News Is renting a better option for building a good credit score?

[edward]

I have finally found the answer to the changing American dream question.

Today, it seems, the American Dream has taken another hit. It is simply about being able to quit work before you die.

http://business.time.com/2011/09/13/downgrading-the-american-dream/#ixzz2fk4esJrK

 

[russ_watters]

Definitely Social Security is a huge problem, standing in the way of retirement for many, but you have to be careful with polls, as they are perceptions, not realities.

Still, the quote looks like it has little to do with the poll.

 

[OmCheeto]

I have finally found the answer to the changing American dream question.

Today, it seems, the American Dream has taken another hit. It is simply about being able to quit work before you die.

http://business.time.com/2011/09/13/downgrading-the-american-dream/#ixzz2fk4esJrK

Hey! That's my dream!

I've been working since I was about 9. My mom used to shuttle me and my six siblings to pick crops during the summer. Dreadful work. Then I got a job as a "Rangeman" (=cook the food and wash the freakin' dishes. Bah!) at a fast food joint when I was 16. Dreadful work. Then I joined the Navy at 18. Meh. There were good times and bad. Then I got out, as I decided I was terrified of submarines. The unemployment rate at that time for people in my field was 50%. All my potential employers told me to go to school. So I did, though for financial reasons, it did require me to move back in with my mother.

So I finished my first year of university in one year. Then I ran out of savings, and had to get a minimum wage job. So my second year took me two years to complete. Not too bad. My junior year though, took me three years, and I wasn't even done. I hit a pre-internet wall, where the only classes I could take to continue my degree, were offered during the summer. I calculated it would have taken me another 15 years to finish my degree at that rate. I switched to another university, and started taking evening classes. 6 months later, they closed the program.

At that point, I decided the world was working against me, so I dropped out of school, and bought a house. I was able to do that, because my employer had me doing the work of people who were being paid twice minimum wage, and I threatened to quit. So they made me regular staff, and, having lived quite uncomfortably at home with mommy on minimum wage, I saved all my excess funds.

25 years later, it appears that nothing has changed, for the young people of today.

Yesterday, I had someone in a fancy car pull into my driveway, while I was sitting on the front porch, and asked if he could rake my lawn. I said no, that I was about to do it myself. A couple of hours later, someone knocked on my door, asking for cans. I gave him my cans. He drove away in a fancy car.

Making a Living Collecting Cans
...
But collecting cans is a tough way to make a living. Traipsing around San Francisco all night is very different from scavenging during the day. Francis recommends a flashlight to avoid broken glass. A few recyclers sport gloves to deal with unexpected nastiness. Recyclers also contend with rats and raccoons.

The rats are audacious, man. They don’t run. I open up bins and they look up at me like ‘What?’

I wonder if this is what they meant by "rat race", back when I was a kid.

hmmm... It looks like we've arrived.

synopsis?

America is stupid.

----------------------------
though in 2³ * 5² days...

 

[EricVT]

I am 28 years old, so slightly older than those surveyed, but my aversion to home ownership stems from the "permanency" of it. Most of my family currently live in the same city they were born in and they never had any desire to move around. Makes sense for them to own a home, but for someone like me and many other young people who have no intentions of sitting still in one place for 10 (or 30+...) years, buying a home just seems like a complication.

 

[OmCheeto]

I am 28 years old, so slightly older than those surveyed, but my aversion to home ownership stems from the "permanency" of it. Most of my family currently live in the same city they were born in and they never had any desire to move around. Makes sense for them to own a home, but for someone like me and many other young people who have no intentions of sitting still in one place for 10 (or 30+...) years, buying a home just seems like a complication.

https://www.physicsforums.com/showpost.php?p=4412252&postcount=8

I rest my case...

And thank you Eric, for pointing that out. I've been adopting kids like you for years. Can't afford to pay your tuition yet, but someday...

 

[edward]

I am 28 years old, so slightly older than those surveyed, but my aversion to home ownership stems from the "permanency" of it. Most of my family currently live in the same city they were born in and they never had any desire to move around. Makes sense for them to own a home, but for someone like me and many other young people who have no intentions of sitting still in one place for 10 (or 30+...) years, buying a home just seems like a complication.

