Our nation is at an interesting juncture. Our economy and banking system is under incredible pressure; one of a serious nature.
The mortgages which were written between 2004 and 2006 paved the way for the collapse in real estate prices, which in turn has been pulling down all other areas of the U.S. economy. Currently there are over 1 million foreclosures across America. The frightening fact is that there are more than 6 million mortgages that are 30 days or more in arrears! This is potentially more serious than anything we’ve seen yet.
We are in the midst of tough real estate recession; the worst this country has seen in decades. Real estate prices in some areas have fallen to the point where many people are paying more on a mortgage than their property is actually worth!
I just heard the most amazing news. I still cannot believe it. Bush, Paulson and Bernanke just announced sweeping changes to take place at the Federal Reserve. If I understand it correctly, the FED - which now lends to institutional banks at the Discount Rate of 2.25% - will allow these same banks to lend this same money to home buyers at just ONE PERCENT above what they have to pay for the money!
In just the past few weeks we have seen continued gyrations in the stock and bond markets. We’ve seen a Federal Reserve that continues to chase the snowball downhill and one that will continue to cut rates in the weeks and months ahead because it waited too long to act. We’ve seen mortgage rates on 30 year fixed rate loans reach 5.25% before spiking back to 5.75% within 24 hours. And we continue to see many real estate investors on the sidelines wondering what to do in this marketplace. “How low will she go?” they ponder.
In the past week we've seen more sub-prime casualties. The latest is Stan O'Neal, CEO of Merrill Lynch & Co. Last week Merrill Lynch reported its first quarterly loss in six years and the largest in its 93 year history when it wrote down an $8.4 billion loss due to its substantial holdings in sub-prime mortgages. Furthermore, Merrill Lynch is expected to write down an additional $4 billion loss in the fourth quarter of this year adding to the pain of the company.
As real estate buying opportunities continue to flood the horizon, beware not to get caught up in the hoopla and hype that accompany auctions. A very successful auction was recently held in the Twin Cities where over 350 houses were auctioned off to an anxious crowd of bidding investors.
The Federal Reserve's cut of 50 basis points last week will prove to be the first of a series of rate cuts in my opinion. With each cut the consumer (as well as corporate America) will gain a positive sense of their own economic future. Over a period of months this will begin spilling back into the housing market and we will all see clear signs of a real estate turnaround.
The Federal Reserve continues to keep the housing market in bondage with its sustained High Interest Rate policy. The longer they delay in cutting rates the more adjustable rate mortgages will reset to higher payments, the more foreclosures we will see, the less consumers will spend, the more job layoffs we'll see and the greater chance we will experience an economic recession.
Once again, during the past month we have been barraged by negative real estate news: Sub-prime woes, new home starts and existing sales down, prices declining, the worst is yet to come, etc. It seems to be in the news every day. The emotions run high during such a time as this and the tendency for a number of “investors” is to say “I’m getting out!”
For those of us who own investment real estate and/or work with clients who do, the state of the market is presenting some interesting challenges today. These challenges include such things as increasing mortgage payments, decreasing valuations, and in some parts of the country increased insurance and property taxes. The pinch is on and is causing more investors to sell, even “dump” their properties.
Our nation is at an interesting juncture. Our economy and banking system is under incredible pressure; one of a serious nature.
The mortgages which were written between 2004 and 2006 paved the way for the collapse in real estate prices, which in turn has been pulling down all other areas of the U.S. economy. Currently there are over 1 million foreclosures across America. The frightening fact is that there are more than 6 million mortgages that are 30 days or more in arrears! This is potentially more serious than anything we’ve seen yet.
Posted: Sep 25, 2008
We are in the midst of tough real estate recession; the worst this country has seen in decades. Real estate prices in some areas have fallen to the point where many people are paying more on a mortgage than their property is actually worth!
Posted: May 14, 2008
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