December 4, 2022

Bucks Blog: In Some Areas, Home Ownership Is Still Out of Reach

The housing market may have crashed in many parts of the country, but there is still a contingent of would-be buyers living an alternate reality. They make a decent living, they save, but it’s still not enough to break into the gated communities formerly known as New York, Los Angeles and Boston.

In these metropolitan areas and their outskirts, pricing is likely to end up higher, relative to local income, than it was before the housing bubble, according to Fiserv Case-Shiller.

So in Wednesday’s special section, I profiled Steve and Logan Kinney, both 27-year-old public school teachers, who have lived through the frustrations of trying to buy in New York City. The couple got married two years ago and want to complete their American dream by buying a modest home not too far from where they work. They also want to start a family.

But a budget of $250,000 doesn’t go very far in the city. And even if they could find something they could responsibly afford, they would need to come up with at least $60,00 –  if they want to make a 20 percent down payment and keep some money in the bank after they close.

Earlier this morning, I received an e-mail from another young couple looking to buy their first home in Brooklyn. They had just learned that their offer on a $485,000 apartment, which was initially accepted, had fallen through; the seller received an all cash offer. The first offer they made, on another apartment, was lost to another buyer putting down 50 percent in cash.

Have you tried to buy in any of these still seemingly frothy areas? Please share your experiences in the comment section below.

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Bernanke Urges Obama and Congress to Do More for Economy

Mr. Bernanke described the nation’s economic health in bleak terms, saying that “the recovery is close to faltering,” and suggested that avoiding another recession might require fresh government action. “We need to make sure that the recovery continues and doesn’t drop back,” he said.

Such talk from a Fed chairman usually means the central bank is preparing to reduce interest rates, and Mr. Bernanke said that the Fed was not ruling out such a step. But on Tuesday, as at other recent appearances, he made clear that his remarks were aimed at the rest of the government.

“Monetary policy can be a powerful tool, but it is not a panacea for the problems currently faced by the U.S. economy,” Mr. Bernanke said. “Fostering healthy growth and job creation is a shared responsibility of all economic policy makers.”

Mr. Bernanke has repeatedly called on Congress to adopt a plan for paying down the federal debt, as well as for reducing inequities and loopholes in the corporate tax code, two ideas that enjoy wide support among economists. On Tuesday he also focused on housing policy, suggesting that the government could help underwater homeowners refinance and also improve the availability of mortgages for potential buyers.

However, the Fed chairman sidestepped a number of questions from Republicans and Democrats seeking his support for specific legislative proposals to reduce the federal deficit or to encourage job creation.

Mr. Bernanke’s critique of Congress mirrors mounting frustrations among some lawmakers over his leadership of the central bank. Some liberals want the Fed to try harder to increase growth by further reducing interest rates or injecting money directly into the economy. Conservatives, meanwhile, warn that any new efforts by the Fed are more likely to harm the economy.

Members of the Joint Economic Committee, where Mr. Bernanke answered questions for about 90 minutes Tuesday, pressed both of those arguments. But Mr. Bernanke remained firm in his position that the Fed already had done a great deal, and that it might do more — but not right now.

The central bank, he said, “is prepared to take further action as appropriate to promote a stronger economic recovery in the context of price stability.”

In recent speeches, Mr. Bernanke had suggested that the economy did not need much more help, and that growth would pick up speed so long as the government did not interfere, for example, by making sharp cuts to short-term spending. But the Fed, like many private sector forecasters, has been too optimistic in its predictions over the last two years, repeatedly overestimating the pace of growth.

On Tuesday, Mr. Bernanke reiterated the Fed’s forecast that the health of the economy would probably improve, but suggested there was also a significant risk of a second recession unless the government acted to increase growth.

He suggested that Congress should keep four goals in mind: Reducing debts to a sustainable level, avoiding short-term spending cuts that could impede recovery, adjusting spending and tax policies to support growth, and improving the government’s decision-making process.

“There is evident need to improve the process for making long-term budget decisions, to create greater predictability and clarity, while avoiding disruptions to the financial markets and the economy,” Mr. Bernanke said.

Representative Mick Mulvaney, a South Carolina Republican, said that the central bank’s policy of maintaining low interest rates had made it irresistible for Congress to keep borrowing money rather than rein in federal spending.

