Recession

It won’t be easy street in the home real estate market anytime soon.

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Sinking home prices leading to lower home ownership rates in the USAIt’s official: Average U.S. home prices have now “achieved” quite a milestone. They’re right back down to where they were in 2003.

In other words, eight years and a ton of turbulence later, we’re back where we started on home prices. Talk about a nothing-doing return on investment!

But for many homebuyers it’s far worse than an investment with zero return … what’s happened is hardly the same thing as keeping money in a savings account in the bank at a puny 0.5% annual interest. Because as we all know, over this period home prices peaked, then plummeted.

Unfortunately, those who chose to jump in during the midst of the homebuying frenzy find themselves underwater in a big way with those mortgages.

This negative equity phenomenon is a huge issue, according to industry experts. In fact, business intelligence and analytics company CoreLogic is reporting that nearly one in four mortgages is now in a negative equity situation.

Mark Fleming, CoreLogic’s chief economist, goes even further. “It’s not just negative equity that we … focus on, but it’s also insufficient equity. All the people who have those primary loans that are somewhere between 80% and 100% LTV [loan-to-value] also basically don’t have access to the credit markets.”

The vast majority of homeowners who are underwater with their mortgages are continuing to pay on them. So far, so good. But the problem is that most of these owners are really underwater – to the tune of 30% or more based on the latest home value appraisals.

Here’s the stark truth: These owners will be stuck with their homes for years and years … and unable to sell them unless they’re willing to take a big loss. Given the precarious state of family finances in many households, that’s an unrealistic option at best.

It’s also a recipe for housing industry stagnation as far as the eye can see.

What’s the end-game in all of this? Most likely, negative equity is going to get worse before it gets better, as home prices will continue to stagnate – or even fall further in value in some markets.

An interesting parallel to this is the effect the residential real estate doldrums have on consumer psychographics. As people hear never-ending negative news stories and continue to view real estate as a problematic investment, these impressions are only magnified.

At some point, we get to a place where it will take years for those consumer attitudes to change. 2011’s third quarter average home prices reportedly dropped ~4% compared to the same period in 2010, thus continuing the ugly cycle of consumer retrenchment and lower home values. So much for the “hyped and hoped-for” housing recovery.

And what about consumers who may be thinking about becoming homeowners for the first time? Clearly, they’re not fools. Most will wait until the market has truly bottomed out before they jump in.

… Which leads us to this revelation: Not only are housing prices right back where they were in 2003, home ownership rates in the United States are now down to their lowest percentage level since before the U.S. Census Bureau began tracking this statistic back in 1963.

That is correct. After having reached a high of ~70% of the adult U.S. population in 2005, industry watchers like John Burns Real Estate Consulting are predicting that home ownership rates will fall to ~62% by 2015.

So much for attaining the “ownership society” preached by politicians throughout the 1990s and 2000s. But hey, at least a lot of people got a bunch of fee-based income from all the flurry of the real estate transactions …

Yep. “Paper entrepreneurship” at its finest. Too bad it’s all so ephemeral.

What do consumers think of America’s corporations?

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Corporate Trust ... Corporate ReputationWith the budget negotiations in full swing – and high dudgeon – on Capital Hill, naturally the public’s critical eye is trained on our political figures. And Congress is most assuredly taking a beating in the political polls, with approval ratings plunging astonishly below the 20% figure.

[Of course, is that really so surprising? After all, Congress is pretty evenly matched between the two parties … so partisans see much to criticize on both sides.]

The focus of attention on Washington has taken the spotlight off of corporate America – at least in terms of media attention. But that doesn’t mean that “John Q. Public” is giving companies much of a break.

I’ve blogged before about corporate reputations — most recently commenting on a field survey conducted early this year by Harris Interactive that measured the appeal of 60 of the “most visible” American corporate brands. That survey showed an uptick in positive opinions about those firms when compared to prior-year results.

But a May 2011 survey by GfK Custom Research North America shows otherwise. The findings from GfK’s online field survey of ~1,000 U.S. consumers include this doozy: Two-thirds of respondents believe that it’s harder today for American companies to be trusted than it was three years ago.

Furthermore, ~55% say it will be harder for companies to gain their trust in the years to come.

What’s bothering people about U.S. corporations? In order of significance, here are the key concerns:

 The perception that CEOs and other senior executives of corporations are overpaid.

 Corruption in senior management circles.

 Companies make up lost earnings at the expense of their customers.

 More products than ever are being manufactured overseas.

Interestingly, there’s less concern about declining product or service quality as a reason for lower levels of trust. And as has been found in other studies, the public’s view of technology companies is somewhat higher than its trust for companies in other industry segments.

But back to the rather grim overall findings … fewer than one in five survey respondents anticipate that corporate corruption will become better over time – a result that’s substantially lower than what was found in similar field research conducted by GfK a few years ago.

This survey underscores the fact that corporate America has a long way to go to change the sharply negative impressions consumers have of the world of business. Clearly, the financial crisis of 2008 continues to extend its long shadow more than two years later.

