why was there a dip in December?
It's important to note that a survey of sentiment like the Consumer Confidence Index can be either a leading or a trailing indicator. In other words, consumer confidence may set the tone for spending patterns that drive the economy, but it also may simply be a reaction to economic news that has already been reported.
Further complicating interpretation of these results is the fact that consumers are very capable of disconnecting their behavior from their opinions--i.e., spending more even when they are concerned about the economy.
Perhaps the most telling aspect of the recent consumer confidence survey is that the percentage of consumers describing business conditions as "bad" and the percentage of those describing conditions as "good" both declined. This means that more survey respondents--most of them, in fact--wound up in the undecided middle. In other words, they don't know what to make of this economy.
That makes it easier to dismiss the significance of December's dip in consumer confidence--and to continue to hold out hope for higher savings, CD, and money market rates in the New Year.
December 28, 2010
The dreaded double-dip could be upon us--at least as far as the housing market is concerned, according to home price data released Dec. 28 by Standard & Poor's for its S&P/Case-Shiller Home Price Indices.
Home prices in 20 major metropolitan areas fell in October from September, and a composite index of 20 major cities fell 0.8 percent year-over-year. A 10-city composite index was up only 0.2 percent over October 2009.
"There is no good news in October's report," David M. Blitzer, chairman of the Index Committee at Standard & Poor's said in a press statement. "Home prices across the country continue to fall."
Only four metropolitan areas--Los Angeles, San Diego, San Francisco and Washington, D.C.--showed year-over-year gains.
Composite housing prices are still above their spring 2009 lows, but six cities set new lows since the 2006 peaks--Atlanta, Ga.; Charlotte, N.C.; Miami; Portland, Ore.; Seattle, Wash.; and Tampa, Fla., Standard & Poor's reported.
October was the fifth straight month in which annual growth rates fell from the prior month's pace. The measly 0.2 percent annual growth rate of the composite index of 10 cities, for instance, was well under the 5.4 percent growth rate reported in May. The 20-city composite, which fell by almost 1 percent in October year-over-year, posted a 4.6 percent gain five months earlier in May.
Existing home sales grim
"On a year-over-year basis, sales are down more than 25 percent, and the months' supply of unsold homes is about 50 percent above where it was during the same months of last year," Blitzer said in a statement.
The National Association of Realtors reported that existing-home sales, which bottomed out in July, rose 5.6 percent in November, but are still 28 percent below November 2009, the initial deadline for the first-time homebuyer tax credit. That deadline was then pushed to April 30, which helped prop up the housing market through the first part of 2010.
The housing inventory at the end of November fell 4 percent to 3.7 million existing homes for sale, according to the National Association of Realtors. At the current sales pace, it would take 9.5 months for all the homes to be purchased. That's down from a 10.5-month supply in October.
Current mortgage rates are still near historic lows, which along with low prices, makes for the most affordable housing market on record, according to the National Association of Realtor's most recent housing affordability index.
A 30-year fixed mortgage averaged 4.81 percent with an average 0.7 point for the week ending Dec. 23, according to Freddie Mac's weekly survey of mortgage rates. The average 30-year fixed rate one year earlier was 5.05 percent.
Posted in: Mortgage
December 27, 2010
The Wall Street Journal recently reported that December has been the busiest month for bank mergers and acquisitions in more than two years. Could this mark a turning point for beaten-down interest rates on savings accounts, money market accounts, and other deposits?
For bankers, love is in the air
Hancock Holding Company recently agreed to buy out rival bank Whitney Holding for $1.5 billion worth of Hancock stock. The combination creates a bank with $20 billion in assets--quite a substantial figure for a regional bank. Even more significant is the fact that this acquisition is part of a trend towards increased merger and acquisition activity in the banking business.
Why are banks trending towards mergers and acquisitioins? For some banks, raising capital can help them retire their TARP obligations, but the market is still too skeptical to offer a good price for new stock offerings by banks. Banks in a strong financial position are happy to oblige competitors seeking capital by buying them out--this can be viewed as a classic opportunity to buy when prices are depressed.
