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Housing Rental Affordability is Continuing to Decline For Millions in the USA

The number of USA households spending more than 50% of their income on rent is expected to rise at least 11% to 13.1 million by 2025, according to new research by Harvard University’s Joint Center for Housing Studies and Enterprise Community Partners.

The findings suggest that even if trends in incomes and rents turn more favorable, a variety of demographic forces—including the rapid growth of minority and senior populations—will exert continued upward pressure on the number of severely cost-burdened renters.

Under the report’s base case scenario for 2015-2025, the number of severely burdened households aged 65-74 and those aged 75 and older rise by 42% (830,000 to 1.2 million) and 39% (890,000 to 1.2 million); the number of Hispanic households with severe renter burdens increases 27% (2.6 million to 3.4 million); and the number of severely burdened single-person households jumps by 12% (5.1 million to 5.7 million).

Graph from the report. The blip of an improvement from 2010 to 2013 is due to the decline in home ownership which changed the makeup of the “rental population.” Moderate (severe)
burdens are defined as housing costs of 30–50% (more than 50%) of household income. Households with zero or negative income are assumed 30 to be severely burdened, while renters not paying cash rent are assumed to be unburdened.

Enterprise Community Partners argues for more government action on affordable housing. I am worried about such efforts being done in a sensible way but I do agree with the concept of supporting affordable housing. I would use zoning to require affordable housing construction along with market rate housing.

Doing such things well requires a government that is not corrupt and fairly competent which isn’t so easy looking across the USA (unfortunately). An example of somewhere that does this fairly well is Arlington Country, Virginia (which also has a good non-profit focused on affordable housing). Good non-profits can play a vital part in affordable housing over the long term.

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September 30, 2015
Kiva Zip Is Ending Direct Loans to People in Kenya

My comments on a post by Kiva about their decision to end the Kiva Zip (direct to people loans – no intermediary financial institution) program in Kenya.

Thanks for your efforts and the explanation. I am very happy Kiva is trying new ideas (like Kiva Zip). I also think it is important to evaluate those efforts and when they don’t work as well as desired attempt to improve but if things still lag pull the plug. I was happy to have made several Kiva Zip loans to Kenya (and elsewhere).

I do think it is very important to retain an infrastructure for those people you got to try the new effort with, as I believe Kiva will. This has to be part of any innovation efforts – a budget to include unwinding the effort in a way that is in keeping with Kiva’s mission to help people. I strongly believe in efforts to avoid abandoning those who worked with you in general, but for those taking loans from Kiva it is much more important than normal.

Keep up the good work. And keep challenging Kiva to get better and not get complacent when things are not going as well as they should. I am happy to continue to lend to Kiva but I also am concerned that the focus on making a difference and making people’s lives better can be lost in the desire to grow.

I made a loan via Kiva zip for Hilda to buy a posho mill machine. The loan was repaid in full.

The Curious Cats group on Kiva has made over $27,000 in loans to entrepreneurs around the world (the way Kiva works the groups, they don’t include Kiva Zip loans). You can join us. I believe in the model of micro-finance (Investing in the Poorest of the Poor [this one is grants instead of loans]), though I also believe we need more data on real experience of borrowers. Kiva Zip gives loans directly to people with a 0% interest rate. Normal Kiva loans have financial institutions (some of which are charities but they still have expenses) make the loans and Kiva lenders provide capital (at 0%) but the borrowers have to pay interest (the idea is they pay lower interest since the financial institution has a 0% cost of capital).

Related: Kiva Loans to Entrepreneurs in Columbia, India and Kenya – Kiva Loans Give Entrepreneurs a Chance to Succeed (2011) – Using Capitalism to Create Better Lives in Mali (2009)

September 16, 2015
The Fed Should Raise the Fed Funds Rate

The USA economy is far from strong. The global economy seems even weaker. Inflation is not an imminent risk. Under such conditions the USA Federal Reserve adding gasoline to the economy via low interest rates makes sense.

The issue I see is that a .25% Fed Funds rate is adding gasoline to the economy via low interest rates. Many people are saying an increase is like taking away the gasoline and taking out a fire extinguisher. But it really isn’t. Raising the rate to .25% is slightly decrease the amount of gas you are adding to the fire. A .25% Federal Funds rate is pouring nearly as much gas on as you are able to but not quite the absolute most you are able to.

