Five States Account for 31% of Underwater Mortgages
Here’s another sign that the housing market keeps getting healthier: More than 250,000 formerly underwater homes regained equity in the first quarter of 2015, according to CoreLogic, meaning that the value of the homes rose above the value of the mortgages on them.
Borrower equity grew more by $694 billion in the quarter, and more than 90 percent of mortgaged American homes now have equity. Such a surge in homeowner wealth has historically led to increased consumer spending and investment.
“Many homeowners are emerging from the negative equity trap, which bodes well for a continued recovery in the housing market,” Anand Nallathambi, president and CEO of CoreLogic said in a statement. “With the economy improving and homeowners building equity, albeit slowly, the potential exists for an increase in housing stock available for sale, which would ease the current imbalance in supply and demand.”
Related: 9 Real Estate Trends to Watch in 2015
Still, 5.1 million mortgaged homes remain underwater, representing 10.2 percent of all mortgaged properties. Five states — Nevada, Florida, Illinois, Arizona and Rhode Island — account for nearly a third of all properties with negative equity. As of the end of the fourth quarter, 10.8 percent of homes — or about 5.4 million properties — were underwater.
The number of underwater homes has decreased year-over-year by 1.2 million and the aggregate value of negative equity has fallen 13 percent to $337.4 billion.
Texas was the state with the fewest underwater properties; 98 percent of homeowners there with a mortgage have equity in their homes.
Just under 20 percent of homes with a mortgage are considered “under-equitied,” meaning that they have less than 20 percent equity and would likely have trouble refinancing their property or obtaining new financing to sell their home and buy another.
A 5 percent increase in home values nationwide would bring another million homeowners into positive equity territory, CoreLogic economists predict.
The High Cost of Child Poverty
Childhood poverty cost $1.03 trillion in 2015, including the loss of economic productivity, increased spending on health care and increased crime rates, according to a recent study in the journal Social Work Research. That annual cost represents about 5.4 percent of U.S. GDP. “It is estimated that for every dollar spent on reducing childhood poverty, the country would save at least $7 with respect to the economic costs of poverty,” says Mark R. Rank, a co-author of the study and professor of social welfare at Washington University in St. Louis. (Futurity)
Do You Know What Your Tax Rate Is?
Complaining about taxes is a favorite American pastime, and the grumbling might reach its annual peak right about now, as tax day approaches. But new research from Michigan State University highlighted by the Money magazine website finds that Americans — or at least Michiganders — dramatically overstate their average tax rate.
In a survey of 978 adults in the Wolverine State, almost 220 people said they didn’t know what percentage of their income went to federal taxes. Of the people who did provide an answer, almost 85 percent overstated their actual rate, sometimes by a large margin. On average, those taxpayers said they pay 25.5 percent of their income in federal taxes. But the study’s authors estimated that their actual average tax rate was just under 14 percent.
The large number of people who didn’t want to venture a guess as to their tax rate and the even larger number who were wildly off both suggest to the researchers “that a very substantial portion of the population is uninformed or misinformed about average federal income-tax rates.”
Why don’t we know what we’re paying?
Part of the answer may be that our tax system is complicated and many of us rely on professionals or specialized software to prepare our filings. Money’s Ian Salisbury notes that taxpayers in the survey who relied on that kind of help tended to be further off in their estimates, after controlling for other factors.
Also, many people likely don’t understand the different types of taxes they pay. While the survey asked specifically about federal taxes, the tax rates people provided more closely matched their total tax rate, including federal, state, local and payroll taxes.
But our politics likely play a role here as well. People who believe that taxes on households like theirs should be lower and those who believe tax dollars are spent ineffectively tended to overstate their tax rates more.
“Since the time of Ronald Reagan, American[s] have been inundated with messages about how high taxes are,” one of the study’s authors told Salisbury. “The notion they are too high has become deeply ingrained.”
Wealthy Investors Are Worried About Washington, and the Debt
A new survey by the Spectrem Group, a market research firm, finds that almost 80 percent of investors with net worth between $100,000 and $25 million (not including their home) say that the U.S. political environment is their biggest concern, followed by government gridlock (76 percent) and the national debt (75 percent).
Trump’s Push to Reverse Parts of $1.3 Trillion Spending Bill May Be DOA
At least two key Republican senators are unlikely to support an effort to roll back parts of the $1.3. trillion spending bill passed by Congress last month, The Washington Post’s Mike DeBonis reported Monday evening. While aides to President Trump are working with House Majority Leader Kevin McCarthy (R-CA) on a package of spending cuts, Sens. Susan Collins (R-ME) and Lisa Murkowski (R-AK) expressed opposition to the idea, meaning a rescission bill might not be able to get a simple majority vote in the Senate. And Roll Call reports that other Republican senators have expressed significant skepticism, too. “It’s going nowhere,” Sen. Lindsey Graham said.
Goldman Sees Profit in the Tax Cuts
David Kostin, chief U.S. equity strategist at Goldman Sachs, said in a note to clients Friday cited by CNBC that companies in the S&P 500 can expect to see a boost in return on equity (ROE) thanks to the tax cuts. Return on equity should hit the highest level since 2007, Kostin said, providing a strong tailwind for stock prices even as uncertainty grows about possible conflicts over trade.
Return on equity, defined as the amount of net income returned as a percentage of shareholders’ equity, rose to 16.3 percent in 2016, and Kostin is forecasting an increase to 17.6 percent in 2018. "The reduction in the corporate tax rate alone will boost ROE by roughly 70 [basis points], outweighing margin pressures from rising labor, commodity, and borrow costs," Kostin wrote.
