Analysis: Insurance and Taxes Now Cost More than Mortgages for Many Homeowners​​​

Soaring costs for home insurance and property taxes are busting homeowners’ budgets, according to a Wall Street Journal analysis. Insurers have pushed big rate increases because of losses from natural disasters and rising costs to repair homes. Surging home values in recent years, meanwhile, have lifted property taxes for many homeowners. These ballooning expenses are rewriting the math of homeownership. In September, 32% of the average single-family mortgage payment went to property taxes and home insurance, the highest rate ever for data going back to 2014, according to Intercontinental Exchange. The analysis is based on borrowers who use escrow accounts to pay their taxes and insurance as part of their monthly mortgage payments. For a small but increasing share of households, the burden is far more significant. In five major metro areas — Rochester and Syracuse, N.Y.; Omaha, Neb.; New Orleans and Miami — at least a quarter of borrowers spend more than half their monthly mortgage payment on taxes and insurance, according to ICE. These metro areas have high property taxes or pricey home insurance relative to typical home costs, or both. Nationwide, taxes and insurance make up more than half of the monthly mortgage payment for 9% of single-family mortgages. That is up from less than 4% at the end of 2014. Rising taxes and insurance premiums intensify the lack of affordability home buyers already face because of record-high home prices and elevated mortgage rates. Those deterrents have led many home shoppers to give up this year, putting sales of existing homes on pace for their worst year since 1995. But while mortgage rates fluctuate, climbing property taxes and insurance costs show no sign of reversing. These costs also pose a growing and often unexpected burden for homeowners, even those who purchased or refinanced when mortgage rates were near historic lows. Read more (subscription required).

Analysis: Holiday Sales Reveal a Split in Consumer Spending​​​

It was a holiday season of the haves and the have nots, according to a Wall Street Journal analysis. Inflation-weary consumers were projected to splurge this year on holiday gifts, food and decorations — fueled by online purchases, according to industry estimates. But the gains were increasingly driven by higher-income households, those making more than $100,000 a year. Lower-income Americans were squeezed by higher prices for groceries, child care and other monthly expenses. Not every retailer has navigated the turbulence well. The Container Store and Party City chains both filed for bankruptcy protection in the days before Christmas. Meanwhile, the founding family of Nordstrom clinched a deal to take the struggling department store private. “We started to notice this trend where there was a real bifurcation in the market between the $50,000-and-below consumer in the U.S. market and the $100,000-and-above consumer,” said Chris Peterson, chief executive of Newell Brands, which makes Sharpie pens, Graco strollers and Oster kitchen appliances. For example, the company is anticipating stronger demand for its high-end blenders — those costing $100 or more — and dwindling demand for its entry-level blenders that fetch $20 or less, Peterson said. The company is ditching efforts to improve its cheapest blenders and is instead focusing on enhancing its top-of-the-line items for those looking to splurge. “As we head into next year, 100% of our innovation will be at the medium and higher price point,” he said. “We’re not innovating at all against the lower price points anymore.” Overall, consumers spent 3.8% more from Nov. 1 through Dec. 24 than they did in the same period last year, according to Mastercard SpendingPulse, which excludes auto sales. The tally doesn’t include the week after Christmas, which is a key shopping period. The gains were boosted by restaurant spending, which increased 6.3% in the period compared with last year. Online retail sales rose 6.7% year-over-year, while in-store sales increased 2.9%. Read more.

Subchapter V Experiences to Share? ABI Wants to Hear from You!

ABI is continuing its study of Subchapter V, and it needs your help! We are particularly interested in learning more about the real-world impact of Subchapter V. So our question is, do you have a story about a distressed business or creditor who has used or benefited from the subchapter? If so, could that case still happen under the lower debt cap for Subchapter V debtors? Any and all responses are welcome. Submit your story at https://abi.org/subvstories.
 

Analysis: How A.I. Could Reshape the Economic Geography of America​​​

Chattanooga, Tenn., a midsize Southern city, is on no one’s list of artificial intelligence hot spots. But as the technology’s use moves beyond a few big city hubs and is more widely adopted across the economy, Chattanooga and other once-struggling cities in the Midwest, Mid-Atlantic and South are poised to be among the unlikely winners, a recent study found, according to a New York Times analysis. The shared attributes of these metropolitan areas include an educated workforce, affordable housing and workers who are mostly in occupations and industries less likely to be replaced or disrupted by A.I., according to the study by two labor economists, Scott Abrahams, an assistant professor at Louisiana State University, and Frank Levy, a professor emeritus at the Massachusetts Institute of Technology. These cities are well positioned to use A.I. to become more productive, helping to draw more people to those areas. The study is part of a growing body of research pointing to the potential for chatbot-style artificial intelligence to fuel a reshaping of the population and labor market map of America. A.I.’s transformative force could change the nation’s economy and politics, much like other technological revolutions. “This is a powerful technology that will sweep through American offices with potentially very significant geographic implications,” said Mark Muro, a senior fellow at the Brookings Institution, where he studies the regional effects of technology and government policy. “We need to think about what’s coming down the pike.” At issue is a new and rapidly growing breed of the technology known as generative A.I., which can quickly draft business reports, write software and answer questions, often with human-level skill. Already, predictions abound that generative A.I. will displace workers in call centers, software developers and business analysts. But exposure to A.I. does not necessarily translate to sweeping job losses, according to the analysis. These cities, the economists note, have proved to be among the most resilient, dynamic places in the country, able to withstand setbacks and recover. In their paper, the two labor economists identified nearly two dozen metropolitan areas expected to benefit from the broader adoption of A.I. technology, including Dayton, Ohio; Scranton, Pa.; Savannah, Ga.; and Greenville, S.C. Read more.

