Why Another Housing Bubble is Looming...

Like 2006 all over again… Could the US be heading into another housing bubble? 



By Teresa Kuhn, JD, RFC, CSA

This micro “house” in Brooklyn, NY, built from a tool shed, was recently listed on Tulia for $500,000…


Will 2016-2017 see a repeat of the housing meltdown that pulled our economy into a recession and destroyed millions of dollars of Americans’ wealth?

I’ve been looking at the trends lately and am seeing a disturbing amount of irresponsible practices creeping back into the marketplace; practices that directly contributed to the bursting of the last bubble.

The idea that a housing bubble is barreling down on us is controversial, to be sure. Real estate industry insiders say that even though standards have loosened a bit lately, they are nowhere near what they were in the days of stated income and no down payments.

There is a lot more documentation and a whole new set of requirements and hoops that must be navigated prior to purchasing a home, they claim. However, I have observed some unsettling trends that I believe will ultimately lead to another marketplace crash in the near future.

Loans are getting easier to get 

Standards are once again loosening up with risky loans disguised as something innocuous. Many of these loans are, in fact, the same highly risky, subprime-style loans we had during the meltdown. The only real difference is now they are now being made with government (taxpayer) guarantees rather than originating with private investors. In spite of being coated with government promises, these loans reek of risk.

Mortgage software company Ellie Mae recently reported that the average FICO credit score of an approved home loan plunged to 719 in January, 2016 down from 731 a year earlier. This figure is well below the peak of 750 in 2011. Lower FICO scores, of course, correlate directly to higher risk of loan defaults. This is a dangerous sign that lenders are continuing to loosen underwriting standards. 

Home prices are rising a lot relative to income

For the past few years, home prices have been rising about 5%-6% a year, but incomes are growing at only about 2% or 3%.

What does this mean? It is a tell-tale sign that housing affordability is worsening. As fewer people can afford homes various players in the housing market have a lot to lose and are pressured into relaxing lending standards even further to preserve the illusion of growth.

On the other hand, construction of new housing units over the last four years is at around half the pace of the bubble year construction. This lack of supply pushes home prices well above people’s ability to pay.

Flipping is once again a hot pastime

Another sign that the real estate market is teetering on the brink of collapse is the resurgence in popularity of real estate speculation and home “flipping”.

Flipping is once again trendy and hitting levels not seen since just prior to the last mortgage crisis. In 2015, almost 180,000 homes were sold and then resold last year — the highest level since 2007. Frenzied flipping in metro areas such as New York, San Diego, and Miami is actually exceeding peaks set back in 2005. Low interest rates and easier credit once again make this possible.

Conclusion:

After researching current real estate market behaviors and seeing history repeat itself, I can’t help but side with economist and demographer Harry Dent.

Writing in Economy and Markets Dent observed:

“… I’m predicting net housing demand will fall – even turning negative over the next two decades – especially starting later this year. This critical demographic indicator shows it won’t turn positive again until after the year 2039 – 23 years from now. The same indicator explains why the echo boom in Japan never caused a bounce in housing even after its all-time bubble highs and 60% crash.” (http://economyandmarkets.com/markets/housing-market-markets/the-dumb-moneys-at-it-again-always-the-last-sad-sack-to-the-party/)

Why insurance is one financial tool you DEFINITELY want to have...

“Now you’re up against the two biggest risks to your money – tax risk and investment risk (investment risk meaning stock market risk). Nobody wants those two nooses around their neck, especially going into retirement,” Slott says. “Insurance is the kind of product where you can eliminate the taxes and the investment risk. So to me, that is essential for anybody who wants to sleep at night. I don’t know of any other product that attacks both risks at once.”- Ed Slott, CPA 
“America’s IRA Expert”

 By Teresa Kuhn, JD, RFC, CSA
President, Living Wealth Financial

 It’s hard for me to imagine how any financial advisor who truly understands the different phases of a person’s financial life can ignore the value of life insurance as an integral part of a wealth preservation strategy.

 Yet, there seem to be many advisors out there that either don’t understand the difference between investing and saving or who are so dead set against permanent life insurance that they ignore its’ obvious advantages, to the detriment of their clients. The financial media isn’t much help either as they continue to promote the largely discredited theory that everyone should “buy term and invest the difference.”

 Here are just a few reasons that I choose to build my clients’ financial futures using the power of specially-designed, dividend-paying whole life insurance,

1. Using life insurance leverages your money and creates wealth. In the long run, life insurance has the power to create more wealth than any other financial tool available to the average person. 

This wealth ends up being more valuable than tax deferred retirement savings that are at risk of being taxed at future high rates. The leverage power of life insurance means that one dollar put into a permanent life policy can become many more dollars that are tax free.

Is Wall Street or your bank able to do the same? 

