Monitoring Main Street's Pulse

Yesterday we measured the “Mood of Main Street” on Money for Breakfast. It’s a show we do once a month and a personal favorite of mine. We talk to personal finance experts like Dave Ramsey and radio talk show hosts and personal finance experts in their own right, from Seattle, WA Kirby Wilbur (Host on KVI 570AM), to Louisville, KY Francene Cucinello (Host 84WHAS), and from Boston, MA Reese Hopkins (Host WRKO 680AM). They’re a great bunch! They give us lots of color on what their listeners are saying about the economy, jobs, housing and many more issues. Yesterday we focused on housing and health care. As you can imagine the differences in these three economies is pretty significant. However there were some reoccurring themes.

All of their callers are concerned about universal health care, a proposal that the Clinton camp is very much behind. Their listeners want to know who will fund it and what will it do to the health care system, particularly in Seattle where so many Canadians cross the border into the U.S. to get better health care options. They’re also concerned about offering health care to illegal immigrants particularly in Boston where they want to know if the taxpayer will foot the bill. All radio talk show hosts said that on a scale of 1-5, health care was No. 4. Not the most important issue but one of the top five concerns for the future of their listeners.

On the housing front, Seattle continues to surprise, the foreclosure rate is about 1%, well below the national average but, the same can’t be said for Boston and the smaller cities in Massachusetts. We talked about would be buyers turning to rental properties as opposed to buying new homes. Many people still can’t get the funding they need and in places like Seattle a first time home buyer has to spend between $400,000-$500,000. Pretty eye opening! Francene did talk about a close friend who is a real estate agent in Louisville covering real estate now for 25 years and said this is the worst. People want to buy but they don’t have the funds and the banks are getting tougher and tougher on credit. In Louisville taxes are also a growing problem as the government faces a growing budget deficit and taxes are being reassessed. I wonder, will this happen to other cities if they cannot balance the budget or get the municipal funding that they need?

Speaking of tight lending and declining home values, did you hear this story? In Las Vegas and cities like Chicago and Los Angeles where home prices are dropping precipitously, banks and mortgage lenders like Countrywide, Bank of America, Washington Mutual and IndyMac have frozen about 600,000 equity credit lines nationwide. The banks are concerned that these home equity lines will take second position to the primary mortgage holder and could face delinquency if the value of the homes in these neighborhoods continues to decline. We talked to one man in Las Vegas who has a credit score of 790 out of 850, a very strong credit score, who found his credit line had been suspended even though he had a strong credit score and remaining equity in his home. As many as 15,000 people or 5% of the homeowners in Las Vegas had their credit lines suspended where property values declined 23% in February. Nevada had the highest foreclosure rate in the Country in March (one in every 139 homes). At this point there are statistics that suggest as much as $6 billion in credit has been frozen nationally. That may very well be an exceptionally low number given the incidents we don’t hear about.

What lesson should you and I take away? BE CAREFUL! Don’t go out and make too many purchases and rely on that credit line if your neighborhood is getting hit very hard with declining real estate prices. Don’t forget a home equity line is tied to the value of your home. Make sure the money or better yet the equity is there before you spend it.