There is certainly nothing unusual about your aversion to permanency especially for someone your age and even older. This country would never have been existed if it hadn't been for that fact.

The ability to move around has also been a part of the American life style that we may have lost, although I know a number of people who had to move just to find work. They were all older (mid forties) looking for permanent work, and a place to start all over.

I don't know what you have been; schooled in, trained in, or your work history. Can you find a job in all of the places you plan on living for a few years? Some skills are much more compatible with moving around than others.

Wherever you go and whatever you do I wish you the very best.

 

[Astronuc]

From September 2013

By the Numbers: The Incredibly Shrinking American Middle Class
http://billmoyers.com/2013/09/20/by-the-numbers-the-incredibly-shrinking-american-middle-class/


Record Number of Americans Can’t Afford Their Rent
http://billmoyers.com/2013/12/09/record-number-of-americans-can’t-afford-their-rent/
December 9, 2013

 

[Astronuc]

AP IMPACT: The world braces for retirement crisis
http://news.yahoo.com/ap-impact-world-braces-retirement-crisis-054306102--finance.html

Many of those facing a financial squeeze in retirement can look to themselves for part of the blame. They spent many years before the Great Recession borrowing and spending instead of setting money aside for old age. In the U.S., households took on an additional $5.4 trillion in debt — an increase of 75 percent — from the start of 2003 until mid-2008, according to the Federal Reserve Bank of New York. The savings rate fell from nearly 13 percent of after-tax income in the early 1980s to 2 percent in 2005.

The National Institute on Retirement Security estimates that Americans are at least $6.8 trillion short of what they need to have saved for a comfortable retirement. For those 55 to 64, the shortfall comes to $113,000 per household.

. . . .

Moreover, it is a looming global crisis.

 

[edward]

What does student debt have to do with not being able to retire? A lot of older people are helping their children pay off student debt. And a lot of people who went back to school to advance their careers now have student debt themselves.

At age 51, Charlene Rose had hoped to be socking away money for retirement by now. But instead, she's still paying off her student loans, largely for a master's degree she got to advance her career. And now she's got three kids in college, each of whom is taking out student loans of their own to pay for higher education.

And a real mind bender:

student loan debt is growing among an age segment many may not think of as students: Fifty-somethings. Americans 50 to 59 years old owed $112 billion in student loan debt at the end of 2012, according to the New York Fed—up from just $34 billion in 2005. And there are a lot of them. And the average balance per person has increased. Today, they owe an average of $23,820—up from $14,714 in early 2005.

http://www.usatoday.com/story/money/business/2013/09/02/parents-student-loan/2749233/

 

[edpell]

There is an alternative to a mortgage, saving money, building yourself and building small.

 

[OmCheeto]

From September 2013
...
Record Number of Americans Can’t Afford Their Rent
http://billmoyers.com/2013/12/09/record-number-of-americans-can’t-afford-their-rent/
December 9, 2013

There is an alternative to a mortgage, saving money, building yourself and building small.

hmmm...

So what is your ideal option of getting by while saving money?

1. Live with mom and dad and your 6 siblings into your 30's.
2. Get a roommate.
3. Live in the woods.
4. Rent.

I suppose there are a lot more options. I've known people who have prostituted themselves for years, in one way or another, just to get by.

 

[edpell]

Your first three option seem reasonable. #1 is what the vast majority of humans have done for the past 8000 years.

 

[Office_Shredder]

It doesn't change the fact that that is NOT what Americans in the past forty years have typically done. The thread is about the changing American dream, it is certainly the case that home ownership has become more difficult than it was for previous generations, occurring later and costing more money relative to wealth for people who do buy homes. Since the home ownership rate has not gone up significantly this indicates that there is some fundamental shift in the economy.

