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Advice for homebuying in a boom: Before entering a bidding war, take a deep breath

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Housing analyst Ken H. Johnson has been scrutinizing home prices for decades, and he offers this advice for buyers in today’s hot housing market: Slow down.

“I would be careful about buying near the top of the market, especially if I want to be in the home for only a few years,” said Johnson, a real estate economist at Florida Atlantic University and co-author of the Beracha, Hardin & Johnson Buy vs. Rent Index. “If you look to buy, bargain aggressively and be willing to walk away. Real estate most definitely is a good investment, but don’t just buy now because that’s what everybody else is doing.”

With mortgage rates at record lows and inventory tight, home prices are soaring. The National Association of Realtors said the median price of homes sold in October rocketed 15.5% from a year earlier, and bidding wars have grown common.

Johnson acknowledges that the housing boom of 2020 caught him by surprise. “I thought the real estate market was going to crash back in March,” he said.

While he doesn’t foresee a crash now, he does expect home prices in much of the nation to reach a plateau. He spoke to Bankrate about the housing market.

Bankrate: Home prices are soaring, and everyone who can afford it wants to move up or buy a second home. What advice do you give them?

Johnson: Everybody’s buying right now. We’re clearly getting to the peak. So you need to be a lot smarter about how you buy. You need to do a lot more due diligence. You need to ride the neighborhoods. Look at the sold properties – don’t look so much at what’s for sale as the prices of what’s sold. Be aware that you’re buying at the peak.

Do you want to be the last person to buy at the peak of the cycle? A lot of people have said that to me – “I bought in 2007, right at the very top.” I know people are thinking that right now. We’re near the top of the cycle. I wouldn’t not buy now. I’d just bargain aggressively. I’d put in a lot of due diligence. Shop your mortgage rate, and make sure you get the best mortgage rate. Ride the neighborhoods. Spend time looking. Spend time getting to know the area you want to live in.

Know what’s for sale. For example, you want a pool. Look at houses with a pool, find out what they sold for per square foot. When you see a house that comes on the market with a pool, look at the square footage and multiply by that number. You’re doing the same process, quite honestly, as a real estate broker. They’ve got more experience and gut feel, but you can get pretty close. You really need to do more due diligence when you’re at the peak of a cycle. The due diligence was easy at the bottom in 2012 – a third-grader could have made a good purchase. This is the time to do your due diligence and bargain aggressively.

Bankrate: Bargain aggressively – it seems buyers are doing the opposite. We’ve got bidding wars in many parts of the country.

Johnson: If I have to kiss several frogs to find a prince, I’ll do that. You shouldn’t get impatient and get into bidding wars. Don’t be afraid to walk away from a transaction. There’s gonna be another house – there’s just gonna be. You’ll see houses go under contract, and then they come back on the market after the inspection period. People get cold feet, and those houses are coming back on the market.

As hot as the market is, you wouldn’t expect houses to be coming back on the market, but they are. Maybe buyers get as far as the appraisal, and the appraisal comes in significantly lower than the purchase price. The way the vast majority of contracts are written, the buyer doesn’t have to perform if the loan cannot be made on the property.

Bankrate: So is the housing market setting up for a crash?

Johnson: We’re at the peak in much of the country. We just are. That leads a lot of people to ask, “Are we going to crash like we did last time?” There’s no signs of that. Last time, we had a lot of people in homes who couldn’t afford them. Now, we have record-low bad credit. That’s like a double negative, but it’s at record lows. It was near record highs back in 2006-07. Interest rates were higher then. Now, interest rates are at record lows.

The underwriting process is much stronger today. Before, if you breathed, you could get a loan. Ultimately, we had a foreclosure crisis. Today, it’s tougher for people to borrow money. Their credit is stronger. They’re not going to walk away from these homes. We’re just not going to see a huge downswing like we did last time. But for those same reasons, we are not seeing a huge upswing. Prices probably won’t crash, but they’re just not going to keep going up.