“We’re able to borrow so much money right now at a reduced rate; there’s a very strong impetus here to simply put off the tough decisions,” he said.

Mr. Bernanke responded that the Fed was holding down interest rates, but “I don’t think that eliminates the responsibility of Congress to take its own action.”

The Fed’s own recent efforts to increase growth have been modest in scope. The central bank announced in August that it intended to maintain short-term interest rates near zero for at least two more years. In September, it announced an effort to further reduce long-term interest rates by moving $400 billion from investments in short-term Treasury securities to longer-term Treasury securities. Both policies are aimed at reducing borrowing costs for businesses and consumers.

Mr. Bernanke said on Tuesday that the Fed estimated the September program would reduce the interest rate on Treasury securities by about 0.2 percentage points. Analysts estimate that the August program will have a similar impact.

“We think that this is a meaningful but not an enormous support to the economy,” Mr. Bernanke said. “It should help somewhat on job creation and growth.”

But the efforts also have highlighted the limits of the Fed’s power. While it can reduce the cost of borrowing, it has not made it easier for consumers and businesses to qualify for loans. Mr. Bernanke noted the example of mortgage loans, saying that lower interest rates had not increased the volume of new loans.

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You’re the Boss: It’s Never the Employee

Thinking Entrepreneur

I just sat through a fascinating round-table discussion with several successful entrepreneurs who were discussing their biggest weaknesses, which inevitably led to a discussion of their biggest frustrations.

These were experienced business owners, ranging in age from their late thirties to late fifties. Most of them described themselves in similar terms: impatient, short on focus, easily frustrated, likely to jump in and solve a problem rather than count on the employee to do it.

I asked questions after each one of them had bared their souls.

Do you jump in to solve the problem because you can’t help yourself — or because your employee can’t do the task? Both.

Do any of your key managers occasionally come up with big thoughts or ideas? No.

To those who complained that employees were coming to them with simple problems to be solved, had the employees been given  training on options to solve those kinds of problems? No.

Do you see yourself wired as more of an entrepreneur or more of a manager? They all wanted to be the entrepreneur — and they all acknowledged that their weakness was that they did not want to do the day-to-day management.

I think these entrepreneurs would agree that they had not yet reached that utopian place that small-business owners dream about where they are working on the business instead of in the business (in the words of Michael Gerber). They didn’t seem to disagree when I pointed out that they all had very similar issues. They were all entrepreneurs. And there was general acknowledgment that if they wanted to grow, have less stress, and build a business that would last, they needed to change the way they did things.

From what I could tell, no one got mad at me when I suggested that the problems they were experiencing were the direct result of how they had built their companies. The problem is that the same traits that make people successful entrepreneurs can also make them frustrating and frustrated managers. The same impatience that keeps things moving can also intimidate employees and keep them on edge. The lack of focus generates lots of new ideas but throws people off as they try to execute the latest new idea. And of course, not all of the ideas work.

Being able to think fast on your feet is essential for the entrepreneur, but not everyone can keep up. Things that seem obvious or come as second nature to the owner are not always obvious to everyone else. These owners frequently insist, “It’s just common sense!” But it usually isn’t. They are better doers than teachers, which leads to a frustrated teacher and frustrated students. And the frustrated teacher is rarely aware of the negative and unproductive consequences of a frustrated look, a raised voice, the lack of support.

I know about these things, I might add, because I have been guilty of all of them. But after way too many years of doing it wrong, I finally figured out the basics of good management. The bottom line? It’s never the employees who are the problem. It is the training they didn’t get. It’s the oversight that wasn’t given. It’s the lack of structure. It’s the boss who can’t let go. It’s that the wrong employee was left in the job too long. It is the boss’s responsibility. In a privately held business, it is always the boss’s fault. The boss has control.

So what is the solution for owners who want to work on the business instead of in the business? It starts with realizing that if you can’t get out of the business, you are doing something wrong. Maybe you don’t have enough business to hire the right people. Maybe you don’t charge enough in order to pay enough to hire the right people. Maybe you don’t train your people well. Maybe you have unrealistic expectations of what your people are supposed to do.

