RESIDENTIAL LENDING/MORTGAGES -- What's Happening in Finance

By Eric Holmes
American Home Mortgage

A lot is happening in the residential lending business. And world money market trends impact all of our personal finances. I have put together some snippets of financial news -- serious and thought-provoking -- for your review.

1. STOCK PERFORMANCE - The S&P 500 has gained +72% (total return) in the four years since the Iraq war began in the early hours of March 20, 2003 -- an average annual return of +14.6% (source: BTN Research).

2. BACK TO A NEW HIGH - In the first 8 bear markets which produced at least a 20% decline in the S&P 500 in the last half century (1957-2007), the stock market eventually recovered 100% of the loss sustained, i.e., going above the previous bull market high. The average time the stock market took to recover back to a new closing high from the low point in the downturn was 19 months. The longest time it took to reach a new high was 69 ½ months following the end of the 1973-74 market drop. As of today, it has been 53 months since the low point from the 2000-02 bear market (i.e., the 9th bear market since 1957) and the stock market has not advanced back to the previous bull market high of 1527 from March 24, 2000 (source: BTN Research).

3. IT’S BACK - The Chinese Shanghai stock index opened at 3041 on February 27, the day that ultimately resulted in an 8.8% decline, setting off losses worldwide. It closed March 21 at 3057 (source: BTN Research).

4. IMPACT OF INFLATION - $1 million dollars will pay out a fixed amount of $6,000 per month for 28 years and 7 months assuming the principal continues to earn six percent annually. If the $6,000 monthly payment is increased by + three percent each year to account for the impact of inflation, the original $1 million dollars will last 18 years and 2 months. The mathematical calculation ignores the ultimate impact of taxes on the account which are due upon withdrawal, are for illustrative purposes only and are not intended to reflect any specific investment or performance. Actual results will fluctuate with market conditions and results will vary (source: BTN Research).

5. DID NOTHING - The Fed’s # 2 meeting of 2007 ended with a no-change decision, the central bank’s 6th consecutive meeting resulting in maintenance of the status quo. The Fed has either raised or lowered interest rates at least 1 time in each of the previous 13 calendar years (source: Federal Reserve).

6. REAL ESTATE FALLOUT - Some sobering news . . . 13% of adjustable rate mortgages taken out during the past three calendar years (2004-06) are projected to ultimately end in foreclosure (source: First American CoreLogic, Wall Street Journal).

7. DOLLAR DATA - As the financial woes of the mortgage industry continue and concerns about the health of our economy heighten, the value of the dollar has slipped in world markets. As of last Wednesday’s close, the euro had increased (i.e., dollar had fallen) to $1.3381, its highest value since March 16, 2005. A falling dollar theoretically increases the cost of foreign imports but drops the cost of US exports being sold abroad (source: BTN Research).

8. DIFFERENT COUNTRIES - Over the past 16 calendar years (1991-2006), the average American home has appreciated +139%. By comparison, residential properties in Japan declined in value each year for 15 consecutive years (from 1991-2005) and then gained just +0.1% in 2006 (source: OFHEO, Wall Street Journal).

9. TAX TRIVIA - Based upon the 2004 tax year, individual returns with at least $100,000 of adjusted gross income make up 12% of all returns and paid 65% of all federal income tax (source: IRS).

10. SPOILED ROTTEN - Of the 946 billionaires in the world today, the youngest is a 23-year old German prince worth $2 billion who first made this exclusive list as an eight-year old (source: Forbes).

11. BIGGER THAN MOST - To rank in the top one percent of American households based upon net worth (including the value of a family’s primary residence) requires a net worth of $6 million or more (source: Federal Reserve, WSJ).

12. THE CHECK IS IN THE MAIL - An individual retiring in 2007 who is eligible for the maximum social security benefit will receive $2,116 per month or $25,392 per year (source: Social Security Administration).

13. UNION BENEFIT - In August 2005 Shaquille O’Neal signed a 5-year, $100 million contract (i.e., an average of $20 million per year, $54,800 per day) to play basketball for the Miami Heat through 2010. But the 35-year old center still receives $106 of cash each day that his team is on the road (as all NBA players do) to spend as he chooses as a result of the league’s collective bargaining agreement (source: NBA).

Eric Holmes is a sales manager and mortgage planner with American Home Mortgage in Westerville, Ohio. He provides his clients with honest answers and straight advice on residential mortgages. Visit Eric on the web at: www.americanhm.com/Eric.Holmes