There is going to come a reckoning. I just don’t think it’s going to be anywhere near the reckoning we had last time. Prices are going to go flat. Interest rates are going to go up a little.

Bankrate: Many housing economists say we’re seeing a long-term shortage of homes for sale.

Johnson: Yes, we’re behind. We have this huge shortage of supply, and that’s not going away overnight. That’s going to help soften this landing. There’s a huge inventory problem. In 2006, we had a dramatic oversupply. But nothing was built for darn near eight years. It’s way more difficult to get approvals from municipalities and counties than it was 15 years ago. The shortage of supply is helping to keep prices up.

Bankrate: We’ve heard a lot about new migration patterns, with Americans moving out of expensive cities during the pandemic.

Johnson: Certain parts of the country are going to outperform other parts of the country. People are moving. They’re moving for weather, and they’re moving for less-draconian taxes. Florida and Texas are beneficiaries of that trend. I would be nervous living in the state of New York or California – nervous about my value. Home values are high, and people are moving out. That could turn around. Those cities have really big draws now – San Francisco, Los Angeles, San Diego, New York City are great places that people want to live. But as their jobs allow them to remotely disperse, people are asking, “Why can’t I live in Nashville? If I have to, I can be on a plane and in New York City by lunchtime.” It’s going to be a brave new world.

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If You Want Consumers to Lose, Network Regulation is a Must – Digital Transactions

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After the current U.S. Congress was sworn in, a predictable chorus of merchants, lobbyists, and lawmakers demanded new interchange price caps and other government mandates to decrease credit card interchange fees for merchants. The tired attacks on credit cards are an easy narrative that focuses almost exclusively on the cost side of the ledger, while completely ignoring the cards’ important role in the economy and the regressive effects of interchange regulation. 

To lawmakers blindly acting on behalf of retailers, regulation is a brilliant idea—regardless of how it affects their constituents. For decades, they have promised these interventions would eventually benefit consumers. But the lessons from the Durbin Amendment in the United States and price cap regulation in Australia is clear. Although some policymakers bemoan the current economic model, arbitrarily “cutting” rates for the sake of cuts completely ignores the economic reality that as billions of dollars move to merchants, billions are lost by consumers. 

For the uninitiated, let’s break down what credit interchange funds: 1) the cost of fraud; 2) more than $40 billion in consumers rewards; 3) the cost of nonpayment by consumers, which is typically 4% of revolving credit; 4) more than $300 billion in credit floats to U.S. consumers; and 5) drastically higher “ticket lift” for merchants. 

Johnson: “To lawmakers blindly acting on behalf of retailers, regulation is a brilliant idea—regardless of how it affects their constituents.”

These are just some of the benefits. If costs were all that mattered, American Express wouldn’t exist. Until recently, it was by far the most expensive U.S. network. Yet, merchants still took AmEx because they knew the average AmEx “swipe” was around $140, far more than Visa and Mastercard. 

Put simply, for a few basis points, interchange functions as a small insurance policy to safeguard retailers from the threat of fraud and nonpayment by consumers. Consider the amount of ink spilled on interchange when no one mentions that the chargeoff rate for issuing banks on bad credit card debt exceeds credit interchange.

Looking abroad, interchange opponents cite Australia, which halved interchange fees nearly 20 years ago, as a glowing example of how to regulate credit cards. In truth, Australia’s regulations have harmed consumers, reduced their options, and forced Australians to pay more for less appealing credit card products. 

First, the cost of a basic credit card is $60 USD in many Australian banks. How many millions of Americans would lose access to credit if the annual cost went from $0 to $60? Can you imagine the consumer outrage? 

In a two-sided market like credit cards, any regulated shift to one side acts a massive tax on the other. For Australians, the new tax fell on cardholders. There, annual fees for standard cards rose by nearly 25%, according to an analysis by global consulting firm CRA International. Fees for rewards cards skyrocketed by as much as 77%.

Many no-fee credit cards were no longer financially viable. As a result, they were pulled from the market, leaving lower income Australians, as well as young people working to establish credit, with few viable options in the credit card market.