It is also true that the Fed bailing out the too-big-to-fail bankers and banks resulted in them not only opening up the gasoline as much as possible (taking rates to 0) they even went far beyond that with new methods of pouring on gasoline that hadn’t even been considered until the bankers’ risk-taking doomed the economy (and bankrupted their institutions – without government bailouts propping them up).

The Federal Reserve has finally turned off the massive extraordinary dumping of gasoline onto the economic fire (via quantitative easing). But they have kept not only dumping lots of gasoline on the economy but doing so to the absolute maximum possible via a 0% Fed Funds rate.

Arguing for slowing the amount of fuel you are dumping into the economy is not the same as saying you are constricting the economy. We have been put into a crazy global economic condition by the too-big-to-fail bankers and the massive amounts of government and personal debt taken out. So simple analogies are not effective in making policy.

The analogies can help explain what the intent and expectation of the policy is. It is true we have created a very tenuous economic foundation (and we haven’t in any way substantial way addressed the risk too-big-to-fail bankers can throw the global economy into and we still have massive debt problems). The main beneficiaries of the central banker’s policies the last nearly 10 years are too-big-to-fail bankers and those borrowing huge amounts of money.

Those suffering from the policy are savers and I fear those that have to cope with the aftermath of this massive intervention with likely bubbles (government debt, personal debt [including education debt in the USA, etc.]). The main reason I believe rates should be raised are to begin the path to stop transferring wealth from savers to too-big-to-fail bankers and those with massive debt problems.

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September 2, 2015
The Risks That Lead to Bankruptcy
The Leading Causes of Bankruptcy

The most important thing you can do to avoid bankruptcy is understand why a million people a year end up filing bankruptcy. 4 out of the top five reasons starts with medical expenses. This is followed by:
- Job loss
- Divorce
- Unexpected disaster
In some ways, all four items can be categorized as unexpected disaster. If we expanded the list just a bit more, it would include failure to have a proper financial plan. By now, the unexpected is so common, we ought to be expecting it. When the vicissitudes of life catch us completely off guard, bankruptcy is often the result.

This is why a proper emergency fund is so important for any personal financial plan.

Learn to Properly Use Credit

I separated poor or excessive use of credit from the rest as it is the only one of the top five that is self-inflicted. By now, it should be clear that using credit appropriately is important for a successful financial life.

Many people advise those struggling with debt to cut up the credit cards. Other financial advisors say just the opposite. Store credit cards such as those from Walmart can actually prove beneficial in the right hands. Today we have many personal financial tools at our disposal, if we use them wisely they can be very helpful, if you use them foolishly we will pay.

Live Below Your Means
One of the biggest mistakes people make is to live up to their means. They commit to all kinds of services they can afford at the time. But because Job instability is such a real and present reality, the loss of even a little bit of income suddenly leaves us living above our means. We need to adjust our lifestyle expectations to something lower than what we think we can afford.

Even applying this advice to the best of your ability, you still might have to file for bankruptcy. It is important to know that bankruptcy is not the end of the line. There are those who can help you recover. Bankruptcy is not a punishment, but a solution. It is the ultimate second chance.Â

If you fall into bankruptcy the important thing is to change your habits and practices to take advantage of your second financial chance.
August 24, 2015
Adding 50,000 Jobs a Month is the New 150,000 in the USA Due to Demographic Changes

For job growth, 33,000 — not 150,000 — is the new normal

To absorb today’s slower growing population, we only need about 50,000 net jobs a month, not 150,000. In the next few years, the standard will fall to about 33,000.
…
the Census Bureau predicts the working-age population will grow just 50,000 per month over the next 15 years.

The amount of time I spend focusing on economic data is fairly limited (compared to people doing so for a living or as a large part of their job). I stick with general rules of thumb that I can tweak a bit to let me keep up with economic conditions without a huge amount of time devoted to such efforts.

Due to my temperament; to my belief that markets often overreact in the short term; and partially to my less detailed understanding of economic data (that professionals focused on it all day) leads me to get less excited about individual data points. This is helpful for my overall investing performance, I believe.

Occasionally changing conditions require changing those rules of thumb. The 150,000 figure is one I have used for a long time; though I also adjust that for major medium term influences (such as the great recession dumped so many people out of jobs that I bumped up my “we need to add” monthly job figure to 175,000 to 200,000 to bring those people on board.

