Federal Housing Authority Loans have long been one of the most popular types of mortgage loans available. Roughly 20 percent of all mortgage applicants will choose an FHA loan because it makes total economic sense to do so. And the older you are, the more important having an FHA approved dwelling becomes.

 

To many, that may appear to contradict your understanding of the FHA loan market. Most believe it is a program to assist younger folks, who need a hand to purchase their first home. You wouldn't be far wrong from a historical perspective, but times have changed.

 

The FHA loan was originally designed during the Depression years to help home buyers, (usually first-time applicants), with low credit scores and a small bank account, to afford a home. But the FHA doesn't make the loan; the bank does. The Federal Housing Administration, however, guarantees the loan, and as such, provides mortgage lenders an added degree of confidence and security in lending to the prospective home buyer. If the borrower defaults on the loan, the FHA will reimburse the lender the amount due.

 

Some of the benefits to the borrower include lenient credit scores, much lower minimum down payments (as little as 3.5 percent down), and lower mortgage rates, usually 0.10 percent-0.15 percent lower than the average rates on conventional loans.

 

The Veterans Administration's Home Loan Program is also available to qualified vets and works like its FHA brethren, guaranteeing the lender a portion of the loan if the vet defaults. An added benefit is that there is usually no minimum down payment required, and much lower credit scores, interest rates, and income requirements than even the FHA loan.

 

While many youngsters are taking advantage of these government resources, an increasing number of elderly and retirees are seeking out these same benefits, but for entirely different reasons.

 

As Baby Boomers become empty nesters and then realize they no longer want or can afford the expense, upkeep, and taxes on their original homestead, they are seeking out a more modest and affordable dwelling, either in their local neighborhood or in some more exotic (or warmer) locale. It is called "down-sizing," a popular trend among Boomers that has been gathering steam in this country for decades.

 

Many times, a condo is the dwelling of choice for these new home buyers. As a result, the number of condos throughout the United States continues to grow.  Since most retirees have more than enough money to purchase a condo with the proceeds of their larger home, FHA or VA loans have not been a factor in their purchase until now.

 

However, for many retirees, cutting expenses is one of the central reasons for downsizing. They find making ends meet is becoming increasingly difficult in today's environment. Social Security benefits, low interest rate returns on fixed income investments, and the rising cost of health care and other services are forcing more of the elderly to pinch pennies. Unfortunately, even downsizing is not enough.

 

More and more seniors are forced to turn to using their dwelling as an asset of last resort. The use of reverse mortgages to make ends meet is becoming increasingly popular. And here is where the rubber meets the road when it comes to an FHA loan. If your house or your condo is not FHA insured, you do not qualify for a reverse mortgage or a home equity conversion mortgage.

 

In my next column, I will explain how the failure to qualify your dwelling as an FHA-insured home/condo today can prevent you from leveraging your greatest asset when you need it the most.   

 

Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

Investors can credit the Fed once again for the market's revival thus far in June. The buying is fueled by expectations of three rate cuts by no later than December. Is that wishful thinking?

 

While only 23 percent of investors expect a rate cut next week when the Fed meets, 83 percent do expect a cut in July. The odds of another cut in September are now at 63.8 percent, with a third cut in December, which is expected by over half of market participants.

 

Given that the Fed's job description is to keep inflation under control, while supporting robust employment, one or the other of those variables will need to change in order for the Fed to cut rates. The inflation rate is still below the Fed's stated targets, so that shouldn't be the issue, which leaves jobs as the area of concern for the Central Bank.

 

Over the last few weeks, job creation has slowed down, but so far the data does not indicate the unemployment rate is set to skyrocket. It is true that warning signs are flashing for economic growth both here and abroad, but the U.S. is still expected to grow by 2.2-2.5 percent this year. Most economist models indicate a further slowing to slightly under 2 percent for the U.S. economy in 2020, but that still results in an acceptable performance for an economy that is on its 10th year of expansion. 