Even the benefits that lead many people to sign up for credit cards in the first place have been substantially diluted in Australia because of the reduction of interchange fees. In fact, the value of rewards points fell by approximately 23% after the country cut interchange fees.

Efforts to add interchange price caps would have a similar effect here in the U.S. A 50% cut would amount to a $40 billion to $50 billion wealth transfer from consumers and issuers to merchants. For the 20 million or so financially marginalized Americans, what will their access to credit be when issuers find a $50 billion hole in their balance sheets? 

The average American generates $167 per year in rewards, according to the Consumer Financial Protection Bureau. Perks like airline miles, hotel points, and cashback rewards would be decimated and would likely be just the province of the rich after regulation. Many middle-class consumers could say goodbye to family vacations booked at almost no cost thanks to credit card rewards.

As the travel industry and retailers fight to bounce back from the impact of the pandemic, slashing consumer rewards and reducing the attractiveness of already-fragile businesses is the last thing lawmakers and regulators in Washington should undertake.

Proposals to follow Australia’s misguided lead in capping interchange may allow retailers to snatch a few extra basis points, but the consequences would be disastrous for consumers. Cards would simply be less valuable and more expensive for Americans, and millions of consumers would lose access to credit. University of Pennsylvania Professor Natasha Sarin estimates debit price caps alone cost consumers $3 billion. How much more would consumers have to pay under Durbin 2.0?

Members of Congress and other leaders should learn from Australia and Durbin 1.0 to avoid making the same mistake twice.

—Drew Johnson is a senior fellow at the National Center for Public Policy Research, Washington, D.C.

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Increase Your Credit Score With Michael Carrington

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More than ever before, your debt and credit records can negatively impact you or your family’s life if left unmanaged. Sadly, many Americans feel entirely helpless about their credit score’s present state and the steps they need to take to fix a less-than-perfect score. This is where Michael Carrington, founder of Tier 1 Credit Specialist, comes in. Michael is determined to offer thousands of Americans an educated, informed approach towards credit restoration.

Michael understands the plight that having a bad credit score can bring into your life. His first financial industry job was working as a home mortgage loan analyst for one of the nation’s largest lenders. Early on, he had to work a grueling schedule which included several jobs seven days a week while putting in almost 12-hour days to make $5,000 monthly to get by barely.

“I was tired of living a mediocre life and was determined to increase the value that I can offer others through my knowledge of the finance industry – I started reading all of the necessary books, networking with industry professionals, and investing in mentorship,” shares Michael Carrington. “I got my break when I was able to grow a seven-figure credit repair and funding organization that is flexible enough to address the financial needs of thousands of Americans.”

With his vast experience in the business world, establishing himself as a well-respected business leader, Michael Carrington felt he had the power to help millions of Americas in restoring their credit. Michael learned the FICO system, stayed up to date on the Fair Credit Reporting Act (FCRA), found ways to improve his credit score, and started showing others.

The Tier 1 Credit Specialist uses a tested and proven approach to educate their clients on everything credit scores. Michael is leveraging his experience as a home mortgage professional, marketing executive, and global business coach to inform his clients. He and his team take their time to carefully go through their client’s credit records as they try to find the root of their problem and find suitable financial solutions.

The company is changing lives all over America as it helps families and individuals to repair their credit scores, gain access to lower interest rates on loans and get better jobs. What Tier 1 Credit Specialists is offering many Americans is a chance at financial freedom.

Michael Carrington has repaired over $8 million in debt write-ups and has helped fund American’s with over $4 million through thousands of fixed reports. “I credit our success to being people-focused,” he often says. “The amount of success that we create is going to be in direct proportion to the amount of value that we provide people – not just our customers – people.”

Because of its ‘people-focused goals, the Tier 1 Credit Specialist is determined to help millions of Americans achieve financial literacy. It is currently receiving raving reviews from clients who are completely happy with the credit repair solutions that the company has provided them.