However I think that much of this shift has been undone in the past five years. For example

http://globaleconomicanalysis.blogspot.com/2012/03/how-far-have-home-prices-really-fallen.html

has some good graphs showing housing prices vs inflation. Since the early 90's housing prices spiked enormously, then crashed around '07, and recently came back down to their mid 90's pricing level relative to inflation. So while people had a lot of trouble getting houses in the past 20 years, it might be the case that moving forward this is not as much a concern.

 

[mheslep]

Census data:

 

[Office_Shredder]

mheslep, that graph continues to trend down and is now down to 65.3%

http://www.census.gov/housing/hvs/files/currenthvspress.pdf

which is incidentally lower than what it was in 1980.
So the claim is that somehow increasing the home ownership rate from 66% to 68% caused a massive shift in the home ownership market.

http://research.stlouisfed.org/fred2/series/HOEREPHRE

A graph of what percent of the house value is in equity, we can see that it has fallen dramatically. It recovered a bit after the spike down from the crash, but is still significantly lower than it was in 1980. A lot of that effect is because mortgages from the bubble are still being held, and this might level itself out back to the 1970-1980 level over time but at the moment there is still a significant difference in home ownership debt and ability of people to own their home compared to older times.Furthermore the home ownership rate for people under the age of 35 is 36.8% (see Table 6 in the first pdf of my post) which has been trending down every year since 2007. Compare this to historical data

http://www.census.gov/hhes/www/housing/census/historic/ownrate.html

in which the home ownership rate for people under the age of 35 is traditionally in the 40+% category. So the trend we are seeing is that for young people it is only in the past several years that it is becoming harder to own your home compared to historical averages.

http://www.pewsocialtrends.org/2011/11/07/the-rising-age-gap-in-economic-well-being/

We can also compare median net wealth to what it was historically. Older people are in fact wealthier now than old people in the 80's but young people have significantly less wealth. The numbers all add up to make it appear that younger people are more in debt and less able to afford to purchase and pay off homes than in previous generations.

 

[russ_watters]

Trending down or cycling down?

 

[Office_Shredder]

Trending down or cycling down?

It's irrelevant whether the total home ownership rate is trending or cycling. The point is that we are currently very close to the historic average; the historic high was not terribly larger than the historic average to make one think there should be very long term ramifications,

The young person home ownership rate has dropped below what it was before the home ownership bubble started in the 90s

http://pages.towson.edu/mchamber/IE...ers Garriga Schlagenhauf (3rd Manuscript).pdf

and the home equity rate (total house value minus total mortgages divided by house value) has been generally trending down for 60 years at this point. This is the biggest point I want to emphasize, that people are owning houses at about the same rate but their financial position in owning these houses is a lot more tenuous than it was at any point in the past 60 years.

 

[russ_watters]

It is relevant to me what it is doing and what you meant you think it is doing. The difference is that in one case it implies a problem in need of fixing and in the other will fix itself/isn't an actual problem to begin with. These sort of statements /interpretations are misused constantly in economic discussions, so I'm looking for clarity.

Indeed, if it is currently cycling down it could still be true that the long term trend is up!

Considering that most people agree by now that most of the 1990s prosperity was due to bubbles, I find it difficult to consider the bursting of that bubble a "trend" that holds bad news for the American Dream.

 

[russ_watters]

More...
On equity rate:
It is also true that home prices rose for a long time and household sizes shrank, so the fact that the equity rate is falling seems an indication that people are buying more than they can afford, but not necessarily that they can afford less.

On home ownership rate for the young:
Yes, it's been going down for the past few years. That is to be expected because the economy hasn't yet recovered to "average" from the recession, particularly with respect to unemployment rate, which particularly affects the young.

The one worrisome trend I see (in terms of its effect on the American Dream) is the is the cost of college tuition. The last time tuition dropped from one year to the next as a fraction of median income was 1980 and since then it has gone up 250%. http://politicalcalculations.blogspot.com/2012/02/rising-unaffordability-of-college.html#.UuKrM9Io5ig

That really is a long term trend and one that has significant potential to damage standard of living, including homeownership, especially for younger people.

 

[edward]

And speaking of rising college tuition it just drives up student loan debt.