New U.S. Jobless Claims Slip, but People Are Remaining Unemployed for Longer​​​

The number of Americans filing new applications for jobless benefits dipped to the lowest in a month last week, consistent with a cooling but still-healthy U.S. labor market that is likely to keep Federal Reserve officials from cutting interest rates any further in the near term, Reuters reported. Initial claims for state unemployment benefits fell by 1,000 to a seasonally adjusted 219,000 for the week ended Dec. 21, the Labor Department said on Thursday. Economists polled by Reuters had forecast 224,000 claims for the latest week. The claims data has been somewhat choppy since Thanksgiving, which economists see resulting from seasonality issues associated with the increase in temporary workers that businesses bring on board for the holiday season. Still, the level of new benefits claims was in line with its average over the last year of just over 220,000, with little indication of moving higher as layoffs remain muted. Meanwhile, those who have lost work are finding it harder to find a new job and are remaining on benefits rolls for a longer stretch and pushing up the ranks of those collecting unemployment benefits for more than the first week. The number of people receiving benefits after an initial week of aid, a proxy for hiring, rose 46,000 to a seasonally adjusted 1.910 million — the highest since November 2021 — during the week ending Dec. 14, the claims report showed. Economists had been expecting the level of continued claims to be 1.880 million. The average duration of unemployment in November was 23.7 weeks, the longest since April 2022, and has climbed steadily in recent months from fewer than 20 weeks in April. Still, the level of continued claims is only about 100,000 higher than it was a year ago, and while it has been edging up over the past 12 months, it has so far shown no sign of shooting higher as typically occurs in a deteriorating labor market. Read more.

Commentary: Will the DOGE Save Uncle Sam from Bankruptcy?*​​​

Billionaires Elon Musk and Vivek Ramaswamy are on tap to lead incoming President Trump’s proposed Department of Government Efficiency (DOGE), but will the DOGE find the promised $2 trillion in wasteful spending to cut? Eliminating “wasteful” spending may prove harder than expected, according to a Yellowhammer News commentary. The fiscal year 2024 deficit was $1.8 trillion despite the nation being at peace and not in a recession. Such deficits will continue without change and worsen during slumps or conflicts. Our $36 trillion national debt exceeds GDP by a quarter, while debt held by the public virtually equals GDP. Lending is a voluntary market activity. Interest rates will rise sharply when investors no longer wish to lend more to Uncle Sam. We have not reached the limit to Federal borrowing, but given current deficits, we will hit the limit in closer to 10 than 50 years. Cutting spending by $2 trillion would be an enormous step toward saving Uncle Sam from bankruptcy. The late economist William Niskanen, a long-time president of the Cato Institute, once observed how in 25 years of working in DC, he had never found an agency budget line labeled, “Waste, Fraud, and Abuse.” This does deny wasteful spending, but the waste is not like pouring milk on the ground. Inefficient spending yields benefits less than costs, say $70 in value for every $100 spent. Identifying and cutting spending of this type will prove challenging, according to the commentary. Businesses can use profits and losses to guide their decisions because they sell goods and services to consumers. Musk can use losses to identify waste in his companies. Many government services either cannot be sold, what economists call public goods, or are deliberately made available for free. Public schools offer an example of the latter, since we do not charge tuition. Comparing benefits and costs without prices is difficult. Bureaucrats process applications for programs like unemployment and Social Security. If an applicant completes the requisite forms and presents the supporting documentation, the application is normally approved. Only blatantly fraudulent applications get rejected here. Fraud is generally uncovered later, as illustrated by IRS audits of tax returns. This makes government programs vulnerable to fraud. Yet greater scrutiny of applications requires more personnel, delays approval, and rejects poorly documented legitimate claims. In choosing to get COVID relief dollars spent quickly, we arguably accepted more fraud. Even fraud is difficult to prevent. Read more.

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Tenth Circuit Accepting Applications for Bankruptcy Judge Vacancy in Utah​​​

The U.S. Court of Appeals for the Tenth Circuit is seeking applications for a bankruptcy judgeship in the District of Utah. Bankruptcy judges are appointed to 14-year terms pursuant to 28 U.S.C. § 152. The position is located in Salt Lake City and will be available July 1, 2025, pending successful completion of a background investigation. The current annual salary is $223,836. Go to https://ca10.uscourts.gov/hr/jobs to view the position requirements and download the application. The deadline for applications is Wednesday, January 22, 2025.

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