Today, Michael Carrington is continuing with a new initiative to serve more Americans who suffer from bad credit due to little or no access to affordable resources for repair.

The Tier 1 Credit Socialist brand is changing the outlook of many families across America. To do this, the company has created an affiliate system that will provide more people with ways of earning during these tough economic times.

As a well-respected international business leader and entrepreneur with numerous achievements to his name Michael Carrington aims to help millions of Americans achieve the financial freedom, he is experiencing today. Tier 1 Credit Socialist is one of the most effective credit repair brands on the market right now, and they have no plans for slowing down in 2021!

Learn more about Michael Carrington by visiting his Instagram account or checking out the Tier 1 Credit Specialist website.

Published April 17th, 2021



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Does Having a Bank Account With an Issuer Make Credit Card Approval Easier?

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Better the risk you know than the one you don’t.

When it comes to personal finance, nothing is guaranteed. That goes double for credit. That’s why, no matter how perfect your credit or how many times you’ve applied for a new credit card, there’s always that moment of doubt while you wait for a decision.

Issuing banks look at a wide range of factors when making a decision — and your credit score is only one of them. They look at your entire credit history, and consider things like your income and even your history with the bank itself.

For example, if you defaulted on a credit card with a given bank 15 years ago, that mistake is likely long gone from your credit reports. To you and the three major credit bureaus, it is ancient history. But banks are like elephants — they never forget. And that mistake could be enough to stop your approval.

But does it go the other way, too? Does having a bank account that’s in good standing with an issuer make you more likely to get approved? While there’s no clear-cut answer, there are a few cases when it could help.

A good relationship may weigh in your favor

Credit card issuers rarely come right out and say much about their approval processes, so we often have to rely on anecdotal evidence to get an idea of what works. That said, you can find a number of stories of folks who have been approved for a credit card they were previously denied for after they opened a savings or checking account with the issuer.

These types of stories are more common at the extreme ends of the card range. If you have a borderline bad credit score, for instance, having a long, positive banking history with the issuer — like no overdrafts or other problems — may weigh in your favor when applying for a credit card. That’s because the bank is able to see that you have regular income and don’t overspend.

Similarly, a healthy savings or investment account with a bank could be a helpful factor when applying for a high-end rewards credit card. This allows the bank to see that you can afford its product and that you have the type of funds required to put some serious spend on it.

Having a good banking relationship with an issuer can be particularly helpful when the economy is questionable and banks are tightening their proverbial pursestrings. When trying to minimize risk, going with applicants you’ve known for years simply makes more sense than starting fresh with a stranger.

Some banks provide targeted offers

Another way having a previous banking relationship with an issuer can help is when you can receive targeted credit card offers. These are sort of like invitations to apply for a card that the bank thinks will be a good fit for you. While approval for targeted offers is still not guaranteed, some types of targeted offers can be almost as good.

For example, the only confirmed way to get around Chase’s 5/24 rule (which is that any card application will be automatically denied if you’ve opened five or more cards in the last 24 months) is to receive a special “just for you” offer through your online Chase account. When these offers show up — they’re marked with a special black star — they will generally lead to an approval, no matter what your current 5/24 status.

Credit unions require membership

For the most part, you aren’t usually required to have a bank account with a particular issuer to get a credit card with that bank. However, there is one big exception: credit unions. Due to the different structure of a credit union vs. a bank, credit unions only offer their products to current members of the credit union.

To become a member, you need to actually have a stake in that credit union. In most cases, this is done by opening a savings account and maintaining a small balance — $5 is a common minimum.

You can only apply for a credit union credit card once you’ve joined, so a bank account is an actual requirement in this case. That said, your chances of being approved once you’re a member aren’t necessarily impacted by how much money you have in the account.

In general, while having a bank account with an issuer may be helpful in some cases, it’s not a cure-all for bad credit. Your credit history will always have more impact than your banking history when it comes to getting approved for a credit card.

For more information on bad credit, check out our guide to learn how to rebuild your credit.

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