Maybe you can’t stop yourself from jumping in and just doing the job. Maybe, just maybe, you complain about not being able to get out of the business, but the truth is you just can’t let go. You want to deal with customers, you want to deal with vendors, but it may not be in the best interest of the company for you to be doing so. The joke is, many people say they want to work on the business, but they never really stop to consider what that means. What does it mean?

In my next post, I’ll lay out my 10-step plan for getting out — or not. Some people are better off in.

Jay Goltz owns five small businesses in Chicago.

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Health Insurance: What You Need to Know

The best place to get health insurance, of course, is from your employer. Group plans are typically cheaper, and your employer will probably cover much of the cost.

There are three main types of coverage you can choose from: H.M.O.s (health maintenance organizations), P.P.O.s (preferred provider organizations) and the newer option called an H.D.H.P. (high deductible health plan) paired with a savings account. A small number of companies still offer old-fashioned, fee-for-service plans, but their ranks are dwindling. Here’s what you need to know about the most common plans:

H.M.O.S provide comprehensive coverage at a low cost to the consumer. In general, you don’t pay any deductibles or co-payments for basic care (and if you do, they will be relatively low). But your choices will be limited. You can generally use only the doctors and hospitals within the H.M.O.’s network, though more plans are easing up on this restriction, and your designated primary-care physician will determine the level of care you require and when you need to see a specialist.

Pros: Low cost. Coordinated care.

Cons: A limited choice of providers. If you go out of network, for example to a specialist, you will probably not be reimbursed.

PREFERRED PROVIDER ORGANIZATION AND POINT OF SERVICE plans were created in response to consumer frustrations with the limitations of H.M.O.s. You can choose to go to network providers and pay a small co-payment, or go out of network and have only a portion — typically around 60 to 70 percent — of your costs reimbursed. The main difference between the two is that a point of service plan requires a referral from your primary care physician to see a specialist, while the preferred provider plan does not.

Pros: More flexibility than an H.M.O.; lower overall out-of-pocket costs than a fee for service plan.

Cons: It’s tricky to predict your costs unless you’re willing to stay within the network. Getting reimbursed for out-of-network claims can be a hassle.

HIGH-DEDUCTIBLE HEALTH PLAN Over the past few years, more employers have begun to offer the option to sign up for a high deductible health plan that is linked to a health savings account or health reimbursement account. Some employers may offer the high-deductible health plan on its own and allow the employees to set up a savings account with the bank of their choice.

The plans work like the preferred provider option, but the deductible is much higher — at least $1,150 for coverage of a single person and $2,300 for families. To compensate for the larger deductible, employers typically offer different two savings options:

A health savings account allows you to put away pretax dollars and then withdraw the money to pay your out-of-pocket costs. (Your employer may kick in some money, too.) In 2009, you and your employer can put up to a combined limit of $5,950 in a health savings account if you opt for family coverage ($3,000 for singles). The money rolls over from year to year, so you can basically store up a medical emergency fund. When you’re 65, you can take the remaining money out without paying a penalty, though you’ll pay taxes on the withdrawal if you’re not using it to pay for medical costs.

A health reimbursement account is financed solely by your employer. Typically, an employer will contribute an amount equal to about half the employee’s deductible The money rolls over from year to year, but you cannot take the money with you when you leave the company.

Pros: Low premiums. Tax-free savings (in the case of the health savings account).

Cons: Potentially high costs, especially if you or a family member becomes chronically ill. Don’t choose this option unless you have the money to pay the deductible.

INDEMNITY, OR FEE-FOR-SERVICE, PLANS are offered by fewer and fewer employers because of their expense. They allow you to go to any doctor, hospital or medical provider you choose. The plan typically reimburses 80 percent of your out-of-pocket costs after you fulfill an annual deductible.

Pros: Flexibility. You can go to any medical provider, anywhere, without seeking plan approval first.

Cons: Your total out-of-pocket costs will probably be higher than in a preferred provider plan or H.M.O. Most fee-for-service plans don’t cover preventive care like flu shots or mental health services.

To help narrow your choice, here are the steps you should take:

1. Ask your favorite doctors which insurance plans they accept. If you find that one or more of your doctors do not accept any insurance plans, then you’ll want to select a plan that reimburses you for your costs when you go out of the network.

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