Consumers Pile on $15 Billion More Debt in March 2008!

Americans are piling on the debt at an alarming pace while one of our most valuable assets (our homes) is plummeting in value. A recent article from Bloomberg points out that consumer debt levels increased by a whopping $15.3 billion in March 2008, which was substantially more than economists had projected. According to the article:

"Consumers are turning to credit cards after banks tightened standards for home-equity loans and other borrowing. The March figures brought U.S. consumer borrowing in the first quarter to $34 billion, the most since the first three months of 2001, when the economy entered its last official recession."

This is scary for those of you (like P2P-Loans.com) that are invested in Prosper loans. As banks turn away more people, they are likely to pursue alternative financing on sites like Prosper, LendingClub, etc..

America's debt problem has only gotten worse over the years and the current credit crisis may end up being a healthy event in that it will constrict American's ability to keep borrowing (at least for a short time). But, with the weak economy and fewer sources of capital, Prosper lenders beware...

Here's an interesting site that provides a lot of interesting debt-related information. Enjoy! http://mwhodges.home.att.net/nat-debt/debt-nat-a.htm

Housing Crisis Over? Mixed Data Suggests....

P2P-Loans.com has recently noticed a number of smart folks writing about the end of the housing crisis. In two separate articles in the WSJ ("Opinion: The Housing Crisis is Over" and "Is Housing Slump at a Bottom?"). These articles make very valid points with regard to housing starts, low interest rates, etc. What these articles fail to debate in any material fashion is that housing prices relative to disposable income are still extremely high!

This chart from Ned Davis Research (the line graph at the bottom of this page is most relevant) demonstrates that we remain at very high price levels relative to historical data. Ultimately, the value of housing is a function of affordability. When it's all said and done, this is the single most important factor that drives demand for new housing and the price of such housing. For example, the data in the chart suggest that in 2001 (yes, interest rates were in the sub 7% range for 30-year fixed mortgages then as well) the Median New Home Price / Disposable Income ratio was near its 30-year average, which is where it had been for the better part of 15 years. In fact, the ratio had been even lower before that, however this is likely due to the artificially high interest rates of the 1970's and early 1980's.

This dynamic has served to dramatically reduce demand for housing in conjunction with tougher lending standards (fewer buyer approved for new mortgages) and skitish buyers (when will prices stop falling). As a result, housing inventories have spiked to record highs. Accross the US, housing inventories are more than double typical levels, and are as high as 4-5 years worth of inventory (versus a long-term average of 5-6 months) in formerly hot markets such as Florida and California.
According to a recent post at Seeking Alpha, housing inventories are beginning to come down, but remain well above historical averages. Seeking Alpha points out that, at the current sales pace, inventories of new homes will be "back to normal" by the end of 2009. Simply put, we will be in a supply/demand imbalance for the next two years (and this is assuming that the market doesn't overshoot to the downside, which it's been known to do in prior busts - think about when many tech stocks were trading at less than cash value in 2003). The data is similar on the inventories of resales as well. In my estimation, this means we still have a ways to go before calling the end of the housing crisis. I hope I am wrong.

On a side note, the government is trying to push through a MASSIVE bailout program. Generally, when the government makes a move like this, they are too late to the party. Thus, this single fact alone could lead one to believe we are at the end of the housing crisis.

Save More, People! Why is the US savings rate so low?

Just the other day, the government quietly reported (only because the media didn't really give it any play - maybe it has something to do with their retailer advertisers) that the savings rate in the United States hit a new ALL TIME LOW! American's are saving a whopping $2 for every $1,000 of disposable income that they earn. TWO DOLLARS! That's a savings rate of about 0.2%. In no uncertain terms, America has become a spend and consume nation that relies on credit to finance our lavish lifestyles (a special thanks goes out to our kids for agreeing to pay back the $9+ trillion national debt for us). Well, in the spirit of returning back to our roots as a country of savers and investors (just look at the above chart to see that we did used to be a nation of savers), I'm offering a few tips and suggestions on how you might increase your savings rate just a tad:

1) Use your rebate check (thanks again to our kids who are paying for this) to pay down your credit cards - AND DON'T RUN THEM BACK UP. If you pay down $600 or $900 of your credit card debt that is probably costing you 20% in interest, you'll save as much as $200 per year in interest costs! It may even improve your credit score, which could lower your interest rate on other loans you have or need in the future! That'll help cover the increased cost of gas, at least.

2) Let your money work for you by putting your newfound savings in a money market account or a CD. For example, Countrywide is offering a FDIC insured 12-month CD at 4.10%. Of course, only do this if you can't use the cash to pay down your high interest rate credit cards (after all, 20% is much bigger than 4.10%). There are some other high yield ideas at P2P-Loans.com's High Interest site.

3) Refinance your credit card debt. If you have decent credit, why not seek out a low APR (or no APR) credit card to lower your borrowing cost. If you are paying a high credit card rate, take a look at some great credit card options on our Best Credit Card site. Using the 20% interest example, you could open a new account with a 0% APR for 12 months, transfer your balances to this new card (for a fee that is usually 3% up front) and save a whopping 17%! Here's a great offer from American Express that gives you 15 months of 0% APR on purchases and a 4.99% APR on balance transfers. There are a lot of other good offer out there as well. But, don't use this low rate as an excuse to spend more (this is key!). Stay disciplined! If you want to explore other great offers, use P2P-Loans.com's Credit Card Search to find other great offers.

4) Make saving automatic. There are a lot of programs that make saving easy. For example, open a Bank of America checking and savings account and sign up for their "Keep the Change" promotion. You not only get free checking and savings, but you also get $75 of free cash to kick-start your savings plan! Then, whenever you use your Bank of America debit card, they round your purchase up to the next dollar and put the change in your savings account. The interest rate on the savings account is lousy (less than 1%), but you will be saving some money with minimal pain and effort. If you make 30 purchases per month and save an average of $0.50 per purchase from this program, that's $15 per month and $180 per year. BoA will match 5% of that AND you get the $75 sign-up bonus, so that brings you to nearly $265 in savings (plus interest). It's an easy way to get started and it's automatic.

In summary, Americans are not saving enough and it's our responsibility to take care of our own futures. At the current deficit level, our government will not be in a position to bail us out when we run out of money, so SAVE MORE, PEOPLE! Please Digg it up!