My 175,000 to 200,000 included a slight adjustment down from the 150,000 that I had made. In addition to using simple ideas like 150,000 monthly job baseline I incorporate the idea of not overreacting to variation in short term data as well as tweaking those numbers for medium term economic conditions (things like recovering from the great recession – though that is about the largest “tweaking” factor that I remember).

This article made me realize how much I should adjust my expectations for a neutral job growth reading in the USA going forward. I also gather data and opinions as I think about making major adjustments to my thinking. I’ll adjust from what I had been using of a base of 125,000 plus 50,000+ for great recession recovery to 75,000 + 50,000 for great recession recovery now (and adjust more later if other sources indicate it makes sense). The great recession recovery factor will likely go down to 25,000 for me by the end of this year.

Related: There is No Such Thing as “True Unemployment Rate” – Long Term View of Manufacturing Employment in the USA (2012) – USA Individual Earnings Levels for 2011: Top 1% $343,000, 5% $154,000, 10% $112,000, 25% $66,000 – GDP Growth Per Capita for Selected Countries from 1970 to 2010 (Korea, China, Singapore, Indonesia, Brazil

August 7, 2015
USA Tax Rules When Selling a House

When you sell your primary residence in the USA you are able to exclude $250,000 in capital gains (or $500,000 if you file jointly). The primary test of whether it is your primary residence is if you lived there 2 of the last 5 years (see more details from the IRS). You can’t repeat this exemption for 2 years (I believe).

It doesn’t matter if you buy another house or not, that exclusion of up to $250,000 is all that can be excluded (you must pay tax on anything above that amount – taxed at capital gains rates for long term gains).

For investment property you can do 1031 exchanges which defers capital gains taxes. Otherwise capital gains will be taxed as you would expect (as capital gains).

When you inherit a house the tax basis will be “stepped up” to the current market rate. So if you then sell your basis isn’t what the owner paid for it, but what it was worth when it was given to you.

Related: Looking for Yields in Stocks and Real Estate – Your Home as an Investment – Home Values and Rental Rates

July 19, 2015
Using Credit Appropriately is Important for a Successful Financial Life

Credit is the ability to buy now and pay later. It takes credit to get an auto loan, a mortgage and other types of financing. Your credit score says a lot about your credit habits. This is a three-digit number ranging from 300 to 850, and it tells creditors how likely you are to pay your bills. The higher your credit score, the better your chances of getting approved for financing and the lower your interest rate will be.

Credit has many benefits. Most people can’t pay cash for homes, college education or new cars. Without loans, buying a house or car would be impossible for many. And since it takes credit to build credit, many people apply for their first credit card in college to establish a credit history. A credit card also provides emergency funds when we’re short on cash.

Although we use credit regularly as consumers, there are dangers associated with credit. We can avoid some of these problems with responsible use. But unfortunately, credit management education isn’t taught in high school, and many adults don’t learn about credit management until after they’ve made mistakes.

Potential Dangers of Credit
Credit puts a lot of things within our financial reach, so it’s easy to get in over our heads. We might not have enough in savings to purchase an electronic device or take a vacation, but with one quick application, we can get approved for financing and take advantage of life’s pleasures. There’s nothing wrong with getting a loan. But some people can’t stop using credit and they get into serious debt.

Too much debt has a significant negative impact on your personal finances. Paying off that debt will reduce your available disposable income to build an emergency fund (if you haven’t done so already) or save for retirement a house or other large purchases.

Of course, debt isn’t the only thing to be concerned with. Getting credit also means you’re vulnerable to identity theft. This is one of the fastest growing crimes in the U.S. And while some people think it can’t happen to them, no one is invincible.

Keeping Your Credit Report Accurate
Identity theft involves someone stealing your personal information and purchasing items in your name or opening new accounts in your name. It can drive down your credit score and take several months or years to fix. Identity theft often goes unnoticed because some people never monitor their personal credit reports or file credit disputes

You might wonder, what is a credit dispute? As a consumer, you have the right to check your credit history and receive one free credit report from each of the bureaus annually. You are entitled to ask questions about anything included within your credit reports.Â

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June 30, 2015

The 20 Most Valuable Companies in the World – June 2015

The 10 publicly traded companies with the largest market capitalizations. Since October of last year the top 20 list has seen quite a bit of profit for stockholders (mainly in Apple and Chinese companies).

