The ups and downs on Election Day – Down: gas prices, retirees’ health costs and foreclosed borrowers re-entering the mortgage market; Up: Athletes going into the franchise business. Meanwhile, the stock market is watching and waiting.
Foreclosed Borrowers Shut Out of Mortgage Market
An estimated 4 million foreclosures have taken place nationwide since 2007. At the peak of the housing crisis, the mortgage default rate rose to about 10 percent – vastly higher than the norm of 0 to 2 percent.
Studies show that the foreclosed borrowers who have defaulted on their loans return to the mortgage market 2.5 times more slowly than homeowners who have terminated their loans for other reasons. In fact, only 10 percent of delinquent borrowers re-enter the mortgage market within a decade of their defaults.
The main reason for such a low rate appears to be defaulters’ limited access to credit. Credit scores dropped sharply for borrowers who went through a foreclosure during the Great Recession, and lower scores mean less willingness on the part of lenders to offer new loans.
In addition, after a foreclosure, borrowers can’t qualify for government-backed loans securitized through Fannie Mae and Freddie Mac for a period of several years. And since the two mortgage market giants guarantee the majority of new mortgages, former defaulters are deprived of a main option.
Fuel Efficiency Helps Lower Gas Prices
While gasoline prices in the Northeast inched up about 10 to 14 cents per gallon over the last several days because of shortages caused by Hurricane Sandy, they have been dropping across the rest of the country. The nationwide average currently stands at $3.47 per gallon, down 7 cents over the past week and down 9 percent over the month.
Research suggests that decreased demand, caused by greater fuel efficiency in newer cars, is helping to ease prices at the pump. The University of Michigan’s Transportation Research Institute reports that fuel economy has improved 20 percent in the last five years, while fuel consumption has fallen by 17 percent. The study also determined that the average gas mileage of new cars reached its highest point ever in October.
Stocks Likely to Rally After Election
While the country votes, the stock market is holding its breath. But no matter who wins the White House today, the uncertainty that has recently kept investors on the sidelines will be lifted, and November and December will probably witness a late-year rally.
Wall Street is expected to unleash the bulls as soon as questions concerning taxes, regulations, government spending, and legislation about things like healthcare, as well as concerns about how the “fiscal cliff” will be avoided, become clearer.
Also coming into focus will be a portrait of potential market winners and losers. A Romney win is expected to be a boon for bank stocks, defense contractors, and oil and coal companies, among other sectors. An Obama portfolio will likely feature more stocks in hospitals, home building, infrastructure, and alternative energy.
Sports Stars Increase Franchising
Sports careers are relatively short. More and more former athletes are turning to franchising as a source of income after the cheering has died down and the games are done.
The International Franchise Association has tracked approximately fifty agreements between sports celebrities and franchise companies over the past two years. It found that many ex-superstars and those nearing retirement invest their considerable funds in fast food joints and restaurant chains: Denver Broncos quarterback Peyton Manning scooped up 21 Papa John’s pizzerias just last month; Shaquille O’Neal has an interest in Auntie Anne’s pretzels; and tennis star Venus Williams has Jamba Juice franchises.
Chains benefit from having a well-known athlete’s name attached to their brands.
Retirees’ Health Costs Decline
Healthcare costs for retirees have actually gone down somewhat over the past few years.
The Employee Benefit Research Institute (ERBI) reports that people who retire in 2012 will need $227,000, or approximately $4,000 less than those who retired in 2011, in order to have a 75 percent chance of covering their future medical costs. A similar 2012 Fidelity Investments study found that retiree healthcare costs declined to $240,000 in 2012, down from $250,000 in 2010.
Both studies’ calculations included insurance deductibles and other out-of-pocket expenses, but neither one factored in the costs of long-term care.
The ERBI study attributed the decline to provisions in the Patient Protection and Affordable Care Act of 2010 (Obamacare) that reduced out-of-pocket prescription drug costs for retirees covered under Medicare Part D.
Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it seven years ago, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering college and professional sports, which are the fantasy worlds of finance. His work has been published by the Associated Press, New York Times, Washington Post, Chicago Tribune, Sports Illustrated and Sporting News, among others. His interest in sports has waned some, but his interest in never reaching for his wallet is as passionate as ever. Bill can be reached at email@example.com.
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