 

I guess the real issue that makes forecasting by the Fed, investors, and myself so difficult is the ongoing trade and tariff threats that will most likely decide the fate of the global economy. Three rate cuts might be justified if the two antagonists (Trump and Xi) meet at the G-20 at the end of June and fail to compromise. The kind of tariffs Donald Trump is threatening to levy on China would certainly put a big dent in global trade and shave a half percentage or more off the U.S. economy next year, if not sooner.

 

On the other hand, if the two agree to disagree, but continue to negotiate through the summer, corporations would still be living on borrowed time, but won't invest. Our farmers and other exporters would continue to try doing business within the continuing status quo of uncertainty. That sort of atmosphere, while not a robust business climate, might not be sufficient enough to justify a rate cut by the Fed.

 

In this land of the unknowns, therefore, we are left with throwing the bones and/or reading tea leaves to come up with all sorts of what-if's. Story lines like "Donald Trump needs a China deal, otherwise, the economy slows, the stock market plunges, and he loses the 2020 Election."

 

Then there is the China sub-plot: "China's game plan is to procrastinate until after November 2020, or at least wait until the economic pain in the U.S. is such that Trump caves-in and is willing to strike a better deal than he is offering now."

 

If one looks at the action in the bond market, where interest rates have fallen to multi-year lows, the consensus seems to be gloom and doom. But that is nothing new--bond investors are a gloomy mob even at the best of times. If you look at the stock market, which is only a few percentage points away from historic highs, you could say that the future is rosy and there are blue skies ahead. Which is right, since they can't both be correct?

 

Maybe it simply comes down to whether you are a half-empty or half-full kind of investor. Donald Trump is definitely in the camp of those that believe the stock market should go higher. If that means the Fed should cut interest rates and be dammed the consequences, then so be it!

 

In the other camp are those who get hurt when interest rates fall. Retirees, pension funds, and all those who shun undue risk in exchange for a steady income. While those voices do not appear to be well represented in today's environment, they do represent a sum of money that dwarfs that of the equity market. Yet, they also have the reputation for being smarter than equity investors and are right more times than they are wrong.

 

Over the last decade, the percentage of Baby Boomers, those aged 65 to 74, living in the suburbs increased by almost 50 percent. Over the next 20 years, that age group will double in size, and by 2040, 1 in every 5 Americans will be age 85 or older. The majority of them will continue to live in the suburbs.

 

Older adults, it appears, move less frequently than any other age group. Over the last 10 years, only 6 percent of persons over 65 years of age moved, according to AARP, compared to 17 percent of those under 65. It's called "aging in place," which is a standing trend that describes how older Americans prefer to stay in their homes and never move. They are attached to their dwelling, their neighborhoods, even to the corner deli (if it still exists).

 

These adults have lived in their homes for the greater portion of their lives. They are the result of an enormous and long-lasting American socioeconomic trend that began after World War II. It was an age when Americans abandoned the inner city. By the hundreds of thousands per year, they embraced the tract home, the white picket fence, and quarter-acre of lawn or back yard far from the busting crowds of the city.

 

And as they migrated to greener pastures, shopping malls, and garages, restaurants and other businesses followed, catering to this new suburban lifestyle. The good life in the suburbs became so much a part of our culture that it generated dozens of movies, television shows and novels celebrating this new America.

 

The problem is that times change. Back in the day, the American family may have selected their suburban dwelling because of a good school system or proximity to the train station or bus depot to their day jobs in the city. But in retirement, those reasons no longer exist.

 

Neighborhoods have changed as well. What may have been a middle-class subdivision when first purchased may have changed over the years. Many older adults now find themselves living in poor, high-crime neighborhoods. I recall that my neighborhood outside of Philadelphia had been all Irish-German Catholics when I was a kid. Today, it is a haven for Ethiopian refugees and their families. Crime is rampant and the streets, pavements and other infrastructure have fallen on bad times. As a result, older residents do not venture out as much, if at all, virtually becoming prisoners in their own homes.