There are baby boomers who will reach retirement age still owing on college loans.

Baby boomers may die with college debt.

Student loan burdens are growing fastest among the over-60 crowd, many of whom sought graduate degrees during the recession.

It looks like unemployed middle age people going back to school to increase skill levels didn't work out so well in the long run.

Baby boomers are easing into retirement, but some may find their golden years are haunted by student loan debt that could follow them until they die.

It's not their children's debt, however -- it's their own. Many boomers returned to graduate school during the recession to bolster their skills, reports the Chronicle of Higher Education.

http://money.msn.com/now/post.aspx?post=6fe668fd-0119-4caa-8f4e-661a9da41a58$44 billion in student loan debt is owed by people over 60.

http://www.newyorkfed.org/studentloandebt/

 

[mheslep]

...
http://research.stlouisfed.org/fred2/series/HOEREPHRE

A graph of what percent of the house value is in equity, we can see that it has fallen dramatically. It recovered a bit after the spike down from the crash, but is still significantly lower than it was in 1980. A lot of that effect is because ...

The reduction in equity occurred because it was allowed to occur i) by lenders (visibly) w/ reduced equity requirements and no-doc loans, and by ii) easy money policies from the Fed. The combination led to speculation in house prices. Home loans with http://www.chron.com/news/article/No-down-payment-loans-now-available-5112277.php down payment are still available from several government agencies (FHA, Dept of Ag, Veterans Admin, etc) and aggressively marketed. Documentation requirements are also slipping again at the source, Fannie Mae

 

[edward]

The reduction in equity occurred because it was allowed to occur i) by lenders (visibly) w/ reduced equity requirements and no-doc loans, and by ii) easy money policies from the Fed. The combination led to speculation in house prices. Home loans with http://www.chron.com/news/article/No-down-payment-loans-now-available-5112277.php down payment are still available from several government agencies (FHA, Dept of Ag, Veterans Admin, etc) and aggressively marketed. Documentation requirements are also slipping again at the source, Fannie Mae

There was speculation because those no down no doc loans sold for a premium price on the mortgage market. On the other side there were hedge funds and banks betting against those same mortgages, Goldman Sachs included.

A lot of money was made from the housing crash.

http://www.npr.org/2011/05/02/135846486/how-some-made-millions-betting-against-the-market

Edited

Those three agencies you mentioned have always had low down loans. I don't currently see any aggressive marketing. They don't even carry the mortgages, the loans are carried by the private sector and the three agencies only insure a portion of each mortgage.

Aggressive marketing was when there were two full pages of offers by, new on the block, mortgage companies in the Sunday paper, and four or five a week in the mail.

 

[mheslep]

There was speculation ...

I was referring to speculation by the home buyers, the house flippers.

 

[mheslep]

Those three agencies you mentioned ... They don't even carry the mortgages, the loans are carried by the private sector and the three agencies only insure a portion of each mortgage.

Since 2009 most all mortgages in the US are immediately resold and bundled up into securities held by the US government in the form of one or more of those companies (Fannie, Freddie, FHA) or other govt. agencies.

 

[edward]

I was referring to speculation by the home buyers, the house flippers.

Are you sure it was just the buyers and house flippers?

Observers and analysts have attributed the reasons for the 2001-2006 housing bubble and its 2007-10 collapse in the United States to "everyone from home buyers to Wall Street, mortgage brokers to Alan Greenspan".[3] Other factors that are named include "Mortgage underwriters, investment banks, rating agencies, and investors",[4] "low mortgage interest rates, low short-term interest rates, relaxed standards for mortgage loans, and irrational exuberance"[5] Politicians in both the Democratic and Republican political parties have been cited for "pushing to keep derivatives unregulated" and "with rare exceptions" giving Fannie Mae and Freddie Mac "unwavering support".[6]

http://en.wikipedia.org/wiki/Causes_of_the_United_States_housing_bubble

 

[edward]

Since 2009 most all mortgages in the US are immediately resold and bundled up into securities held by the US government in the form of one or more of those companies (Fannie, Freddie, FHA) or other govt. agencies.