	Company	Country	Market Capitalization
1	Apple	USA	$741 billion
2	Microsoft	USA	$374 billion
3	Google	USA	$370 billion
4	Exxon Mobil	USA	$352 billion
5	Berkshire Hathaway	USA	$346 billion
6	China Mobile	China	$340 billion*
7	Industrial & Commercial Bank of China	China	$306 billion**
8	Wells Fargo	USA	$292 billion
9	GE	USA	$275 billion
10	Johnson & Johnson	USA	$273 billion

Apple’s market cap is up $115 billion since the last list was created in October of 2014. That increase is more than 50% of the value of the 14th most valuable company in the world (in October 2014).

China Mobile increased $100 billion and moved into 6th place. Industrial and Commercial Bank of China (ICBC) increased $78 billion to move into 7th place.

Exxon Mobil lost over $50 billion (oil prices collapsed as OPEC decided to stop attempting to hold back supply in order to maximize the price of oil). Alibaba (the only non-USA company in the last list) and Walmart dropped out of the top 10.

The total value of the top 20 increased from $5.722 trillion to $6.046 trillion, an increase of $324 billion. Several companies have been replaced in the new top 20 list.

The next ten most valuable companies:

	Company	Country	Market Capitalization
11	JPMorgan Chase	USA	$250 billion
12	China Construction Bank	China	$250 billion**
13	Novartis (NVS)	Switzerland	$246 billion
14	Petro China	China	$237 billion
15	Wal-Mart	USA	$236 billion
16	Tencent	China	$235 billion**
17	Nestle	Switzerland	$235 billion***
18	Facebook	USA	$231 billion
19	Hoffmann-La Roche (ROG.VX)	Switzerland	$231 billion
20	Alibaba	China	$226 billion

Market capitalization shown are of the close of business last Friday, as shown on Yahoo Finance.

The current top 10 includes 8 USA companies and 2 Chinese companies. The 11th to 20th most valuable companies includes 4 Chinese companies, 3 Swiss companies and 3 USA companies. Facebook (after increasing $21 billion), China Construction Bank (increasing $68 billion – it is hard for me to be sure what the value is, I am not sure I am reading the statements correctly but this is my best guess) and Tencent moved into the top 20; which dropped Procter & Gamble, Royal Dutch Shell and Chevron from the top 20.

A few other companies of interest (based on their market capitalization):

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June 8, 2015

Survey Data on Boomers Experience with Working During Retirement

A new study, Secure Retirement, New Expectations, New Rewards: Work in Retirement for Middle Income Boomers, explores how Boomers are blurring the lines between working for pay and retirement (as I have discussed in posts previously, phased retirement).

From their report:

Middle-income Boomers working in retirement describe an experience different than their work experience before retirement. Most Boomers look for more flexible work arrangements and scheduling, and many try new career paths in different industries. In addition, middle-income Boomers working in retirement find that they are highly satisfied with their work, even more so than they were with their work before officially “retiring.” In exchange for this flexibility and satisfaction, retired Boomers are willing to work for less money than they were making before retiring.

The define middle income as income between $25,000 and $100,000 with less than $1 million in investable assets and boomers as those born between 1946 and 1964.

Nearly 70% of retirees retired earlier than they planned to. Many did so due to health issues. Only 3% retired so they could travel more.

48% of middle income boomer retirees wish they could work. For those wishing to, but unable to work: 73% cannot due to health, 17% can’t find a job and 10% must care for a loved one.

Only two in ten (21%) nonretired Boomers would be willing to take a pay cut for their work in retirement, while more than half (53%) of currently employed retirees report making much less per hour in retirement.

Nearly all (94%) nonretirees who plan to work in retirement would like some kind of special work arrangement, such as flex-time or telecommuting, but only about one third (37%) of currently employed retirees have such an arrangement.

It seems to me, both employees and employers need to be more willing to adapt. Workers seem to be more willing, even though they claim they are not: this is mainly a revealed versus stated preference, they claim they won’t accept lower pay but as all those that do show, they really are willing to do so, they just prefer not to. This report is based on survey data which always has issue; nevertheless there are interesting results to consider.

61% of middle income boomers who ware working say they do so because they want to work, not because they have to work.

Of middle-income retirees who are currently working, nearly two-thirds (63%) took six months or less off between the start of their retirement and the start of their employment in retirement. In fact, more than one-third (35%) continued working immediately after they retired.