 

It is a fact that most suburbs require the use of a car to accomplish the most basic of chores, things like grocery shopping, visiting the doctor, etc. However, it is also true that many of this current generation's women never learned to drive. Now that their husbands have passed, many need to rely on others for mobility. But it is not just women, older adults in general are often required to reduce or stop driving altogether because their eyesight or motor functions have deteriorated to the point where they are a danger to themselves and others on the highway.  My suburban mother-in-law, at 90, is facing that problem today.

 

Suburbia has also fell victim to the internet. Strip and shopping malls are disappearing and with them the services that many older adults need to sustain their suburban lifestyles. As a result, driving distances have lengthened and public transportation is both costly and not easily obtainable.

 

From an income perspective, while many older suburban dwellers may have paid off their mortgages, they are still faced with large amounts of property taxes, insurance, and utility bills.

 

The Tax Reform Act of 2018, with its $10,000 cap on state income and property tax deductions, has made that situation much worse for older Americans. As it stands, seven out of 10 of the elderly occupy dwellings that were built at least 30 years ago. Ask any contractor to inspect that house and you will likely be handed a long list of

costly but necessary repairs and upgrades.

 

As we get older, the very items we will need the most — things like efficient and energy-saving lighting, electrical, air and heating systems, are sorely lacking in the older housing stock.

 

Enhancements such as handrails or grab bars, entrance/exit ramps, easy-access bathrooms and kitchens, widened doors or hallways and modified sinks, faucets or cabinets become critical, but few of us have the money to install them.

 

As time goes by and more and more of us age in place, the challenge of suburban living could gradually become more of a nightmare than a case of "living the dream." While there are some strategies, services and support groups that recognize the danger, for the most part, we are on our own. My advice is to plan accordingly when considering your move into retirement.

 

Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

You would think that a non-farm payroll report that was way below expectations would give investors pause. After all, when the pace of employment slows, it usually means that the economy is slowing as well. So why did the stock market spike higher?

 

It comes down to what the Fed may do. Contrary to many investors' belief that tariffs (or the lack thereof) are the critical element in the stock market's fortunes, I believe the actions of the U.S. central bank trump Trump's antics on the trade front. 

 

A look back to the last quarter of 2018 reveals why I believe this is so. While the press gave plenty of space to the on again, off again China/U.S. trade negotiations, the Fed's program of raising interest rates is what sent the markets into decline. In December, once the Fed realized that raising rates in an economy that was not overheating was a mistake, they reversed course, announcing any further rate rises were "on hold" until the data dictated otherwise.

 

From the end of December through the beginning of May, the U.S. stock market rocketed higher, regaining much of its 19 percent fourth quarter loss, even though no progress had been made on the trade front whatsoever.

 

Fast forward to last month. Trade negotiations between the U.S. administration and their Chinese counterparts hit a brick wall. Markets dropped more than 5 percent. Last week, The President's sudden threat to raise tariffs on Mexican imports by 5 percent added to the carnage with an additional drop of 2-3 percent.

 

While I wrote last week that I doubted (and still do) that those Mexican tariffs would actually be implemented, as of today nothing has changed on the trade front and yet the markets are up considerably. Look to the Fed for an answer.

 

The threat of new tariffs both in China and now Mexico, on the back of an economy that is growing moderately, triggered concerns that we could be setting ourselves up for a recession as soon as 2020. U.S. Treasury bond prices plummeted and within days investors were speculating that the Fed may need to move off their neutral stance and actually cut interest rates.

 

Now the market is betting on anywhere from two to three interest rate cuts by the Fed over the next 12 months. That is a drastic reversal of course from a mere six months ago when most believed the opposite would occur (more rate hikes).

 

Within this context, the jobs report was further evidence of an economic slowdown, which then bolstered expectations that the Fed would need to cut rates sooner rather than later. As such, investors have been conditioned to expect that looser monetary policy by the Fed translates into higher stock prices. It has been the way of the world for the last decade, so weaker macro numbers equate to buy, buy, buy.

