Consumer spending dropped 0.3% in September, the largest decline in four years.  July and August showed no change in spending.  The standstill and slide in recent months represents the purchasing activity of US consumers.

In recent years, the growth and abuse of consumer credit has caused the US economy to be dependent on consumers borrowing to purchase goods.  According to the Federal Reserve Board, the average consumer debt (credit card debt) per household has reached $8,565, an increase of 15% since 2000. Disposable income required to be set aside to pay for household debt (credit cards, auto loans, etc.) stands at 14.5%, compared to 11% in 1993.

Not only has consumer spending correlated with taking on credit card debt, but the consumer savings rate has also significantly decreased.  The Bureau of Economy Analysis reports the nation’s savings rate, which exceeded 8% of disposable income in 1968, now stands at 0.4%.

The American mindset, “buy now, pay later” must end!  Many are finding that they simply cannot live this lifestyle any longer because it is becoming increasingly difficult to obtain more credit.   The high default rates have affected the credit markets in such a way that they have re-standardized credit requirements.

Now is a great time to analyze your personal finances.  Before the holiday season is in full swing sit down and look at your budget.  If you don’t have a budget now would be a great time to start one.  Please email conrad@landmarkmortgage.com or call if you need help setting starting a budget or just want a few helpful tools.

On October 4th I posted “Rollercoaster Ride” in reaction to the Dow’s single largest point drop in history.  Unfortunately the ride is not over.  The Dow has reacted with significant gains and losses throughout the past couple of weeks.  One bright piece of information today is existing US home sales has increased 5.5% since 2007.

Please watch the following video for a simple game plan for the recovery of the financial crisis:

2008 has brought a large amount of attention to the real estate, mortgage, and financial industries.  The media throws information at consumers at a rate that is very difficult to comprehend.  Education about the changes we hear from a day to day basis is important as we are all affected by these sectors of our economy.  A major topic in the media is the government sponsored FHA home loan.  Understanding the basics of the FHA home loan is important as it has become one of the most valuable programs for new and existing homeowners.

FHA or the Federal Housing Administration was established in 1934 to advance homeownership opportunities for Americans.  FHA provides mortgage insurance for banks who lend money to consumers for home loans.  The government security for banks opens an amazing opportunity for homeowners when many other mortgage programs have been negatively affected by the financial market woes.

When I mention the term FHA to my friends, family, or acquaintances more often than not I get the response that people think it is a program offered only to first-time homebuyers.  The FHA loan program is actually designed to provide home loan opportunities for both new and existing homeowners.  In recent years conventional loan programs have evolved to allow homeowners purchase or refinance homes with high loan to value ratios (the amount of your mortgage divided by the value of your home).  These programs became popular because banks would provide great mortgage rates without requiring borrower paid mortgage insurance.  Due to the unfortunate rise in default rates on these loans in 2007 and 2008 many banks have stopped offering these types of loans and the once popular government sponsored FHA loan program has again become a great option for those looking to either purchase or refinance.

You can visit www.hud.gov to learn more about the efforts our government is making to help homeowners make the most of the “American Dream”.