Proposed US Financial Overhaul

In an effort to help prevent future financial crisis, the Bush Administration has proposed a complete overhaul of the financial system currently in place. Included in this plan is increasing the role the Fed plays in the financial market; “rather than checking on the health of a particular organization, the Fed’s focus would be on whether a firm’s or industry’s practices pose a danger to overall financial stability. . .”

Democrats say the administration needs to be focusing on relief right now, not attempting to prevent future problems.

“The Consumer Federation of America accused the Fed of failing to heed warnings about risky mortgages that triggered the meltdown in credit markets in the first place and questioned expanding its scope. ‘Giving the Fed new responsibility to monitor market risks will do nothing if it is not accompanied by much broader authority for the Federal Reserve to act than this proposal provides, and even more important, by a willingness for the Federal Reserve to use the authority it has.'” (more)

Jobs slashed, will the Fed cut rates again?

As if January wasn’t bad enough with 22,000 job cuts, the February report showed job cuts of 63,000 marking two months in a row in declines. Most of the big cuts came from construction , manufacturing, retailing , financial services and a variety of professional and business services.

With a total of $160 billion short-term loans provided to banks since December, the Federal Reserve announced that it will increase the amount of loans it will make this month to $100 billion.

In response, Federal Reserve Chairman Ben Bernanke indicated that he is prepared to lower interest rates at their next meeting to help continue to give the economy a boost. Some economists are estimating a .75% cut.

Click the “more” link for the entire article.

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The Fed reports that more needs to be done about foreclosures

With foreclosures on the rise and market instability increasing, The Federal Reserve Chairman, Ben Bernanke urged lenders Tuesday to help distressed owners by lowering mortgage amounts. He warned that foreclosures and late house payments are likely to rise a while longer, even with the efforts of industry and the government to curb a recession. Many lenders have increased their loss-mitigation options and grown more willing to work with owners in threat of default.

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Fed Ready to Cut Rates Again

Ben Bernanke

With oil prices hitting record highs ($100.88) and the dollar falling to $1.51 for 1 Euro, the Federal Reserve is talking about interest rate cuts again. Many are predicting a .5% cut again with the term stagflation resurfacing in economic conversations.

According to Wikipedia, stagflation is a “term used to describe a period of inflation combined with stagnation (that is, slow economic growth and rising unemployment, possibly including recession). This term first came to be recognized in the 70’s.

Click the “more” link below for the rest of the post and a video.

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Bill to allow judges to lower mortgage amount instead of foreclosure

In an effort to reduce the number of foreclosures this year and next year by an estimated 600,000+ households, there are two bills before Congress that would grand “judges the authority to reduce mortgage debt.”

The two bills only apply to borrowers that live in their homes and have either subprime mortgages or other non-traditional mortgages, such as interest-only loans.

“It is one of many efforts by government and consumer groups to encourage lenders and mortgage servicers to restructure loans to more affordable terms for home owners in danger of default.”

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Fed cut Interest rates .5%

Last week in an emergency meeting The Fed cut the federal funds target rate .75% (the rate that private banks lend to other banks) and cut the discount rate .75% (the rate at which member banks can borrow short-term money from the Federal Reserve). Today, The Fed cut the Federal Funds Rate by another .5% in an effort to continue to ward off recession. The numbers are in for Q4 2007 with a very slow .6% growth rate, yes I meant 3/5ths of a point.

Here is the release by the Associated Press.

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Bush calls for $145 billion tax relief plan

Associated Press

“President Bush, acknowledging the risk of recession, embraced about $145 billion worth of tax relief and other incentives Friday to give the economy a “shot in the arm. ” Bush said such a growth package must also include tax incentives for business investment and quick tax relief for individuals. And he said that to be effective, an economic stimulus package would need to roughly represent 1 percent of the gross domestic product — the value of all U.S. goods and services and the best measure of the country’s economic standing.

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5 Year Home Price Projections – Positive or Negative?

This month in Fortune Magazine there was a great article speaking into the current condition of the real estate market, what happened to start the boom, what happened as the boom became less boomy, and how it is affecting people now.

In a previous post I talked about how in the beginning when money was easy to get and real estate was cheap, there was way more demand for the supply; this started the boom (or more, frenzy). As people saw their friends and neighbors selling property for more and quicker AND after bidding wars, the frenzy grew. “Buy now, buy everything, double the price and sell tomorrow!” Well, everyone I knew in the “biz” agreed that that couldn’t last forever, but had no idea when it would settle down. Just when you thought an unbeatable record was set, it was broken as well.