And it looms over everyone – public and private sector alike.

This helps explain the generally sour mood people are in these days.

Getting the Message on Retirement Savings

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401(k) plan balances are actually increasing.
401(k) plan contributions -- and balances -- are back on the increase.
Have Americans finally gotten the message about saving for retirement? Judging from the most recent published stats on 401(k) savings, it would seem so.

Last month, it was reported that 401(k) retirement savings have hit a 12-year high, with an increase of ~3.5% in contributions being charted during the first quarter of 2011.

What about average account balances? Today, those stand at about $75,000. That’s still woefully inadequate considering what (little) people can expect to receive from Social Security as they reach retirement age. But it’s a darn sight better than the ~$41,000 average 401(k) plan balance that existed in 2002.

Of course, averages can be misleading, since the figures can be skewed by some very hefty balances held by a very few highly compensated workers at the top of the heap. In fact, more than 55% of workers have less than $25,000 in their 401(k) plans.

On top of that, nearly one in four plan participants has outstanding loans against their plans.

Clearly, the recession has had a big impact on contribution behavior – even as workers have become more sensitized than ever about the inability of Social Security to cover their retirement needs.

Making 401(k) contributions are not an option for the unemployed, of course, but there are many other workers who were forced to reduce their contributions to cover for losses of family income because of a spouse losing his or her employment.

And some have had to borrow against their plan assets in the more serious circumstances. Those loans are actually up by double digits.

Still, it’s heartening to see the latest numbers … as it appears that “awareness” is now being translated into “action.” Would that we could rely on our local and national politicians to do the same thing …

What’s the Latest with Employee Satisfaction?

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Coming off the worst recession in memory, just how happy are Americans in their jobs today?

An online survey of ~450 American adults conducted in late February by enterprise feedback management and research firm MarketTools has found that only ~34% consider themselves “very satisfied” in their current job positions:

 Very satisfied: ~34%
 Somewhat satisfied: ~40%
 Neither satisfied nor dissatisfied: ~10%
 Somewhat dissatisfied: ~10%
 Very dissatisfied: ~5%

Those results would seem to portend that a significant number of people will be looking to change jobs in the near-term future.

And in fact, nearly 50% of these respondents reported that they’ve “considered” leaving their current positions – and more than 20% have actually applied for another job within the past six months.

What’s causing dissatisfaction among employees? They’re the usual things, beginning with salary, although many respondents cited multiple contributing factors to employee dissatisfaction:

 Salary level: ~47% of respondents
 Level of workload: ~24%
 Lack of opportunity for advancement / career development: ~21%
 Relationship with manager / supervisor: ~21%
 Medical benefits issues: ~20%
 Work environment: ~14%
 Length of commute / distance from home: ~14%

It shouldn’t be too surprising to witness an increase in job-hopping behavior following economic downturns. For those lucky enough to have held onto their positions during the recession, the working environment has likely been more stressful, as employers required more productivity from fewer workers.

It’s also likely that benefits packages were reduced to some degree. So it’s only natural for people to nurse some residual negative feelings about the situation and to possibly consider jumping ship to another employer.

But would that be the best move?

Often, moving to a new employer doesn’t result in the improvements the employee expected to find. And smarter companies will use the improving economic climate (such as it is) to reward those employees who hung in there when times were tough. After all, these are their better workers!

Salary and benefit increases are always going to be appreciated … but so is the opportunity for continued growth and career development.

It’ll be quite interesting to see what the job-hopping statistics show a few months from now.

Valentine’s Day Spending: All Hearts and Flowers?

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Valentine's Day is hearts and dollarsWith the recession finally receding, are we now seeing an uptick in spending for Valentine’s Day — arguably the most romantic day on the calendar?

According to a January Consumer Intentions & Actions questionnaire conducted among ~8,900 participants for the National Retail Federation by survey firm BIGresearch, American adults over age 18 will spend an average of ~$115 on traditional Valentine’s Day merchandise this year. That’s up more than 11% over 2010, and collectively represents spending of nearly $17 billion.

But we have yet to return to the levels of Valentine’s Day spending that were reached in 2007 and 2008 – the highest on record.

Jewelry appears to be the big item on the Valentine’s Day shopping list. Approximately $3.5 billion is expected to be spent in this segment this year, which is up more than 15% from the ~$3.0 billion spent in 2010.

Dining out is another popular category, but its growth is not expected to be nearly as big as jewelry’s – just 3%. The six most popular categories as determined in the NRF study include:

 Jewelry: $3.5 billion
 Dining out: $3.3 billion
 Flowers: $1.7 billion
 Clothing: $1.6 billion
 Candy: $1.5 billion
 Greeting cards: $1.1 billion

[I was surprised at the greeting cards figure. True, cards are a lower-price item compared to the other categories, but the number still seemed pretty meager. It turns out that only about half of the consumers surveyed reported that they planned on purchasing a Valentine’s card, which was lower than I thought would be the case.]