Nice chart notice the low involvement by Fannie and Freddie just prior to the crash. It was under 50% of the total market.

They are certainly active now or there would be no market at all. Fannie has Home Path and Freddie has Home Steps. They are programs to eliminate the backlog of foreclosures. People are looking at money down or a big mortgage insurance premium or both if they purchase these homes.

Although I have noticed that Home Steps by Freddie is starting to look like a scam and a sham using a single prime contractor method on all homes by region. Speculators get a big break on their program.

So who is buying up the foreclosures? Hedge funds and some of the same banks involved in the sub prime crisis.

http://www.newrepublic.com/article/112395/wall-street-hedge-funds-buy-rental-properties

I wouldn't exactly call being able to rent back a home a person once owned the American dream.

 

[Vanadium 50]

Actually, what that plot is showing is the exit of banks from the mortgage industry (particularly first mortgages). They can't compete with the Feds and make money - not with a 10% delinquency rate (2010). (Even in 1990, banks were not the primary lender) Second mortgages, refinances and HELOCs have been the bank's mainstays: less risk, so they have more margin.

As far as college costs go, college is expensive. There have been three significant changes in the last ~25 years. One is a decrease in subsidies, a second is an increase in administrative costs, and the third is an increase in majors and departments. The wide availability of student loans made students less cost sensitive than they would otherwise be.

 

[Astronuc]

http://news.yahoo.com/face-food-stamps-working-age-americans-155417479.html

WASHINGTON (AP) — In a first, working-age people now make up the majority in U.S. households that rely on food stamps — a switch from a few years ago, when children and the elderly were the main recipients.

Some of the change is due to demographics, such as the trend toward having fewer children. But a slow economic recovery with high unemployment, stagnant wages and an increasing gulf between low-wage and high-skill jobs also plays a big role. It suggests that government spending on the $80 billion-a-year food stamp program — twice what it cost five years ago — may not subside significantly anytime soon.

Food stamp participation since 1980 has grown the fastest among workers with some college training, a sign that the safety net has stretched further to cover America's former middle class, according to an analysis of government data for The Associated Press by economists at the University of Kentucky. Formally called Supplemental Nutrition Assistance, or SNAP, the program now covers 1 in 7 Americans.

The findings coincide with the latest economic data showing workers' wages and salaries growing at the lowest rate relative to corporate profits in U.S. history.
. . . .

Hmmmm. Doesn't seem that the fundamentals of the economy are very good - still.

 

[Vanadium 50]

I'm not sure that total dollars spent on SNAP is the best metric, for two reasons. One is that the benefit levels were increased by the ARRA bill, and the other is that there was a substantial effort on the part of the government to enroll new recipients. From a public policy point, these may well have been good ideas, but they do spoil the metric of total dollars spent on SNAP as a measure of poverty.

 

[edward]

I'm not sure that total dollars spent on SNAP is the best metric, for two reasons. One is that the benefit levels were increased by the ARRA bill, and the other is that there was a substantial effort on the part of the government to enroll new recipients. From a public policy point, these may well have been good ideas, but they do spoil the metric of total dollars spent on SNAP as a measure of poverty.

The issue isn't just about the total dollars spent. It is about the changing demographics of those using food stamps.

The new report shows that 50.2 percent of US households receiving food stamps since 2009 are made up of adults between the ages of 18 and 59 (or nonelderly, working-age adults). In 1998, the portion of such households getting food stamps was 44 percent, according to the report.

In addition, the findings show that the percentage of food stamp households headed by someone with a four-year college degree has increased from about 3 percent to 5 percent since 1980, and the share of beneficiaries who have at least some college training has leaped from 8 percent to about 28 percent. Households headed by adults with at least a high school diploma have jumped from 9 percent of food stamp recipients to about 37 percent over the past three decades, the report says. Thirty years ago households headed by high school dropouts accounted for the biggest chunk of food stamp recipients; now they account for about 28 percent of enrollees in the program.

http://www.csmonitor.com/USA/USA-Up...are-college-grads-half-are-working-age.-video