 

As a result, with the Fed at our backs, I expect stocks to continue higher. How high, you might ask? At least to the old highs of the S& P 500 Index (2,944), which is a little under 100 points upside from here. Could it trade even higher? Yes, if the following occurs: Tariffs on Mexico are not levied, some accommodation with China on trade negotiations is made (a mini breakthrough) and/or the Fed makes a stronger statement on rate cuts.

 

On the downside, second-quarter earnings, which are coming up, might not be up to expectations, in addition to further escalation in Trump's trade war (more tariffs, counter tariffs, etc.). That would not only cap the markets on the upside, but could also establish a rather wide trading range throughout the summer with the lower boundary equating to the recent lows on the S&P 500 Index (2,744).

 

The family is headed toward a crisis in caring for the elderly. It will impact all of us, so if you have aging parents, don't think you can just close your eyes and hope for the best. You are likely setting yourself up for a world of hurt.

 

 All too often, the adult children of aging parents are blind-sided when presented with the realities of taking care of parents in need. This is usually precipitated by some sort of health crisis. In my own business, I see it time and time again. What follows is pure chaos, anxiety and hard feelings. There is no way to stop the inevitable, because aging and declining health are part of living, so what can you do?

 

"It is critical that families begin the conversation now to create a long-term care plan. Do not wait for it to become an immediate crisis," says Annalee Kruger, president of Care Right, a Florida-based expert in the area.

 

The crisis in caregiving has grown exponentially in this country. So much so that Kruger and others like her have been able to establish thriving businesses by providing solutions for families caught up in a care crisis. Her line of work ranges from providing solutions in caring for aging loved ones to acting as a third-party facilitator in family meetings. She coaches family caregivers (who may be dealing with dementia or are just plain burnt out), but her most satisfying work is developing a plan for the future in order to avoid most of the pitfalls ahead.

 

Unfortunately, crisis management is still a large part of her business. In order to deal with that event, she first needs to understand the actual care needs of your family member going forward. In today's economy, there are innumerable options and choices to make ranging from private sector solutions (if you have the money) to public options. In any given state, there are a myriad of organizations that provide help and assistance to a family in need.

 

Just knowing the lay of the land in this area requires a great deal of expertise, while matching your family care giving needs with resources available can be a full-time job. Chief among them may be the financial implications of your choices.

 

If your family is like mine, everyone will have a different opinion of what direction to take and why. Some members of the family may already be at odds from past disagreements. In the best of cases, developing an aging plan that all can agree upon usually requires an outside mediator. As I mentioned in last week's column, many family members today live far apart, and just communicating with a California brother or sister in Maine on an on-going basis is sometimes impossible without help.

 

As you might imagine, all of the above would be easier on all of us if we didn't wait for an immediate crisis, like Dad falling on his head while cleaning the roof gutters, or Mom's fall in the garage. Logic dictates that we do not wait for an immediate crisis. Your first step is a family meeting.

 

Krueger suggests a serious meeting should be arranged with the family where three questions are agreed upon: "If mom or dad becomes incapacitated, where will they live? Who will take care of mom or dad? And if they need custodial care, how will the family pay for this care?"

 

"The answers will form the basis for a long-term care plan," Kruger explains. "If family members disagree regarding the answers, compromise must be made. The entire family must come to a consensus that everyone can live with or risk the disintegration of the family."

 

As I wrote last week, it is a serious issue that is only going to get worse in the future as more elderly 80-plus family members need help and less and less caregivers (45-64 years old) are around to provide it. Nearly 10 million caregivers are now over 50 years of age. That number is going to explode upward in the next decade. Over 86 percent of these caregivers saw a tremendous impact on their lifestyle. Sixty-four percent of them are funding their parent in some way; accounting for 33 percent of their monthly budget, according to AARP.

 

If those statistics don't convince you then nothing will. My advice: call that family meeting as soon as possible before it is too late and get some help.