Fast foward to today. Taxes and insurance is up, interest rates are up from a couple of years ago and the subprime mortgage market has just recently gone through a meltdown. Real estate is not as easy to purchase as it once was, so the demand is down. Develpers couldn’t slow their building train down quick enough so new home inventories are way up. Property owners have mortgages payments they can’t afford because they bought a little too much home with low teaser rates and high hopes that the future appreciation would bring profits to make the risk worth taking.

Fortune Magazine’s Shawn Tully couldn’t have picked a better time for this story. He discusses that through calaboration with Moody’s Economy.com they were able to project the 5 year outcome of our current real estate market conditions based on history of average annual rent increases, annual property value increases and their correlation with each other.

He explains that there has always been a direct correlation between property values and the average rental rate for similar properties. This makes sense, right? Why would you purchase a home when it costs substantially less to rent? The prospect of future appreciation is not reasonable right now. Sure it is nice to own your own home. If you want to move a tree in the front yard, or if you want to update the inside, you don’t have to ask permission. But is it ‘pay twice as much a month’ worth it?

According to their findings, they estimate an average fall in prices nationwide over the next 5 years to be around 28%. Of course, not all markets will see a decrease. Areas like Dallas and Houston (1.3%), Detroit (6.9%), Indianapolis (7.3%) and Cleveland (9.6%) never really got a taste of the boom, nor experienced radical price valuation increases and thus have positive projections. However, cities such as Orlando (-34.2%), Miami (-32.2%), Sacramento (-26.1%), and Las Vegas (-26.3%) experienced such rapid value growth that the 5 year adjustment is negative.

Projections are based on a 15 year history of the property value/rent correlation. For us to get back to reality with regards to the real estate market on a national scale, the gap between property values and market rent rates needs to close.

The entire article: click here.

As you’ve heard me say in the past, real estate is very local and regional in nature. In Panama City Beach, I’ve always thought we were a little ahead of the national market with regards to market conditions. I feel that prices were shooting up here before many of the larger markets, and the correction began sooner here then it did in many of the local markets. Don’t get me wrong, I still think we are going through a correction period, but we’ve come a long way. Not to mention all the future economic development that is slated for our area over the next five years. The Airport relocation can do mounds for our area in putting us on the map and seeding growth and opportunity. It will open this market up to many who just couldn’t rationalize spending the money and going through the effort it takes to get here.

The airport will be great and our area will be awesome in 5 years. The CRA will be done, Pier Park will be very well established and we should have planes coming in from all over the country and hopefully a few big corporations’ headquarters here.

The Fed cut rates by quarter point Tuesday December 11th

In a highly anticipated move, The Fed cut interest rates Tuesday by a quarter point. The only problem was that the anticipation was for a half point and the market was let down as evidenced by the Dow’s plunge of 300 points.

It is down from 4.5 to 4.25%. The Fed hopes to ward off a recession and give the economy a boost in light of the housing slump and industry mortgage troubles.

Bernanke left the door open for another rate cut during Q1 2008 if need be.

Read article.

National Home Sales Stable, Condo Sales Down

In a report release by the National Association of Realtors (www.realtor.org) today it is reported that total existing home sales, including single family homes, town-homes and condominiums dropped by 1.2% in October compared to September 2007 bringing the annual pace down 20.7% from the annual projected pace in September 2006. As set in October 2007, the annual projected sales pace for all home types nationally is 4.97 million total units sold.

The national median home price for all home types in October was $207,800, down 5.1% from October 2006 ($218,900 then). Although this is on an overall national level, real estate markets are very localized with regards to trends. NAR President Richard Gaylord said, “Keep in mind that home prices are up in 93 out of 150 metro areas, and there is a lot of confusion in the market from reports about national data. Broadly speaking, home prices in most areas are up modestly or fairly stable. . . areas with population or job growth are seeing the strongest home price gains.”

Total housing inventory rose to 1.9% in October to 4.45 million which represents a 10.8 month supply based on the annual projection of 4.97 million units sold. Existing condo sales dropped 9.1% from September to October and is 20.2% below the annual pace set in October 2006. The median condo price was up however to $223,500, 4.9% higher than October 2006.

Existing home sales in the South were unchanged in October with an annual rate of 2.03 million, however this is 19.4% down from October 2006. The median home price was down 6.7% from last year to $171,400.

As an interesting side note, the annual projected sales pace of the South is 41% of the entire nations annual projected sales of all home types; this is almost double that of the next highest region’s projected annual sales pace (the Midwest at 1.18 million).

Category: National News