Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Shmuel has over two decades of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. Shmuel provides a uniquely holistic approach to comprehensive real estate and financial matters that goes well beyond any single transaction. Shmuel is an award-winning financier recognized for maximizing the short-term and long-term objectives of his client. As a contributing writer to many local and regional newspapers and publications, his insights have been featured in the media for many topics, including mortgages, personal finance, appraisals, and real estate trends.
Let’s first start with the indestructible stock market. Improving sentiment around the United States and China trade relations has contributed to the market’s record run over the past few days. The Dow, Nasdaq, and S&P have achieved record highs intra-day numbers and closings throughout the week. Upon reports of a U.S.-China agreement, yields on the 10-yr U.S. treasury spiked in the most prominent one day jump since President Trump was elected president. Markets are soaring.
In the next category of recording breaking news, U.S. households are now sitting on a record $14 trillion “household debt,” according to the New York Federal Reserve. Household debt, classified as mortgages, credit cards, student loans, and other forms of consumer debt has climbed about 25% from the post-recession low of $12.7 trillion. Consumer debt is now about $1.3 trillion higher than the previous peak set in 2008. Mortgages debt remained the most substantial chunk of U.S. liability, nearing $10 trillion. The overall credit card debt has increased for its sixth straight year, reaching an all-time high, and is greater than the pre-financial crisis peak.
As far as performance, according to the N.Y. Fed, about 11% of the $1.5 trillion of U.S. student debt was delinquent or in default. That’s the most for any loan type and is nearly double 2004 levels. Credit card rates recently hit an average of 17%, the highest level in at least 25 years, making this a very costly form of borrowing, which continues to grow at record levels. Despite the fierce competition to lure borrowers with flashy rewards and incentives, credit cards continue to be a highly expensive means of borrowing.
I read a recent LinkedIn post, by Billionaire hedge fund manager Ray Dalio, (founder of Bridgewater Associates, the world’s largest hedge fund), titled: “The World Has Gone Mad, and the System Is Broken.” He attacked the nation’s ballooning debt and disproportionate access to credit, which is fueling the wealth gap. He warned about enormous amounts of cash flowing to investors at ultra-low rates fueling the surge in debt across the world.
“Large government deficits exist and will almost certainly increase substantially, which will require huge amounts of more debt to be sold by governments — amounts that cannot naturally be absorbed without driving up interest rates at a time when an interest rate rise would be devastating for markets and economies because the world is so leveraged long,” Dalio wrote.
Admittedly, my tone is leading one to believe that I am worried about the speed and proportions of al the rising debt. I think I am not alone with these thoughts and concerns. I thought about it a lot this week as we continued to see increases in our own mortgage business activities and clientele. Mortgage activity continues to spike as buyers and owners are seeking to take advantage of low-interest rates before its too late.
That said, of the many categories of bulging debts that have been outlined above, a U.S. mortgage remains one of the safest and most viable loan options in the world. Unlike many other countries, we offer extended fixed-rate periods that can go up to 30 years, or even beyond. Aside from the interest being deductible, as many are familiar with, there are several other tax and legal benefits that homeownership and mortgage debt affords – which is beyond the scope of this article.
My recommendation to everyone is to analyze any debt that is not “contained.” Reach out to a mortgage financial advisor who can help make suitable suggestions to capitalize on the opportunities available today in a safe manner.
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