Not surprisingly, younger adults (age 25-34) are expected to spend significantly more than their older counterparts. They’re projected to spend an average of nearly $190 on Valentine’s Day merchandise compared to only about $60 spent by adults over 65.

But it’s not just because of “sweet, fresh young love” versus “tired, worn-out old love.” It’s because young couples and young parents are often buying not only for each other, but also for their co-workers … their children … their children’s friends … and their children’s teachers as well.

And here’s another statistic that won’t surprise very many people: Women will receive Valentine’s Day gifts averaging around $160, which is double the value of gifts for men.

Now, that’s a dynamic that’s likely never changed … and probably never will!

Your declining retirement savings: It’s all relative.

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EBRI's Annual Retirement Confidence Survey
The EBRI's 2010 Retirement Confidence Survey reveals severe challenges faced by many American workers.
As difficult as the last two years have been on your finances, you’ve probably saved a lot more for retirement than your fellow workers.

How is that possible? Because it’s all relative. The Employee Benefit Research Institute’s most recent annual survey of U.S. workers and their retirement savings reveals that the percentage of workers having fewer than $10,000 in savings stands at 43%. That’s up from 39% in 2009.

Even more ominous, the percentage of workers who reported they have less than $1,000 in savings is 27% — significantly more than the 20% reported in 2009.

The EBRI’s definition of retirement savings excludes the value of primary homes and defined-benefit pension plans. Still, these are startling figures, showing that large numbers of Americans have little if anything in the way of a savings safety net.

It’s true that some people have plowed their savings into the purchase of a home. But these “house poor” individuals are often among the first who face mortgage foreclosures upon the loss of a job, because they have so few cash resources upon which to fall back.

If there is a glimmer of good news in these dreary statistics, it’s that more people are awakening to the reality of their finances. Gone is the notion that Social Security will pay enough for a decent retirement lifestyle. Indeed, less than 20% of respondents expressed confidence in their ability to save enough for a comfortable retirement. That’s the second lowest reading ever recorded in the 20-year history of the EBRI’s annual survey.

Only ~45% of workers with some form of savings have more than $25,000 stashed away … and people know that $25,000 is not nearly enough for retirement, Social Security payments being what they are. Consequently, in the 2010 EBRI survey, one in four workers report that they’ve decided to postpone their retirements (that’s up from ~15% saying so in the 2009 EBRI research).

For its survey, the Employee Benefit Research Institute queried ~1,150 U.S. workers (age 25 and older) plus retirees, making it one of the most comprehensive field studies on the topic of U.S. retirement savings. There’s a wealth of additional statistics and insights available here.

The e-Commerce Hiccup

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One of the bigger surprises of business in the year 2009 was how big of a hit U.S. e-commerce has taken. According to digital marketing intelligence firm comScore in its just-released report 2009 U.S. Digital Year in Review, e-retail spending in America decreased about 2% during the year to come in just under $210 billion.

This represents the first decline in e-commerce spending ever recorded.

Obviously, the economic recession was the culprit. But considering that e-commerce growth has charted above 20% annually in every year leading up to 2009, seeing an actual fall-off has raised more than a few eyebrows.

Where was the e-commerce decline most pronounced? It was in travel-related services, which saw revenues drop by 5% to ~$80 million. Not that all sectors saw decline. A few continued to experience growth during the year, including the books/magazines category which charted gains of ~12%. Online computer software purchases were also up by about 7%.

What does comScore see on the horizon for U.S. e-commerce? Is continued softness predicted … or a return to robust growth?

Analyzing the last few months of e-commerce activity during 2009 provides clues to the future: Growth looks like it’s returning. In fact, the 2009 holiday season marked a return to positive growth rates when compared against the same period in 2008.

[Granted, this comparison is made against “down” months of November and December in 2008, after the recession had already kicked in. But the pace of e-commerce activity is clearly picking up again.]

But whether it will go back to a 20%+ annual growth is still an open question.

No froth in the beer industry …

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Can it be possible? The Beer Institute trade association is reporting that U.S. beer sales are actually declining.

Chalk up one more piece of evidence showing that this economic downturn is a vastly different animal. In previous periods of recession, beer sales did not really suffer. Perhaps that’s because it’s been a relatively inexpensive discretionary item. If you’re feeling down about the economy or your personal finances, why not drown your sorrows in a nice cold one?

Not so this time around. The Beer Institute reports that domestic brew sales have declined 4% in the first two months of 2009 compared to the same period last year, while import beer sales are off a whopping 19%. Not only that, foreign beer sales registered a decline for the entire year of 2008 as well.

Shipments from Mexico have fallen nearly 14% so far this year compared to last, led by Corona. But Corona is still America’s top-selling foreign brew, beating Heineken by a long shot. Speaking of which … beer sales from Holland have declined by an even bigger percentage (more than 25%).

What should we make of these statistics? Are Americans now tightening their belts on absolutely everything?

Or maybe we’re doing for our health what we’re also doing for our personal savings rate. Perhaps switching to something better than brewskies – like heart-healthy red wine? We’ll have to wait for the latest statistics from the National Association of American Wineries to find out.