 2. Life insurance is a good asset 

 “America’s IRA Expert,” CPA , author, and PBS host Ed Slott, says that insurance is a good asset. He explains that while most people with retirement savings have them in 401K’s and IRA’s, they don’t realize the vulnerability of this money when it is needed most…in retirement. For example, funds in an IRA, distributions are not only taxable (in a traditional IRA), but the increased income they create could also trigger hidden or “stealth” taxes. These taxes include phased-out deductions, exemptions, and tax credits.

 An income increase from an IRA distribution could even cause more of a retirees Social Security benefits to be taxed These are hidden tax increases in the form of phased-out deductions, tax credits, exemptions and other benefits as income increases.

For example, an income increase from an IRA distribution could cause more Social Security benefits to be taxable or the trigger the 3.8 percent additional tax on net investment income from capital gains, interest and dividends. These are some of the reason that Slott says traditional retirement accounts are uncertain and diminishing assets over time and recommends replacing such accounts with permanent life insurance using systematic IRA withdrawals.

Wouldn’t you like to enjoy a better and more powerful long term asset?

 3. Life insurance can help eliminate stock market risk 

Depending on how your policy is designed, permanent life insurance can build a wall of protection around your savings that prevents the erosion of your cash due to stock market volatility. The closer a person gets to retirement age, the less likely it is that he or she will be able to replace lost wealth. Most people will never be able to replace lost money unless they win the lottery or get a surprise inheritance from a long lost uncle.

 How much money can YOU afford to lose?

 4. Life insurance keeps you from being forced to play by other peoples’ rules 

 There is a measure of control afforded those who choose life insurance as the ultimate savings vehicle. For example, (except for Roth IRA’s) , IRAs are subject to annual required minimum distributions after age 70 ½, whether you need that money or not This creates forced distributions and additional taxes when you need them least.

 5. Life insurance helps you safeguard against unexpected losses

 Many of us plan to “work until we die.” While that might be an admirable goal, reality has a way of upsetting our plans. Even the most well-planned and prudent person can suddenly be faced with a health crisis that forces them to retire sooner than planned. Having a “turbocharged” life insurance policy, such as the ones I design for my Bank On Yourself clients, can make a huge difference in your quality of life should you be faced with a health emergency.

 Conclusion:

My career as a financial strategist has exposed me to every flavor of investment and savings tool available. After researching all of these, I continue to recommend that my clients build their financial futures on the solid foundation provided by permanent life insurance policies.

 If you or someone you know could benefit from having greater financial peace of mind, call my office today. I’ll send you all the information you need to discover how to create a financial future that is less stressful and more satisfying.

Stop Eating Leftovers...

re: Financial leftovers- is your wealth strategy based on junk food?



by Teresa Kuhn, JD, RFC, CSA
President, Living Wealthy Financial

           Stop giving yourself the crumbs!

I recently read an article in Business Insider  outlining some of the ways in which wealthy people differ from average people both in actions and mindsets.

For example: while many of us are consumed by saving and being as frugal as possible, most self-made millionaires are busy looking for ways to EARN more money and then put that money to good use-making even more money.

A study of over 1,200 wealthy people conducted by Steve Siebold, a self-made millionaire and author ("How Rich People Think.") concluded that the vast majority of millionaires did not fall prey to the same "nickel and dime" mentality that plagues the majority of Americans.

Indeed, even in the toughest times, when others are cutting back, laying off workers, halting research and development and investment, these entrepreneurs are searching for ways to profit from the shaky economy.

According to Siebold, when a business owner or individual is so consumed by searching for ways to trim expenses, they often miss huge opportunities to grow their wealth.  He also maintains that most of us fall victim to old school thinking when it comes to the pursuit of financial prosperity.

Writes Siebold in "How Rich People Think":

"The average person believes the harder they work the more money they’ll make. Their linear thinking equates labor and effort with financial success. This is why most people aren’t rich. They’re following an outdated model of success and are confounded when they reach middle age with little money to show for twenty years of hard work." 

Another obstacle to financial success (perhaps the BIGGEST one of all) is that few of us abide by that very excellent piece of advice:

Pay yourself FIRST!

I can't overemphasize the fact that this one simple action has profound consequences for your financial future.  Yet, an overwhelming majority of people continue to feed their wealth with "leftovers and crumbs."  They sit down, pay all their bills, and give themselves whatever tiny portion remains.

This is, according to Siebold and other experts, a self-defeating mindset.   No wealth happens until you reach a point where you have made a firm commitment that, no matter what, you will pay yourself before you pay anyone else.

Paying yourself first, of course, is not the same as spending on yourself.  It is simply a discipline where you set aside a payment to yourself before you take out any other funds.  You are, in essence, treating yourself like a creditor.   Setting up a system to "bill" yourself can help cement this habit, as can having an automatic deposit made from your check into a savings account.