Only 12% of working middle income boomer retirees work full time all year. 60% work part-time. 7% are seasonal while 16% are freelance and 4% are other. Of those identifying as non-retired 75% work full time while 17% are part-time.

49% plan to work into their 70’s or until their health fails.

51% are more satisfied with their post-retirement work than their pre-retirement work. 27% are equally satisfied with their jobs.

As I have stated in previous posts I think a phased approach to retirement is the most sensible thing for society and for us as individuals. Employers need to provide workable options with part time work. The continued health care mess in the USA makes this more of a challenge than it should be. With USA health care being closely tied to employment and it costing twice as much as other rich countries (for no better results) it complicates finding workable solutions to employment. The tiny steps taken in the Affordable Care Act are not even 10% of magnitude of changes needed for the USA health care system.

Related: Providing ways for those in their 60’s and 70’s (part time schedules etc.) – Companies Keeping Older Workers as Economy Slows (2009) – Keeping Older Workers Employed (2007) – Retirement, Working Longer to Make Ends Meet

June 4, 2015
Profiting from Self Driving Cars

I believe a huge amount of money will be made due to self driving cars. Figuring out who will make that money is not easy.

The value of being able to use the time you are moving to your destination instead of concentrating on driving is huge. And the reduction in deaths, serious injuries, injuries, damages, frustration and waste of time caused by accidents will be a huge benefit to society. Many people attempting to focus on phone calls or whatever else instead of driving create lots of that damage due to accidents.

There will also be big restructuring in how the economy works. Car sharing (such as Zipcar) will greatly increase I think and Uber and Lyft will likely be big players in a move to driverless cars. It sure seems like fewer cars will be needed. Space wasted on parking cars should be greatly reduced. Deliveries will likely see big changes. The impact on the economy will be huge. Even the health care system may see billions in savings.

Toyota is an amazingly well managed company. They should capitalize on any important shifts in the auto industry. But will they do so for driverless cars? Will there be a decrease in demand for cars so large that Toyota losses more than it wins? My guess is the decrease in demand globally will not be huge for the next 10 years (of course I could be wrong). My guess is Toyota will do well, but may be caught a bit behind, but then will come back strongly.

For those that don’t think Toyota can innovate, remember the Prius. Also they have been big investors in robots. That they haven’t turned robots into a big business yet though may be a sign of weakness (related to turning innovation into business profits).

I think Toyota will do the best of the large traditional car companies at taking advantage of this opportunity. Honda would be my second pick.

Google has been at the forefront of the driverless car efforts; I first wrote about self driving cars in 2010 about Google’s efforts (on my Curious Cat Engineering Blog). They are willing to take big gambles. They have a very good engineering culture. They are very profitable. They haven’t done much at creating profitable businesses outside of search and ads though. Still I think they may be huge winners in this area. I would guess by licensing technology to others, but things are involving quickly we will see how it plays out.

Tesla has a great engineering culture with a priority given on innovation and customer focus. They are in the car industry though I don’t lump them with the “traditional car companies.” I give weight to the value Elon Musk will bring them. They have big potential to be one of the big winners in a self driving car future. But they have yet to create much profit. Will they be able to turn promising engineering and leadership into a huge business? I think the odds are good but that is still a difficult challenge. Others have much more money than Tesla. Apple has so much money they could even buy Tesla easily.

Elon Musk recently spoke about the current state and near term future:

“maybe five or six years from now I think we’ll be able to achieve true autonomous driving where you could literally get in the car, go to sleep and wake up at your destination,” Musk said. He added that it may take a few years beyond the point when the technology is ready for regulators to sign off on it.

Musk also stressed that the new Tesla autopilot system, which uses radar, ultrasonic sensing and cameras to create a sort of super-smart cruise control, obstacle avoidance and lane-keeping system, is not the same as a self-driving car.

Apple seems like a long shot to me. It doesn’t seem like the type of business Apple has gone into in the past. The argument for doing so is the huge pile of cash they have (over $170 billion which is an absolutely huge number – it is also a bit fake in that they have started borrowing tens of billions instead of spending that cash). The moves with the cash are based on 2 circumstances. First they would have to pay large amounts of taxes to use that cash in the USA (taxes are delayed as long as they hold it overseas). And second interest rates are so low, borrowing money hardly costs them anything.

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May 19, 2015