Friday Financial Five–June 28th, 2013

Friday, June 28, 2013

Dan Forbes, GoLocalProv Financial Expert

 

View Larger +

GDP is revised down and the market recovers

There was a huge reaction to Ben Bernanke’s implication that the Fed would begin slowing down bond purchases earlier than expected. A sell-off occurred in the bond market driving interest rates up by roughly one percentage point. Meanwhile, GDP numbers were revised downward below 2 percent for the first quarter, and that apparently reassured investors that the Fed won’t act so quickly. Up is down and black is white when looking at markets in the short term.

Rhode Island municipal bonds take a hit

While the 38 Studios bond repayment debate takes center stage, owners of Rhode Island’s municipal bonds were seeing a big downturn over the last month. The Aquila Group, which runs the Narragansett Municipal Bond Fund, recently issued a report on their investment strategy. Muni’s have seen dramatic reactions like this in the past. There should be a focus on credit quality and maturity when evaluating these holdings. Most holding muni’s do so because of the tax advantages, making them attractive in a rising tax environment.

Revisiting the “Rent vs. Buy” debate

The purchase of real estate is still encouraged through various tax breaks. Housing prices are rising, interest rates are up, but there’s also rental pricing pressure. So is buying a house still the preferred course of action? According to the latest analysis from Forbes.com (no relation), buying is better on a national scale and will continue to be until interest rates hit 10.5 percent on average. Obviously, each market is different, so those making this decision need to carefully evaluate the numbers.

GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST

New construction and rising interest rates

Those starting the process of building a home will be dramatically affected if the recent run-up in rates is the new norm. The one percent increase in the 30 year note over the last month can mean hundreds of dollars per month. The typical lock-in rate for a mortgage is 90 days at the longest. If it takes six months to build and there’s no construction loan involved, the borrower is left contracted on a house that they may not be able to afford. This may mean an increase in adjustable rate financing.

Private student loans dwarfed by Federal student loans

Private student loans by Federal Deposit Insurance Corporation directed banks have dried up dramatically over the last 5 years. In a recent speech, Doreen Eberley of the FDIC broke down the numbers. There are roughly 39 million borrowers with a student loan, and Federal loans now account for 85 percent of lending. Private lending only accounts for 7 percent of new origination. Of the 15 percent loan share held by private lenders, there is less than 3 percent delinquency. Why, therefore, hasn’t the market opened up for competitive private college lending?

 

Dan Forbes is a regular contributor on financial issues. He is a CFP Board Ambassador. He leads the firm Forbes Financial Planning, Inc in Providence, RI and can be reached at [email protected].

 

Related Articles

 

Enjoy this post? Share it with others.

 
 

Sign Up for the Daily Eblast

I want to follow on Twitter

I want to Like on Facebook