I realize that the high cost of living and flat paychecks are the prime reasons people can't seem to find the cash to pay themselves or start emergency funds.  However, when I have sat down with clients and they've been honest about expenditures, I have usually found places where money can be saved and used to pay themselves.

The point of all this is that if you really want to achieve financial independence, you MUST change and adopt the habit of paying yourself first.

For many of my clients, having Bank on Yourself policies in place is the ultimate way to make sure you pay yourself first, consistently, EVERY month.  Having money automatically deposited into a BOY policy allows you to pay yourself and achieve safe, steady growth of that money without having to expose it to Wall Street turmoil.

If you want to move from giving yourself crumbs and leftovers, call us and ask how hundreds of my clients have discovered a better way to pay themselves first...every time.

(800) 382-0830

Slight Hiccup or... Sign of Things to Come?

re: January 4, 2013- The worst start of trading in Chinese history.


by Teresa Kuhn, JD, RFC, CSA
Living Wealthy Financial
Host, Living Wealthy Radio

While it wasn't entirely unexpected, (at least to those of us who've been paying attention), the meltdown of China's stock market on the first of post-holiday trading triggered massive sell-offs in the United States and Europe and caused more than a few folks to clench their teeth.

China's new "safety" mechanism, which had just gone into effect that day, halts trading of index futures, options, and stocks for 15 minutes whenever there is a move of 5% in the CSI 300.

As Zero Hedge reported, "Following the initial halt in CSI-300 Futures at the 5% limit down level, the afternoon session opened to more carnage and amid the worst 'first day of the year' in at least 15 years, Chinese stocks collapsed further to a 7% crash. At 1334 local time, stock trading was halted for the rest of the day across all exchanges (at least two hours early)."

While there was an immediate impact on the rest of the world, the plunge’s initial effects are somewhat muted due to the fact that China tightly controls and limits foreign investment in mainland stocks.  Foreign investors own less than 1% of Chinese mainland stocks.

The lion's share of  losses from the January 4th meltdown were felt by less than 14% of the Chinese population who are active investors.  

But before you breathe a sigh of relief and head back out to do some more risky business, consider this:

In the age of globalization, world economies are so intertwined that someone in China can cough and everyone on Wall Street runs to get a flu shot.  

There is absolutely no way that this won’t ultimately affect every person who has exposure in the stock market.  After all, Chinese investors have lost more about $3.4 trillion in equity value from the markets mid-June peak until the July 7 close.  And the slide looks like to continue as the bubble stretches until it can stretch no more.  

3.4 trillion in personal wealth can't just vanish without causing a ripple effect across the globe, especially since Chinese consumption has been  a driving force in so many economies, particularly the anemic US economy.

ZIRP and the Zen of Chinese Economic Maintenance

A central factor triggering the Chinese meltdown was their central bank's insistence on following a Zero Interest Rate Policy (ZIRP) which created a frenzy of borrowing.   Cutting rates to rock bottom had the understandable consequence of driving people who were desperate to grow their wealth into the market.  In other words, it just didn't pay to save...at all.

If any of the above sounds familiar to you... it should.  It's exactly the same thing that has been going on in the United States for years.  Savers have been crushed, debtors rewarded, and the whole system has become highly fragile and suspect.

I am not alone in thinking that having your precious cash on Wall Street right now, especially if you are at or near retirement, is like playing hot potato with a loaded grenade.   Sooner or later, the grenade is going to explode and leave a big hole where your money used to be.

Can you get SANE GAINS and still keep your nest egg safe?

I'm a big believer in legitimate investing, and I encourage my clients to seek out ways to increase their wealth that don't involve hard core gambling on overvalued stocks.

The first thing I tell them to do, though, is get themselves a Bank On Yourself policy to help manage their cash flow and provide safe, steady, and risk-free gains. Bank On Yourself (R) is a proven and safe cash management strategy that uses a versatile kind of life insurance to accomplish financial goals.

BOY can be used to finance large purchases such as income producing properties, houses, cars, businesses or to pay for vacations, medical emergencies, educational expenses, or other big ticket items.  With Bank On Yourself as your financial linchpin, you will have the cash you need to control your own financial destiny without having to rely on banks or expose yourself to risk on Wall Street.

If you can afford to lose your money,  then you probably won't benefit from learning more about Bank On Yourself.   But, if you are like most people and are concerned that losing even one dollar of your cash could spell trouble in retirement, you should call our office now at

(800) 382-0830.

I will be happy to send you a packet explaining all the details about the amazing financial tool that is Bank On Yourself.

Or, visit my main site at http://livingwealthyfinancial.com/ for more information.