Will banks get more aggressive about deposit rates?
In the spirit of buying low, the merger and acquisition trend might also represent a sign of hope for interest rates on savings accounts, money market accounts, and other deposits.
Essentially, deposits represent two forms of value to bankers. They can act as capital to be loaned out as a profit, and they can also be a customer acquisition tool which creates an opportunity to cross-sell investment services and other profitable products.
The lending business is still being held back by a sluggish economy. However, that same sluggish economy may force banks to become more aggressive about finding ways to grow.
The recent merger and acquisition activity may be a sign that this is beginning to happen. Raising interest rates on savings accounts, money market accounts, and CDs would be another way of getting aggressive about adding new business. In fact, with many deposit rates barely above zero, it could represent an opportunity for shrewd bankers to acquire new relationships at bargain prices.
December 23, 2010
Q: My son is in high school and just got his first job. I have money set aside for his college tuition, but I want to teach him about saving money. How much of his tuition do you think it's fair to ask him to contribute?
A: Whether or not you've saved tuition money in advance, having your children contribute some of the money needed for college can be an opportunity to teach them about goal-oriented saving, and with any luck will help them recognize the sacrifice that goes into affording college. It also can help your children accomplish a very worthwhile college goal--graduating without a mountain of debt.
With that said, when a teenager starts working, it is important to let him or her see that work is not all about effort and sacrifice. It is important that anybody who is working gets to get enough spending money out of it to see the reward that comes with hard work.
So, when a high school student gets a job, the answer to how much of their earnings should be saved for college tuition comes down to circumstances. If you're struggling to come up with money for college, you may have to ask your child to put most of his or her earnings toward college, except for a modest allowance for spending money. If you can afford college more readily, come up with a system you both agree is fair--perhaps dividing the students earnings into three portions, where one-third goes toward college, another third goes toward savings for other needs (car, clothes, etc.), and the final third is available for immediate use.
When a child starts working, you should also take the opportunity to teach them about banking--the basics of checking accounts, CDs, savings accounts, and money market accounts, and how to shop for the best savings or money market rates.
Got a financial question about saving, investing, or banking?MoneyRates.com invites you to submit your questions to our "Ask the Expert" feature. Just go to our home page and look for the "Ask the Expert" box on the lower left.
Posted in: Miscellaneous
December 22, 2010
Asset manager TIAA-CREF recently announced the winner of a contest for ideas to encourage higher savings rates. MoneyRates.com wants to know if this idea would work for you--and whether you have a better idea.
Savings rates need encouragement
Certainly, the idea behind the TIAA-CREF contest is a good one--savings rates badly need encouragement. Americans, as a whole, borrow too much, save too little and are facing a gap in retirement savings. Despite these well-documented problems, public policy has favored borrowing over saving, in several ways:
- Interest on savings accounts, CDs, and money market accounts has been driven to levels so low that it represents virtually no incentive to save.
- To ease the housing crisis, mortgage rates haven't just been kept reasonable, they've been driven to record low levels in an attempt to encourage new borrowers.
- Interest paid on mortgage debt is often tax deductible while interest earned on savings accounts, CDs, money market accounts, or other savings and investment vehicles is generally not.
How can the playing field be leveled to encourage savers as much as borrowers are actively encouraged? The TIAA-CREF contest solicited ideas for making this happen.
The winning idea
The winning idea was submitted by Jonathan Chan, a recent graduate of Northwestern University. His suggestion was that savings should count positively towards a person's credit score. This means that savers would find credit more readily available when needed, and would probably be able to obtain it at lower interest rates.
A representative of FICO, a company that compiles credit scores, said that the suggestion of including savings into a credit score calculation would be redundant, since banks generally take into account such things along side credit score when making lending decisions.
It's also questionable how much putting an incentive in the form of credit scores would drive savings--successful savers are less dependent on credit scores anyway.
Still, the contest and the winning suggestion are steps in the right direction: higher savings rates do need to be encouraged. What do you think would be a workable approach?